Time to go green?
Cryptocurrencies have been around since 2003 and have been gaining both popularity and momentum in terms of adoption. Such digital assets have passed through numerous iterations on their way to global recognition as an asset class, but have also attracted their fair share of criticism. The most recent bout of outcries that is growing louder relates to the impact that the mining of cryptocurrencies is having on the environment.
The critics of cryptocurrency mining are stating that digital currencies have little to no advantages in comparison with traditional currencies and blockchain technologies are deriving their value from hype while exacting a heavy toll in carbon emissions. The proponents of cryptocurrencies are refuting such accusations, basing their arguments on the technological characteristics of the underlying technology and the statistical data that showcases the growing popularity of digital assets among users around the world, as well as the advantages it provides for multiple strata of the global population like the unbanked.
If market capitalization is to serve as an indicator of usefulness regarding blockchain, then the statistics of market dynamics are certainly in favor of the industry. However, there are other metrics that must be realistically taken into consideration, since they do give solid grounds to the voices of the critics pointing out the environmental damage done by mining.
Measuring The Damage
The statistics on cryptocurrency mining are scant, but the ones available are less than stellar in terms of values.
The use of the Proof-of-Work consensus algorithm as the dominant form of cryptocurrency mining for Bitcoin and Ethereum, which occupy as much as 95% of all digital currency mining, is the main culprit, since the need for massive mining rigs and indispensable cooling equipment leads to enormous energy consumption. Though there is plenty of information floating on the internet that the largest blockchain network – Ethereum – is planning to make the transition to the much more efficient Proof-of-Stake consensus algorithm in the form of Ethereum 2.0 that will reduce energy consumption by as much as 99%, the launch date remains elusive.
As for values that undermine the most conservative and optimistic statements regarding the lucrative king of cryptocurrencies, Chainalysis reports that the Bitcoin network consumes a monstrous 121.4 Terawatt hours of power a year. Such enormous use translates into tangible figures, which place the blockchain network on par with the 29th highest energy-consuming country in the world, right between Argentina and Norway. Another research by Square lays some hay under Bitcoin’s humiliating environmental impact by stating that renewable energy sources like solar and wind power are being incorporated into the mining process of the cryptocurrency. Such a shift has been made possible by the drop in price of solar and wing energy by 90% and 71% respectively over the last ten years, slowly nudging fossil fuels off their dominant position.
A research by Coinshares tries to woo the critics of mining by stating that Bitcoin provides an independent monetary system and the expenses on energy are worth it to make the global economy a fairer place. A recent report by CoinDesk upholds the arguments of Bitcoin proponents with hard statistics, which highlight that 39% of all energy used for Bitcoin mining came from renewable sources in 2019, up from 28% in 2018, showing positive dynamics year-on-year.
Another paper posted on ResearchGate states the obvious that China is home to anywhere from 60% to 70% of all Bitcoin mining farms. The mining centers are largely located in remote areas close to large power-generating facilities like wind farms, hydroelectric dams, or coal powerplants. The miners rely on cheap energy to make ends meet and keep mining profitable, which is why it is logical for them to actually resort to cheaper – renewable energy sources.
A study conducted by Harvard University claims that the continued use of fossil fuels for cryptocurrency mining will eventually increase the emissions of carbon dioxide to 5,269 MMmt, to the values of the US in 2018. An associated increase in power to 293TWh, or the equivalent of 1% of all US energy consumption in 2018 is also a natural consequence of increased mining volumes. The associated energy costs will be around $23 to $57 billion per year, while carbon emissions will vary between 53 to 63.6 MtCO2.
The combined findings do not support the claims of the critics that cryptocurrency mining is frying the planet, but there are negative aspects to take into account. For instance, the research by Harvard University estimates that each $1 of cryptocurrency created would be responsible for $0.66 in health and climate damages very soon.
Yay Or Nay
The statistics may seem dreary to the average user uninitiated in the peculiarities of energy consumption, but they are not that terrifying once compared with a vast number of other energy consuming initiatives.
Use of energy is the cornerstone of not only human civilizational advancement, but of life itself. Modern society cannot exist without consuming an ever growing amount of energy, hence the strive for exploiting renewable or perpetual sources like nuclear power. An environmental impact can be traced in the production of any of renewable sources – wind turbines and solar panels are made of byproducts of fossil fuel extraction and use, which means that their production is also harmful to the environment. The little hint at hypocrisy may be evident, but Hypocrites always strove to speak the truth after all, albeit an unpleasant one.
Blockchain technologies and cryptocurrencies are inseparable, but decentralized networks are essential for the continued advancement of human civilization. The development of the internet to the stage of a considerably more versatile and promising Web 3.0 is impossible without full-fledged centralization.
If the critics are intent on raising environmental issues, they might as well target the airline industry, which is emitting 2.5% of all carbon dioxide emissions globally on a yearly basis. But they cannot target the aviation industry, since airlines are a massive industry and a vital channels of international communication. Or is it all a question of compensation for carbon footprints that the mining industry is not pouring into “green” funds?
The threats to the environment that are being pasted on the Bitcoin and other blockchain networks are leading to a decline in the popularity of such coins among environment-conscious users. Given that NFTs have recently been accused of being environmentally unfriendly, some digital artists like Beeple have taken a proactive stance and pledged that a portion of all their earnings from the sales of NFTs will be diverted to investments in green energy.
It is basic economic sense for miners to resort to green energy sources, since profitability determines their mode of operations. With green energy alternatives becoming considerably cheaper as production capacities are increasing, miners will relocate to more favorable areas, which is happening year-on-year. In addition, the continued transition from the inefficient PoW algorithm to PoS will eventually lead to a considerable drop in energy consumption by cryptocurrency mining farms.
In fact, the blockchain industry itself can help solve some of the issues it is being accused of aggravating. By diverting more attention to the renewable energy sector and providing solutions for increasing its effectiveness, blockchain projects can take a proactive stance and start benefiting their own sustenance and scaling into new sectors. If a proactive approach is taken regarding any issues, the critics will have no alternative but to lower their voices and watch as the proposals they had been making are taking effect and benefiting the environment.