The Past, Present, And Future Of Crypto's Environmental Impact

Crypto. Bitcoin. NFTs.

These terms are getting harder and harder to avoid. Perhaps you even dabble in crypto trading yourself. Maybe you know more about crypto than just a headline here and there; most likely, you don't know that much about this mysterious new world of virtual currency.

Whether or not you care about crypto or have a vested interest in it, you might care about the vast impact crypto has on the environment. As we look to reduce greenhouse gas emissions and set our planet on a more environmentally-friendly trajectory, it's worth understanding that impact: how it came to be, what it looks like today, and how the future of crypto might affect the environment.

How Much Energy Does Bitcoin Use?

Since bitcoin is about half of the global cryptocurrency market, it's a good place to start to understand crypto's gigantic energy footprint.

Just as there is a fixed supply of gold on Earth, the anonymous founder of bitcoin fixed its supply at 21 million coins. In that sense, bitcoin mining is similar to a digital gold rush. Just as every gold rush ends, bitcoin mining will end one day (likely in about a century). Except you can't just sift through river water with a pan to find bitcoin. You need expensive, specialized equipment to mine it. And that equipment consumes a lot of energy.

The University of Cambridge maintains a running tracker called the Cambridge Bitcoin Electricity Consumption Index, which estimates global bitcoin energy consumption. Recent estimates peg annual usage at 142 Terawatt-hours (TWh) of energy per year, which is about a seven-fold increase over 2015. That's comparable to gold mining, which uses 131 TWh.

142 TWh is a vast amount of energy. It's more than what many entire countries use, like Norway, Sweden, and Argentina. And a cryptocurrency analytics website called Digiconomist estimates that bitcoin mining consumes 204.5 Terawatt-hours of energy per year. Only 20 countries use more power than that. It uses about 1% of global electricity production and 0.5% of global energy production.

Additionally, since a huge chunk of bitcoin mining is powered by fossil fuels, those transactions generate major greenhouse gas emissions. Digiconomist estimates bitcoin's annual carbon dioxide footprint at 114 megatons, comparable to the annual emissions of the Czech Republic. And the estimated electronic waste footprint clocks in at 34 kilotons, comparable to the annual IT small equipment waste of the Netherlands.

Going off of Digiconomist's estimates, each bitcoin transaction might use around 2,131 kilowatt-hours of electricity. That's as much as a typical American household uses over roughly two and a half months. Each transaction, on average, emits over a ton of carbon dioxide, comparable to nearly 3 million Visa credit card transactions or 200,000 hours of YouTube viewing. And each transaction generates about a third of a kilogram of electronic waste, which is roughly the mass of two iPhone 12s.

I don't know about you, but that seems more than a tad excessive, right?

All of this data begs the question: why is so much waste and pollution generated from mining something that's virtual? Shouldn't virtual mining be much less energy-intensive than physical mining since it's virtual?

The answers lie in how bitcoin was founded, how it's mined, and how the bitcoin market has evolved since its founding. And they paint a fascinating picture of the cryptocurrency industry, with big implications far beyond the confines of global financial markets.

Why is Bitcoin So Energy-Intensive?

When you think of mining, you might conjure a mental image of someone hard at work holding a pickaxe or a shovel. Miners sometimes descend thousands of feet into the Earth to extract valuable metals that power the global economy.

In order to join circulation, bitcoin must be mined. But bitcoin mining is quite different from metal mining. It's the process of creating new bitcoins by solving complex mathematical puzzles. Through solving these puzzles, bitcoin miners verify the validity of a number of bitcoin transactions that are bundled into a block. Once a block is unlocked, it's linked to the previous block, so all blocks are chained together.

This structure prevents tampering since changing one block would change all subsequent blocks. The validation process is known as proof-of-work. Just as your math teacher demanded you show your work when you did your homework, miners must prove they put in the work to receive their digital reward.

Bitcoin's creator intentionally made these puzzles harder to solve over time as competition for bitcoins grew. This aligns with the goal of keeping the currency decentralized, which allows the market to operate without a central authority like a central bank. It's meant to be prohibitively expensive for one person or entity to control an entire crypto network. Indeed, as bitcoin prices have surged over the years, miners have required increasingly advanced technology to mine it.

Back in the day, you could mine bitcoin with normal computers. Today, you can't. Miners now use specialized computers called ASIC systems that are much more efficient per puzzle-solving attempt. But even though ASIC systems are more efficient, they need a lot more power than your run-of-the-mill computer. Since they run nonstop, they need endless electricity to keep attempting to solve the puzzles plus endless energy to prevent overheating.

The puzzle-solving process is basically trial-and-error and can take trillions of attempts before a block is unlocked. At any given time, about three million machines are generating 140 quintillion guesses every second of the day. A quintillion is a billion billions, so it's a heavy amount a lot of puzzle-solving.

And over time, the bitcoin reward for mining one block is decreasing. Every 210,000 blocks, the reward is halved. Since the bitcoin protocol aims to have blocks of bitcoin mined about every 10 minutes, this happens about every four years, which acts as a periodic dampening on bitcoin inflation.

When bitcoin was first mined in 2009, the reward was 50 coins. Two years ago, it declined to 6.25 coins. But as bitcoin prices rise, the rewards still maintain significant value (over $250,000 at current bitcoin prices). As long as bitcoin prices double faster than coin rewards are halved, bitcoin blocks will keep growing in value. This has spurred a bitcoin mining arms race with more miners and fast computers competing for a fixed supply of increasing valuable cryptocurrency.

In short, replicating a central authority in a decentralized manner to operate the network and maintain its security requires major computational power, which in turn generates lots of waste and pollution. Crypto mining overall has become more centralized over time given its growing complexity, but while this centralization should lead to energy efficiency, it's only a slight improvement for a process that's highly energy-intensive.

A New York Power Plant Crystallizes Bitcoin Mining's Trajectory

The Greenidge Generation power plant in upstate New York crystallizes the evolution of bitcoin mining and its environmental impact. The plant was originally built in the 1930s to run on coal, which was profitable for decades. In 2011, however, the plant stopped operating and sat idle until a private equity firm bought the plant and converted it to run on natural gas. In 2017, the plant began to operate as a "peaker plant" to provide power to the grid during periods of high demand.

Then, in 2019, the plant's owner switched gears and opted to have the plant power bitcoin mining. Between 2019 and 2020, the plant's emissions rose ten-fold. Since Bitcoin miners need lots of power, Greenidge plans to keep growing its capacity to meet bitcoin mining demand. It's now a publicly-traded bitcoin mining company with a wholly-owned power plant to keep the puzzle-solving machines running 24/7.

Greenidge emits lots of greenhouse gases since it runs on fossil fuels. And the environmental impacts don't stop there. The plant draws up to 139 million gallons of freshwater out of the adjacent Seneca Lake every day to cool the plant. That water is then discharged 30 to 50 degrees Fahrenheit warmer than the lake's average temperature, which endangers the lake's ecology and kills all sorts of wildlife.

These developments have sparked controversy both within and beyond upstate New York. Earthjustice and the Sierra Club urged the State to reject the renewal of Greenidge's permit, warning that almost 30 other power plants in upstate New York could be converted to bitcoin mining operations. This would derail New York's decarbonization plans and destabilize some of the most pristine lake and forest habitats in the world.

A recent court ruling gave Greenidge's expansion plans the green light. It's a microcosm of bitcoin's growing popularity and an economy-wide prioritization of profit over sustainability. Findings from a 2018 study indicate that bitcoin mining alone may push global temperature rise above the dreaded 2

degree Celsius threshold. If bitcoin stakeholders turn a blind eye to these scary statistics as their high-powered machines keep guzzling energy, that spells bad news for bitcoin's environmental impact.