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Cryptocurrency is gaining increasing acceptance globally as more and more people embrace digital currency models. The use of blockchain technology offers many advantages, with most being related to security of transactions. However, these systems, like Bitcoin and Ethereum, are not without their own set of limitations. One of the most notable ones involves cryptocurrency energy use, which is by any estimation quite profound. As cryptocurrency mining has increased, so has the amount of energy utilized. In fact, the entire cryptocurrency system has surpassed the energy used by some smaller nations. (Read more about how the world is inching towards a digital currency model in this Bold story.)

Naturally, there are individuals on both sides of the aisle who are either opposed or in favor of cryptocurrency. Many in favor of digital current systems suggest that cryptocurrency energy use isn’t that much different from other banking systems. But opponents disagree and say cryptocurrency mining is inherently inefficient and needs change. Exploring these perspectives in greater detail can shed some light on current issues and potential solutions in this regard. Given the rise in digital currency systems as of late, this seems like a valuable exercise.

“It is really by design that Bitcoin consumes that much electricity. This is not something that will change in the future unless the Bitcoin price is going to significantly go down.” – Michel Rauchs, Researcher, The Cambridge Centre for Alternative Finance

Why Is Cryptocurrency Energy Use So High?

As noted, cryptocurrency systems involve the use of blockchain technology. Blockchain ensures all digital currency transactions are valid and accurate by comparing data among different servers. However, in order to create new cryptocurrency, highly complex computations must be performed by supercomputers. This process, called cryptocurrency mining, ensures existing cryptocurrency is not being double-used. It also creates new cryptocurrency for the rising demand currently present. All of this demands excessive amounts of energy, which is why opponents are quite critical of these systems.

In total, there are about a million active daily users of Bitcoin and half this amount for Ethereum. The estimated amount of cryptocurrency energy use from mining activities related to these figures is impressive. Overall, cryptocurrency energy use is around 130 Terawatt-hours per year. This figure exceeds the amount of energy used by nations like Argentina and approaches that of Norway and Jordan. Thus, current cryptocurrency mining activity could be said to utilize the same amount of energy as a million people year. Should cryptocurrency mining continue to increase, which is expected, these figures will naturally rise as well.

“Tesla got $1.5 billion in environmental subsidies in 2020, funded by the taxpayer. It turned around and spent $1.5 billion on Bitcoin, which is mostly mined with electricity from coal. Their subsidy needs to be examined.” – David Gerard, Author of Attack of the 50 Foot Blockchain

Fueling Cryptocurrency Energy Use

When it comes to the nations with the highest cryptocurrency energy use, China leads the pack by far. In this regard, China does utilize hydropower to generate energy for cryptocurrency mining. But at the same time, it also uses coal for energy production, which notably has harmful carbon emissions. The use of non-clean energy resources to fuel cryptocurrency mining is what concerns many opposing the industry. While 73 percent of all Bitcoin miners use renewable energy, this accounts for under 40 percent of all energy used. Therefore, it can be reasonably said that cryptocurrency energy use contributes significantly to carbon emissions.

Some dude checking the voltage of some servers
Cryptocurrency energy use is high, making the digital money the furthest thing from “green”.

Certainly, many cryptocurrency mining operations are trying to employ hydropower or solar power. However, seasonal variations prevent this from being a consistent source of energy. As a result, coal and other sources are being used to bridge the gap. Oil and gas companies are readily aware of this and are advancing their capacity to fuel cryptocurrency energy use. Both direct natural gas and burn-off vents from oil production are being utilized by some cryptocurrency mining systems. These developments are why some are suggesting cryptocurrency mining operations should be subject to some type of carbon tax.

“What I like about the Ethereum community is at least they are thinking about how to solve the problem. What I don’t like is they’ve been talking about it for a few years and haven’t been able to actually do it.” – Alex de Vries, Founder of DigiEconomist

Potential Solutions to Cryptocurrency Mining Issues

In order to verify blockchain transactions, a “proof-of-work” model is used. In essence, this means that extremely complex computations must be performed to ensure validity and accuracy. The work performed for these computations demand mega-computers, which notable use tremendous amounts of energy. Therefore, one approach would be to devise a new protocol. In this regard, Ethereum has been considering a “proof-of-stake” model, which is less energy-intensive. Rather than verifying each transaction, digital coins are locked to prevent duplicate use. But to date, the use of such a model has not come to fruition.

Cryptocurrency mining is a bigger problem in terms of energy consumption. (Read more about the debate between cryptocurrency and energy consumption in this TechCrunch story.) New digital coins demand this approach, and with high demand, cryptocurrency energy use is high. The main alternative here is to shift to renewable forms of energy to drive these operations. But to date, this is also not feasible. Coal still accounts for more than half of all cryptocurrency energy use, for which China is a major player. Therefore, the best option for now may indeed be a carbon tax imposed on cryptocurrency mining operations. This could help incentivize clean energy adoption or new solutions.

Comparing Banking Systems to Cryptocurrency

In justifying cryptocurrency energy use, proponents suggest that its energy utilization should be compared to entire banking and currency systems. After all, cryptocurrency is a currency system itself. But these comparisons are not appropriate when considering things like cryptocurrency mining and transactional verifications. Banking systems involve much more than currency production and transactional data. However, if these aspects of banking systems are used for analysis, it’s clear cryptocurrency energy use exceeds current banking procedures. There are many advantages that digital currency models offer, but energy efficiency is not currently one. If cryptocurrency continues to grow, it’s evident that these issues need to be addressed for its long-term viability.

 

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