Is the act of mining cryptocurrencies harmful to the environment? We asked our resident technologist to assess this emerging landscape
Two hot words in today’s corporate and financial worlds seem to be CRYPTOCURRENCIES Y IS G (environmental, social and corporate governance issues); however, are the two intertwined? More specifically, are cryptocurrencies environmentally friendly or are they a global threat to meeting climate goals, as articulated in the recent United Nations Conference of the Parties (COP26)?
We spoke with jose raczynskiThomson Reuters resident technologist and futurist and pioneer in cryptocurrency adoption, on crypto mining, the cost to the environment, and its future sustainability.
Thomson Reuters Institute: In its most basic terms, what is crypto mining?
Joseph Raczynski: The traditional act of mining cryptocurrencies is powered by massive computing power, as processors race to solve a mathematical problem first, so that the sole winner can add a pool of transactions to the blockchain. For example, a transaction could be a person sending money to another person via Bitcoin.
The processing power of the computer, which you can tangibly feel as your machine heats up, means that the processor is working very hard to do something. The act of mining financially rewards the first computer, or cluster of clustered computers, that solves the mathematical puzzle with that cryptocurrency’s native token. In the Bitcoin example, more than 100,000 nodes (clusters of computers) around the world are competing to win the race, and if they do, they win 6.25 Bitcoin (valued around $237,500 today) for the ability to add the grouping of transactions to the next block in the chain. This happens approximately every 10 minutes.
In the code there is a reduction of the reward over time, and there is a fixed supply of Bitcoin that ever they exist, so mining is likely to get more difficult over time depending on how many computers are competing at any given time. This process is called work test and consumes a lot of energy; while another form of mining consensus is proof of stake and it is much more efficient.
Thomson Reuters Institute: How much does cryptocurrency cost the environment?
Joseph Raczynski: This is a very nuanced and politically divisive issue. Having been in this space since 2011, I can see both sides of the debate and I think I can distill its reality. Work test it is natively inefficient as it uses a lot of electricity to solve that math problem and win the reward. At first glance, this is not environmentally sound.
However, the intrinsic interest of crypto miners lies in being as electrically efficient as possible because power consumption is their number one expense after investment in fast computer hardware and processors, which are also called mining rigs. Miners look for the cheapest places in the world to connect their equipment to the electricity grid. They seek renewable energy (solar, wind and hydroelectric power) and have used the captured exhaust of natural gas, which would have been lost or burned as waste.
Although the search for clean energy is becoming more and more sought after, not all crypto miners are doing it. There is no doubt that work test it is a cost to the environment, but it is not as catastrophic as some suggest. An intangible effect, of course, is to align that energy consumption and environmental impact with the benefit that cryptocurrency has created through a huge new industry. Technology has created an Internet of value that we will all take advantage of, so a cost benefit is also being realized.
Thomson Reuters Institute: Could the impact of crypto miners be reduced in any way?
Joseph Raczynski: Another fascinating argument about environmental impact is that crypto miners are essentially the new middleman. Whether it’s banking, legal, insurance, supply chain, or most other transactional businesses, each of these companies could be replaced by a blockchain. As a result, all the physical and environmental impacts of those institutions could be nullified with a switch to blockchain. Think of the electricity used to build and operate office buildings, the workers who travel, the gas and oil used, the materials needed, and all the other combinations of energy and environmental impact that any such institution has on the environment: that would be reduced by underlining technology that would serve its purpose. Finally, proof of stake solve this environmental problem, but work test it is something that will persist, in decreasing form.
Thomson Reuters Institute: One cryptocurrency, Ethereum, said it wants to reduce its energy use by nearly 100% this year by transitioning to a proof-of-stake process. How can cryptocurrencies use proof of stake to be more sustainable?
Joseph Raczynski: There is big news afoot that pretty much solves the electricity problem and, in turn, the environmental problem. The main blockchains, Ethereum, Solana, Avalanche, Cosmos, among many others and which are the future of the industry, are based on proof of stake, which in turn relies on a different mechanism to confirm and add transactions to the digital ledger. There are many flavors of proof of stake, but if someone wants to participate as a crypto miner in this case, they are not using the processing power to win a mathematical race. Instead, each person puts money, or a bet, to participate. These users expect to earn between 7% and 1000% of the money they bet, locking it in a smart contract that strengthens the resilience of the network. The incentive is that the more money people bet, the greater the network and security effect.
Currently, the potential of these high interest rates is driving tens of billions of dollars in gambling. Of the participants, the code dictates who can actually save the latest batches of transactions on the blockchain. There is a disincentive if you are a bad actor and try to change or alter a block, for example by saving information to the ledger. If you try to interrupt the network, you get chopped up which means that you bet could be confiscated. proof of stake It is expected to reduce the electricity consumption of crypto mining by more than 99%. Ethereum should be upgraded to this version in 2022, and that alone will reduce the environmental impact.
Thomson Reuters Institute: Do cryptocurrency mining and transactions really contribute to climate change?
Joseph Raczynski: Yes work test continued with Ethereum, which is the most widely used blockchain in the world, so yes, crypto mining could have had a negative impact on climate change over time. However, the upgrade to Ethereum 2.0 (ETH2), in a proof of stake model will drastically change this.