For centuries, precious metals were crucial in maintaining the economy, as gold and silver dominated the world markets for its value and international applicability as currencies. While they are still valuable, their prices are too unstable to be trusted as insurance for financial crises, so attempting to curb inflation or address other conflicts is almost impossible. However, in the age of the Internet, people have begun to create and use cryptocurrency, or “crypto” for short, to make virtual transactions. Like precious metals, cryptocurrencies’ values fluctuate and the “mining” of cryptocurrency has tangible impacts on our planet, but unlike traditional currencies, cryptocurrencies like Bitcoin, Tether, and Cardano are mostly unregulated and don’t rely on banks as the primary middle-man for financial security and verification. The term "cryptocurrency" derives its name from the process of using cryptography to store and transmit transactions, which makes them extremely secure and hard to intercept. Despite crypto’s privacy benefits in an era where privacy, especially digital privacy, is all but impossible to ensure, its detriments to the environment cannot be ignored.
Cryptocurrency works through the use of blockchain technology to track one’s transactions, which ensures that people can not duplicate their coins and spend fake coins. Blockchain technology acts like a personal recorder of miners’ transactions with the fixed crypto blocks over many computers to maintain the security of the network. Professional crypto miners typically use powerful computer equipment like GPUs and ASICs to boost their computing power and improve their chances of attaining the bitcoin block.
Acquiring crypto “coins” is like acquiring precious metals. In both cases, people have to mine for them, and it requires a lot of energy. However, mining crypto coins doesn’t involve shovels and helmets; rather, it’s essentially a competition over who can solve a difficult hashing problem (finding a given 64-digit hexadecimal, or base-16, number) first, as the reward is a block of bitcoins for the user that gets added on to the individual’s blockchain. This is inefficient and strenuous for investors because of the sophisticated software required to even build a sufficient mining rig, let alone solving the problems quickly.
Mining is necessary for the crypto world because by “winning” bitcoins, they are essentially making any future transactions with these earnings legitimate by recording their time of existence in the blockchain. The difficulty of solving hashing problems owes itself to the complicated proof-of-work crypto validation process. Proof-of-work is the most common algorithm used to generate the hashes, as the longer the chain is, the more work is required to solve the hash. As a result, the network can be more certain of its security for the use of one’s blockchain. This prevents people from spending coins they don’t have by altering their blockchain to record false holdings. Mining is also crucial to the very existence of cryptocurrency, as it’s the primary way of creating new coins in the first place, like printing money to maintain the stability of the crypto-network and the security of transactions.
Miners have invested in several types of computer equipment to satisfy the substantial requirements of computing power that make solving hashing puzzles more efficient. However, these methods of optimization are astronomically energy-intensive, creating tons of CO2 emissions in return. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining consumes around 130 terawatt-hours per year, which is comparable to the energy consumption of Norway. On the other hand, it's difficult to accurately quantify the carbon footprint of mining coins given the decentralized nature of the process where miners use varying methods, which makes it hard to track emissions from individual energy usage. Miners also don’t often report the methodology to the network. Despite that, the estimates for U.S. Bitcoin mining alone lands at around 40 billion pounds of CO2, and this number includes the fact that every few years, the winning crypto block is cut in half, making the carbon footprint of one coin doubled each time the halving occurs.
Another reason for the high usage of computer power comes from the proof-of-work algorithm used to generate the hashes in the first place, as many crypto networks, like Bitcoin and Ethereum, rely on it for security measures. There are alternative methods of coin validation that don’t require as much computing power and provide comparable amounts of security, such as proof of stake, proof of capacity, and proof of elapsed time. However, despite these promising options, the fact is that proof-of-work mining is here to stay for crypto miners, as Bitcoin consumption only increases. As a result of the high demand for computing power and China’s ban on crypto mining, the U.S. has become a major concentration of these processes.
To make crypto more environmentally friendly, we must first tackle the proof-of-work method of coin validation. The downside of proof-of-work being extremely energy intensive has led to some blockchain and crypto platforms to seek greener algorithms. One company using alternatives is Tezos, a blockchain organization that relies on proof-of-stake algorithms to ensure the security of one’s winning tokens. Instead of competing on crypto blocks through stacking up on computing power, nodes simply have to hold stakes on a certain number of tokens, and an algorithm selects a block writer at random, so more stakes increases the chances of receiving the block from the chosen node. This process doesn’t require tons of computing power to compete, which reduces the network demand by over 99% compared to standard proof-of-work methods. The stark energy-saving characteristic of proof-of-stake has set a shift towards safer algorithms, as Ethereum, the second biggest blockchain company, plans to use proof-of-stake as its standard in the next few months.
Similarly, nations, such as Finland, have attempted to address this conflict by proposing certain amendments to further regulate cryptocurrencies. For example, when Facebook announced they would launch their own cryptocurrency, Diem, the European Commission responded to the potential dangers associated with it by proposing MiCA, which would have implemented protections for people buying digital assets and coins, yet didn’t specifically discuss blockchains. MiCA, however, set a precedent for addressing crypto and the energy consumption associated with its production. Lawmakers of this bill have also discussed adding disclosure agreements with blockchain companies on their energy usage and even setting certain caps and standards on these virtual tokens.
Cryptocurrencies have rapidly emerged as a massive field in holding financial assets for consumers, and despite the debates over the severity of blockchain production on the environment, one thing is certain: the computing power used to mine for coins certainly has left a significant impact on our environment, and there are safer alternatives for miners to use to obtain their winning coins.