Cryptocurrency Environmental Impact


Cryptocurrencies are a major part of the financial markets globally. As the popularity of crypto grows and more people use it, many are raising concerns about cryptocurrency environmental impact. To fully understand how crypto affects the environment, it's important to understand what a cryptocurrency is and how it works.

cryptocurrency environmental impact

What are Cryptocurrencies?

Cryptocurrencies are digital assets used for financial transactions processed on the blockchain. Blockchains form the core of the functionality of crypto coins and tokens. They are a distributed database built with encryption tools to verify and validate crypto transactions.

There are different blockchains, such as the proof-of-work (PoW) and proof-of-stake (PoS). The bitcoin blockchain is a PoW blockchain that requires crypto miners' help to perform the verification and validation process of crypto transactions. The miners utilize a lot of power leading many to speculate and research crypto environmental impact.

The Impact of Cryptocurrency Mining on the Environment

The environmental impact of cryptocurrency built on a proof-of-work (PoW) blockchain is one of the major reasons blockchain developers are switching to greener options. The PoW blockchain uses crypto mining to achieve consensus and validate bulks of crypto transactions placed in "blocks."

Mining these blocks is important for confirming transactions and ensuring the network's security. The incentive for crypto miners to participate in mining tasks is a sum of crypto coins.

The reward goes to the fastest miner who can validate a block. For bitcoin, the reward is 6.25 BTC, which is about a whooping sum of $140,000. Because of how rewarding the profit is, miners invest heavily in getting equipment with higher mining speeds.

ASICs are the most powerful crypto miners but using these powerful mining tools comes at a great electricity cost. Because most energy sources for electricity generation come from carbon sources, crypto mining contributes immensely to carbon emissions.

About 40 billion pounds of carbon dioxide is released into the atmosphere due to bitcoin mining in the U.S., excluding other countries, all leading to a massive crypto mining environmental impact.

Why Do Cryptocurrencies Consume So Much Energy?

The environmental impact of cryptocurrency is largely based on the power requirements for crypto mining. Crypto mining involves mining crypto coins using specific equipment. This equipment can be CPUs, GPUs, or ASICs. The amount of computing power each piece of equipment requires varies, with ASICs being the most power-intensive.

Mining cryptocurrencies is not easy, and it wasn't made to be an easy process. This is to prevent hackers from attacking and disrupting the transaction validation process. All transactions are made, processed, and completed in the blockchain without needing a third party. This feature makes Bitcoin and other cryptocurrencies a decentralized system with no governing body as opposed to the traditional banking system.

The bitcoin blockchain was created to be a self-functioning system and adjusts according to the demand on the chain. For example, it takes about 10 minutes to mine 1 BTC, but this value changes with the mining difficulty. The mining difficulty is how easy it is for miners to find and validate a block. The mining difficulty level adjusts based on the number of miners in the network; the more miners, the higher the mining difficulty and vice versa. The higher the mining difficulty, the higher the processing power needed to mine crypto coins.

Because the miners compete to be the first to find and validate a block, they opt for equipment with higher processing speeds. When miners contribute their computing power to increase their chances of winning a block, they form a mining pool. With the constant aim of forming a mega computing source that outperforms other miners, the power consumption also climbs higher. Most energy powering crypto mining equipment comes from fossil fuels that release carbon emissions. The following highlights the environmental impact of crypto in a single bitcoin transaction.

  • Carbon Footprint- 1045.12 kgCO2
  • Electrical Energy- 2200.25 kWh (approximately the power consumption of an average U.S. household over 75.41 days.)
  • Electronic Waste- 292.40 grams (approximately the weight of 1.78 iPhones 12 or 0.60 iPads)

Are all Cryptocurrencies Bad for the Environment?

is crypto bad for the environment

The proof-of-work is the predominant consensus mechanism and will most likely remain relevant, especially because it hosts the biggest cryptocurrency, Bitcoin, which represents about half the entire market capitalization of the crypto market.

However, there are cryptocurrencies devoid of the environmental impact of crypto mining. These cryptocurrencies work through a different consensus mechanism to validate transactions. They include:

Proof Of Stake

In this consensus mechanism, miners lock their coins to get a validator node that verifies transactions in the blockchain. When a new block is approved, the blockchain selects a random validator node to verify it. Once the validator verifies and validates the block, the block is added to the blockchain. If the validator attempts to add a block with false information, they lose some of their locked coins.

Proof of Burn

The proof-of-burn consensus mechanism is a relatively newer validation system. It combines features of the proof-of-work and proof-of-stake mechanisms. Validators burn several coins, which are removed from circulation permanently. The more coins are burned, the faster the validator mines new coins with relatively low environmental impact cryptocurrency.

Proof of Capacity

In this consensus mechanism, validators use storage space on a mining device instead of computational power to mine new coins. The more storage space you have, the higher your chances of finding the right solution to validate transactions.

These alternative consensus mechanisms used for validating transactions on the blockchain are not power-consuming and provide comparable security levels to the PoW consensus mechanism.

Can Cryptocurrency Mining Use Less Energy?

After power consumption data showed the negative impact of proof-of-work crypto mining, the efforts of blockchain developers were geared towards developing crypto with least environmental impact. Here are measures that help develop greener and sustainable ways to make cryptocurrencies.

Cryptocurrency Restrictions

China had the largest number of crypto miners before the Chinese government banned crypto mining. This led over 50% of crypto miners to explore other spaces outside the crypto network. Now, the U.S. has the largest number of crypto miners and contributes the most to bitcoin environmental impact. More than 40 countries have restricted crypto transactions, and 9 have banned all crypto activities. These restrictions had a lessening effect on the number of crypto mining activities.

Cleaner Energy Resources

There is a gradual shift from fossil fuels to greener and more sustainable energy sources. In the U.S., for example, more than 50% of the energy sources that bitcoin mining relies on are renewable. Because of the excessive electricity costs used to mine crypto, new mining facilities are built in countries with renewable and cheaper electricity costs. These facilities attract crypto miners worldwide to mine using trusted crypto mining services at a lower cost.

The Rise of Alternative Cryptocurrencies or Altcoins

As the shift towards more environmentally friendly cryptocurrencies continues, new alternative coins to bitcoin have been developed. For example, Litecoin issues out a new coin in a quarter of the time it takes for a new bitcoin to be released.

SolarCoin, another altcoin, releases one coin per every megawatt hour produced using solar technology. In addition, Ethereum is set to switch from the proof-of-work to the proof-of-stake consensus mechanism, which will eliminate the energy consumption associated with PoW mining.

The Future of Cryptocurrency And the Environment

the future of cryptocurrency and the environment

Crypto environmental impact is a major limitation to cryptocurrencies using the proof-of-work consensus mechanism. And despite advancements in developing alternative ways to create new crypto coins, proof-of-work coins like bitcoin and litecoin are not slowing down.

The best way to combat bitcoin mining environmental impact is to develop alternative renewable energy sources. These renewable energy sources will help contribute to mining devices' computational power to create new crypto coins. Mining facilities should be built in countries with more sustainable power sources.

Another anticipated solution to the energy demands of the proof-of-work blockchain is the possibility of switching to a new consensus mechanism such as Ethereum is exploring. However, it is highly unlikely that bitcoin will undergo such changes. Hence, the best way to combat the negative impact bitcoin mining has on the environment is to focus on alternative energy sources and reduce carbon emissions in the world.

Some of the best cryptocurrencies using greener and sustainable energy methods to release new coins include Algorand, Cardano, SolarCoin, BitGreen, Hedera Hashgraph, Ripple, Stellar, Tezos, and Tron.
The best cryptocurrency for the environment doesn't require immense computational power to process the creation of new coins. These cryptocurrencies are energy-efficient and depend on sustainable and renewable energy sources.
Not all crypto coins are bad for the environment; those bad for the environment depend largely on mining equipment that requires huge loads of computing power. This causes a higher demand for power, most of which comes from fossil fuels, which, when used, lead to higher carbon emissions.
Most cryptocurrencies are environmentally friendly and do not negatively impact the environment. However, because Bitcoin makes up about 50% of the crypto market, bitcoin mining greatly affects the environment.
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