How Can Cryptocurrency Mining Transition to Sustainability?


Cryptocurrency offers the world a new transformative financial instrument. It is the first global currency. The coins themselves are strings of encrypted data that relate to a single monetary unit. It is digital money that is organized through a chain of blocks. The blockchain is the ledger that stores transactions and is built using cryptography that is impossible to change after transactions are created. While there are considerable benefits to cryptocurrencies like Bitcoin, the process of creating new coins comes with environmental costs. Driving the industry towards a more sustainable future will require a series of changes and new developments.

Cryptocurrency Mining Explained

The creation of new Bitcoins requires mining. Mining involves computers solving complex equations that produce new coins over a certain period of time. Bitcoins and other cryptocurrencies are digital records, so there is a risk that someone will create copies or fakes. Mining avoids such actions because it requires more money and time to “hack” the blockchain than it does to join a mining network. Mining also works as governance over the blockchain. Since there is no bank or government in charge of Bitcoin, mining creates a consensus known as proof of work (PoW) that serves as validation for transactions on the blockchain. The reward for performing these tests is received in Bitcoin, the price of which fluctuates continuously.

Mining requires people to solve complex math puzzles with special devices called application-specific integrated circuit devices, or ASICs. Miners work together to pool computing resources to solve puzzles faster, because the first miner to successfully complete the algorithm receives a certain amount of Bitcoin’s value. The mining difficulty changes over time. In the early days of Bitcoin, someone could run a mining program from their PC and create a significant number of coins. As the network grew and more people and groups started mining, the algorithm for creating Bitcoin also grew in complexity. The system is designed to find a new “block” every 10 minutes. If there are millions of miners instead of thousands, then the difficulty needs to increase exponentially to reach that 10-minute goal.

The downside of the ever-increasing mining process is the energy consumption required and the mix needed to power the mining equipment. Fortunately, there are new developments in technology, regulations, and the promise of new types of mining that can propel the industry towards a more sustainable future.

Cryptocurrency mining requires energy

As organizations that include Fitch Ratings As they have pointed out, electricity comprises up to 90 percent of crypto mining costs, putting their business models at risk due to volatility in the market. As most electricity generation still comes from fossil fuels, the energy use of crypto mining creates a significant environmental problem. Reports like this recent profile on the Washington Post they also show how crypto plants can create noise pollution and have an adverse effect on the quality of life for local communities, especially at night when these data centers take advantage of off-peak utility rates.

In the context of climate change and energy efficiency, Bitcoin mining stands out as a massive use of resources related to electricity. This is because miners participate in computational “races,” where the first to solve Bitcoin puzzles wins the real Bitcoin prize. It’s a fair process, but it drives massive demand for large-scale operations with hundreds of computers and cooling equipment. Bitcoin’s proof-of-work structure reinforces this claim in a loop.

Miners must balance various costs and conditions, including the cost of electricity to run and cool the equipment, the efficiency of system calculations, the time spent mining versus the reward, and the current value of Bitcoin. In areas where fossil fuels or other inefficient and “dirty” sources are used to generate electricity, mining can contribute to local pollution and climate change in general. To remain profitable, miners are looking for ways to lower their costs and are turning to alternative energy sources and other practices to lower their mining expenses.

Possible solutions to make cryptocurrencies more sustainable

As the use of Bitcoin becomes more widespread by the general public and financial institutions, more attention is being paid to the environmental consequences. While some countries ban mining, these actions move mining to other countries and do not address the environmental impacts of mining on a global scale. To change these impacts, the mining industry and government agencies must take a different sustainable approach that could include the following steps.

Regulatory requirements including increased transparency on the environmental impacts of cryptocurrencies, as well as carbon taxes for those mining operations that use fossil fuel energy sources. This could include greater transparency about energy sources and use, carbon taxes, and other such efforts. For example, a securitized carbon market could mean that a crypto mining company could buy credits from another company to offset emissions or transition to green energy sources and make money selling its own credits.

The use of alternative fuel sources, such as solar and hydroelectric. Some companies harness hydroelectric power by installing mining equipment directly on hydroelectric plants, to reduce operating costs and reduce pollution. Hydroelectric power is stable and reliable (solar power doesn’t work at night) and provides constant, lower-cost power.

Mining companies can offset their emissions and energy use by partnering with an accredited carbon offset program that conducts reforestation and other efforts.

Improvements in the efficiency and electricity use of mining equipment can reduce environmental impacts. For example, Intel Offers Enhanced ASICs It Calls “Blockchain Accelerators” which promises to increase computational speeds with a considerably lower power requirement.

Switching mining procedures for Bitcoin and other cryptocurrencies to a proof-of-stake method uses much less computing power. Other methods include proof of history or proof of burn, which contrast with the current energy-intensive methodology called proof of work. Ethereum will eventually transition to proof of stake, a move that is calculated to reduce power consumption by 99.95 percent.

Different Approaches to Cryptocurrency Mining

Another way to improve the sustainability of cryptocurrency mining is to change the mining process. DeFi miners is a startup that takes a novel approach to reducing the environmental impacts of mining. It is a utility token that supports a decentralized collective for hydropower and clean energy bitcoin mining. This collective uses transaction fees for growth, with some paid in BTCB (Binance-Pegged Bitcoin) and another percentage used to purchase hydro mining rigs that mine Bitcoin for the collective. It takes advantage of the efficiency and availability of hydroelectric power and partners with companies like Cyberian Mine that offer mining in Siberia by taking advantage of techniques such as natural cooling due to low ambient temperatures throughout the year and the area’s abundant hydroelectric power.

Ideally, the Bitcoin mining community will embrace new ways to reduce their environmental impacts that also translate into higher profits. Advances in hydroelectric and solar power, ways to incentivize miners such as carbon markets, and new mining equipment can reduce waste and improve sustainability. Miners can reduce consumption while still providing valuable cryptocurrencies that are an integral part of daily life and global economies.

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Image credit: Maxim Hopman via Unsplash

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