The amazing benefits that cryptocurrencies seem to provide and the huge potential they allegedly possess have turned this novel asset class into a popular investment venue in recent years. As the industry expanded, more individual and institutional investors jumped onboard the trend, and a growing number of businesses have also come to accept crypto as a form of payment. The fact that people nowadays can buy Bitcoin with debit card and use it to pay for goods and services has also significantly contributed to the greater adoption of digital currencies around the world.
However, not everyone has been dazzled by crypto’s spectacular rise to fame or the promise it holds. In fact, some are not just unimpressed by its purported advantages but are completely opposed to it. Apart from the inherent volatility and lack of intrinsic value, the biggest argument against crypto seems to be its environmental impact. Critics often cite the energy-intensive mining process as a reason to steer clear from crypto or at least to pressure crypto companies into greenifying their mining operations. Given that most digital currencies, including Bitcoin – the first and largest crypto with a market share of approximately 45% – rely on mining to validate transactions and mint new coins, concerns over crypto’s contribution to global gas emissions have increased over the years.
In response to these claims, crypto supporters argue that crypto is not only harmless but could also have a positive effect on the environment by encouraging the use of energy from renewable sources and reducing energy waste in the long run. So, which side is right and which is wrong in this dispute? As with many other crypto-related dilemmas, there is no clear-cut answer to this question. With both parties making compelling arguments to support their viewpoints, it’s rather difficult to figure out where the truth lies. But we can analyze the most important claims and see where expert studies and the trail of evidence we have so far lead us.
Is mining getting greener with the use of renewable energy?
Many crypto projects in the market today use a proof-of-work (PoW) consensus mechanism to mine new coins. This means that miners or networked computers have to compete with each other to solve complex mathematical puzzles in order to verify the accuracy of new transactions that are added to a blockchain and get rewarded with new coins for the effort they put in. Therefore, the increasingly complex mining process requires massive amounts of energy by design, which is why many are pointing fingers at Bitcoin for its significant carbon footprint. Obviously, Bitcoin is not the only crypto that uses a PoW protocol, but its market share makes it a prime target for critics.
It’s difficult to know exactly how much energy Bitcoin mining consumes. But based on the network’s hash rate and data from commercial mining rings, the Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin’s validation process uses approximately 85 Terawatt-hours (TWh) of electricity and 218 TWh of energy per year, surpassing the energy usage of many countries around the globe.
On the other hand, crypto advocates claim that the PoW mechanism is much more sustainable than these figures make it out to be given that a growing number of miners are now using renewable energy sources like wind and solar to power their operations. At the same time, a recent study reveals that Bitcoin’s usage of renewable energy decreased from 42% in 2020 to 25% in 2021, most likely due to China’s ban on all crypto trading and transactions, cutting miners’ access to the country’s hydropower capacity.
Unfortunately, we lack accurate data on the overall amount of renewable energy used for crypto mining, with different sources citing different figures. According to the Bitcoin Mining Council, as much as 60% of total crypto mining relies on renewable energy, while the Cambridge Center for Alternative Finance reports a considerably lower figure of 40%. Since we can’t tell which source is more credible, crypto supporters and opponents are left to do their own research on the matter. The only conclusion that we can draw in this respect is that although the industry is clearly trying to move from fossil fuels to renewable energy, the transition is not going to be easy, and there are still many networks that employ unsustainable mining practices at the moment.
Could crypto mining become more sustainable in the future?
While the amount of greenhouse gas emissions stemming from crypto mining remains a sensitive topic in a relatively grey area for the time being, it’s also important to look towards the future and the possibilities it might hold for creating a greener crypto industry. Many crypto companies have already committed to embracing more sustainable practices in the near future, and a few have already taken action in this respect.
For example, Ethereum, the second largest crypto by market capitalization has recently switched from the energy-intensive PoW algorithm to an environmentally friendlier proof-of-stake (PoS) system, under their biggest upgrade to date commonly known as the Merge. According to the network, this helped reduce energy usage by 99%. Solana and Avalanche are also using the PoS model to secure transactions on their networks. Other crypto platforms can adopt a similar approach in the future and look for alternatives to PoW.
It’s less likely for Bitcoin to go down this path, but as Fred Thiel, the CEO of Marathon Digital Holdings explains, renewable energy companies can’t develop without consumers, so PoW blockchains are essential for the progress of the renewable-energy industry. If we look at things from this perspective, the existence of crypto mining companies can encourage and accelerate demand for wind and solar energy in the long run, which would benefit both the crypto sector and the environment.
Wrapping up
Crypto sustainability has become a hot topic of discussion in and around the cryptocurrency sphere as the industry continues to expand. While it’s difficult to gauge the impact of crypto mining on the environment, it’s more obvious than ever that Bitcoin and the rest of the coins in the market need to improve their sustainability credentials in order to thrive.
