1. How much power does crypto use?
Bitcoin’s estimated energy use has skyrocketed from an annual rate of 14 terawatt-hours in 2017 to 105 terawatt-hours in 2021, more than all of Belgium’s household consumption, according to the Cambridge Center for Alternative Finance, which maintains an estimate. updated. He expects demand to wane in 2022, when a drop in the value of crypto assets pushed some miners out of business. However, research platform Digiconomist projected that the pollution created by generating electricity for crypto would still amount to around 64 million metric tons of carbon dioxide by 2022, more than the annual global emissions avoided through increased vehicle use. electrical.
2. Why do cryptocurrencies need so much energy?
To order transactions on a blockchain, Bitcoin and many other networks use an algorithmic process called “hashing.” This produces a number that miners race to guess in a brute force effort that can involve trillions of guesses. The first to succeed is rewarded with newly issued coins in a process known as “proof of work”. As more miners come in, the guesswork gets harder, forcing them to invest in ever more powerful machines. Many miners now have thousands of computers hard at work in cavernous warehouses.
3. How do miners try to reduce their carbon footprint?
Some have established themselves in places like Norway and Texas, where there is often plenty of emission-free solar, wind or hydroelectric power. The miners say their presence encourages the development of such clean energy sources by helping to balance the grids, buying up surplus renewables when they are plentiful and shutting down their banks of computers when demand for electricity threatens to exceed supply. Some miners have put solar panels on top of their server rooms or struck deals to buy low-carbon nuclear power. Others get power from surplus natural gas that would otherwise be “flared” or burned just to get rid of it.
4. So are cryptocurrencies getting greener?
It’s hard to count. A February 2022 study in the research journal Joule estimated that Bitcoin’s environmental impact worsened after China’s mining ban, with the share of renewables used to power the grid falling from more than 40% in 2020 to around 25% by August 2021. Some miners have moved to be near carbon-free power sources after the ban, while others have sprung up in places where coal still dominates the energy mix. The outlook was further clouded by the “crypto winter” of 2022, which caused some less efficient mining operations to disappear.
5. How are governments responding?
Some are turning down crypto mining to protect their environmental goals and the stability of their power grids. China’s ban was a response to electricity shortages that forced the government to cut industrial production. Iceland, Iran, Kosovo, and Singapore have also restricted crypto mining. The European Commission urged member states in October to end tax breaks for miners and be prepared to shut them down, in response to the region’s energy crisis. Some governments would prefer to reserve renewables for older, energy-intensive manufacturing industries that are trying to decarbonise.
6. Is the carbon footprint of cryptocurrencies a turnoff for users?
It has prevented some large companies and investment funds that are committed to the fight against climate change from investing in cryptocurrencies. Ethereum’s switch to a new system known as “proof-of-stake,” in which people offer, or stake, some of their tokens for a chance to order and validate blocks of transactions, reduced its energy use by more than 99% Ethereum backers hope this will change the minds of developers who had avoided using the platform for finance, games and other applications due to its large carbon footprint.
7. What does this mean for Bitcoin?
Climate activist groups have called on Bitcoin backers to find their own low-power technology, but many of the token’s staunch supporters are against meddling with the system. And it is not clear who would lead such a change. The Ethereum turnaround was initiated by the Ethereum Foundation, which was established to ensure the long-term success of the token. Several organizations advocate for Bitcoin, but it does not have a clear leader.
–With the assistance of Eric Lam, Olga Kharif and Josh Saul.
More stories like this are available at bloomberg.com