By Dulani Jayasuriya*
As the urgency of climate change ramps up, focus is increasing on digital currencies to address their environmental impact.
According to industry forecasts, the global cryptocurrency market is expected to surge to US$4.94 billion by 2030. But the process of mining digital currencies such as Bitcoin requires immense computational power – causing a significant drain on energy resources.
“Miners” use sophisticated hardware to solve complex mathematical puzzles, securing transactions and minting new coins. But this process, known as “proof of work” (PoW), is energy intensive.
Imagine a giant lock with a million combinations. Miners are all competing to find the right combination to unlock the block (a group of transactions) and earn rewards. The more computing power you have, the faster you can try different combinations.
But this computing power requires a lot of energy, similar to how a powerful car uses more petrol. So, miners are using a massive amount of electricity to run super-powered computers 24/7.
In 2021, police in the United Kingdom raided an industrial unit under suspicion it was housing an indoor marijuana growing operation. They were surprised to discover instead an extensive Bitcoin mining setup which was illegally siphoning electricity from a mains supply.
In 2021, Bitcoin mining consumed enough energy to rank 27th among nations, ahead of Pakistan with a population of over 230 million people. Just a year later, Bitcoin’s energy usage surpassed Finland’s national power consumption.
Alternatives have emerged to address the rampant energy consumption of cryptocurrency mining. But the question is, are these green currencies a viable alternative to the traditional options?
The emergence of green cryptocurrencies
Green cryptocurrencies use a less energy-intensive process known as “proof of stake” (PoS). Instead of needing a powerful computer, miners need to have a certain amount of the relevant cryptocurrency – kind of like a deposit.
If someone tries to cheat or mess with the system, they could lose some of their own cryptocurrency. This “skin in the game” keeps validators – those validating and verifying transactions – honest and secure.
A pivotal moment for those interested in green alternatives was cryptocurrency Ethereum’s migration to PoS in September 2022, through an update dubbed “The Merge”.
This shift led to a 99.9% drop in Ethereum’s energy use. Before the transition, Ethereum’s energy consumption was on par with Switzerland. Post-merge, its power usage was closer to that of a small town.
Challenges and the road ahead
In addition to Ethereum, several other cryptocurrencies are making significant strides in the realm of green finance. Notably, Cardano and Solana are gaining ground in the crypto market. They use significantly less energy, can handle larger numbers of transactions without slowing down, and claim to be secure.
Despite the benefits, the shift to green cryptocurrencies is fraught with challenges. Some users worry PoS might be less secure than PoW. And those with more coins have a higher chance of validating transactions. This could lead to a situation where a few people control the network.
Moreover, the initial distribution of coins in cryptocurrencies using PoS can be less democratic, often benefiting early adopters.
As a result, early adopters who accumulate a large number of coins can have a disproportionate influence on the network. This can be seen as less democratic because it gives more power to the wealthy, which goes against the decentralised ethos of cryptocurrencies.
Evolution of green currencies continues
PoS is not the only change attempting to address cryptocurrencies’ energy consumption. Sharding is another.
Sharding divides the network into smaller sections called “shards”, each handling its own set of transactions. This frees up individual computers on the network (called nodes) from processing everything at once, leading to significantly faster transaction speeds and lower costs.
This innovation goes beyond just efficiency. Sharding’s parallel processing approach minimises energy needs, potentially making cryptocurrencies more eco-friendly.
Ethereum’s upcoming upgrade, Ethereum 2.0, incorporates sharding to address the network’s current limitations on speed and transaction fees. By implementing sharding in phases, developers hope to ensure a smooth transition while maintaining the network’s security and decentralisation.
While sharding seems like a game-changer, it’s not without its own hurdles. Implementing it effectively requires careful planning and rigorous testing to safeguard the network’s integrity.
Overall, sharding offers a glimpse into a future where cryptocurrencies can process transactions faster, become more cost-effective and even reduce their environmental impact.
Green cryptocurrencies show how technology and finance can support ecological sustainability, providing a model for others to follow. But there is always a risk. And as they develop, green cryptocurrencies need to address concerns over security, network integrity and accessibility.
Dulani Jayasuriya, Lecturer in Accounting and Finance, University of Auckland, Waipapa Taumata Rau.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
19 Comments
Bitcoin's environmental impact is often criticized due to its energy consumption. However, this perspective overlooks several key benefits that Bitcoin mining brings to the environment and the energy grid.
Firstly, Bitcoin mining can help stabilize the energy grid through demand response. Mining operations can be rapidly scaled up or down depending on the availability of energy. During periods of low demand, miners can use excess energy that would otherwise be wasted. Conversely, during peak demand, miners can reduce their consumption to free up electricity for other uses, effectively acting as a flexible load that can help balance the grid.
Secondly, Bitcoin mining can support stranded renewable energy sources. Renewable energy, such as wind and solar, is often produced in locations far from population centers or in quantities that exceed local demand. Bitcoin miners can set up operations near these renewable energy sources, utilizing the excess energy that would otherwise be wasted. This not only provides a use for surplus renewable energy but also incentivizes the development of more renewable energy projects by providing an additional revenue stream.
Thirdly, Bitcoin mining can fund the development of more renewable energy. The revenue generated from mining can be invested back into renewable energy infrastructure, accelerating the transition to a more sustainable energy system. This creates a positive feedback loop where Bitcoin mining drives renewable energy growth, which in turn supports more sustainable mining practices.
In contrast, the article's suggestion that proof of stake (PoS) cryptocurrencies like Ethereum are inherently "green" is misleading. PoS systems rely on the wealth concentration of tokens, meaning those with more tokens have more influence. This can lead to centralization and undermine the decentralized ethos of cryptocurrencies. Furthermore, PoS lacks the intrinsic value that comes from the work put into securing the network, making it more comparable to traditional financial systems like fiat currencies or stock equities, which are susceptible to debasement and centralization.
By suggesting that PoS is a perfect solution, the article overlooks the complexities and potential drawbacks of PoS systems, while failing to recognize the innovative ways Bitcoin mining is already being environmentally friendly and its capacity to reduce emissions even in "green" grids like New Zealands. Remember that Bitcoin "miners" are a misnomer, they are simply zero-emission data centres. Bitcoin's role in supporting renewable energy, providing grid flexibility, and funding green infrastructure presents a compelling case for its potential to positively impact the environment.
Remember that Bitcoin "miners" are a misnomer, they are simply zero-emission data centres.
Bingo. And to be honest, AI is far more energy hungry that the mining req'd to secure the BTC protocol.
In January, the International Energy Agency (IEA) issued its forecast for global energy use over the next two years. Included for the first time were projections for electricity consumption associated with data centers, cryptocurrency, and artificial intelligence.
The IEA estimates that, added together, this usage represented almost 2 percent of global energy demand in 2022 — and that demand for these uses could double by 2026, which would make it roughly equal to the amount of electricity used by the entire country of Japan.
https://www.vox.com/climate/2024/3/28/24111721/ai-uses-a-lot-of-energy-…
This reads like a fossil fuel industry-sponsored 'study' demonising renewable energy. You say bitcoin can help 'smooth' energy usage by scaling up when demand is low and vice versa. Do you have some real world examples of this, or just a great hypothetical? "Bitcoin mining can fund the development of more renewable energy": But of course - why wouldn't all these benevolent minors plow their hard revenue into funding development of renewable energy? All of your examples are a 'can' or 'might'. What about some 'is happenings'?
The University of Cambridge is the most-cited source for estimating Bitcoin’s energy consumption..
Since the world uses 176,000 TWh of energy per year, that means that the entire Bitcoin network, at its peak consumption level, uses approx less than 0.1% of the world’s energy consumption. That’s for a network with 100+ million estimated users worth hundreds of billions of dollars. Other estimates vary slightly but they arrive at similar numbers overall.(https://ccaf.io/cbnsi/cbeci)
It’s easy to sensationalize things for eyeballs or political gain. It's common to see that the Bitcoin network uses more energy than some countries. So does Google, Youtube, Facebook, Amazon, the cruise industry, Xmas lights, household drying machines, private jets, etc. From that list, Bitcoin’s energy usage is approx similar to that of the cruise industry’s energy usage - but ratty is used by more people and the network scales. If people were 10% more efficient at shutting off their electronic devices when not using them, then that would save more energy than the global Bitcoin network uses.
I hadn't seen that Cambridge bitcoin energy consumption website before. Certainly interesting.
To say that bitcoin has 100+ million estimated users is misleading, at best. Some quick googling shows 700,000 to 1,000,000 active addresses per day, and likely 300,000 to 500,000 unique users per day - and this is from a pro-bitcoin website. 300,000 is a far cry from the 100 million +.
I'm sure all those things use plenty of energy (albeit, less than bitcoin for for all but private jets, I'm sure) but the fact is that proof of stake uses 99.9% less energy and, by many metrics, provides heightened security over that of proof of work. Ethereum settles more value each day (not just ETH transfers, but tokens, layer 2s, stablecoins, NFTs) than 'Ratty', with but a tiny fraction of the energy usage. That was the point of the article, I believe?
To say that bitcoin has 100+ million estimated users is misleading, at best.
Agree. But I think you will get the point when you look at BTC adoption.
.Ethereum settles more value each day (not just ETH transfers, but tokens, layer 2s, stablecoins, NFTs) than 'Ratty', with but a tiny fraction of the energy usage.
For sure. But essentially ratty and ETH are two different things. They're not substitutes.
It's important to address concerns about "greenwashing" directly and clarify the objective facts. Bitcoin miners operate as zero-emission data centers, akin to how electric vehicles like Teslas are considered zero-emission. They can be powered by renewable energy, making their environmental impact minimal.
In New Zealand, we could indeed lower emissions by repurposing the 15-20% of power currently used by an aluminum smelter for Bitcoin mining instead. This would leverage our renewable energy resources more efficiently.
If there's any greenwashing, it’s in suggesting that proof of stake (PoS) is inherently green. Bitcoin mining's potential for supporting renewable energy and providing grid flexibility is a tangible benefit, not greenwashing.
In 2021, Bitcoin mining consumed enough energy to rank 27th among nations, ahead of Pakistan with a population of over 230 million people. Just a year later, Bitcoin’s energy usage surpassed Finland’s national power consumption.
In 2017, Newsweek was forecasting BTC to use all the world's energy by 2020. The WEF also distributed this non-fact.
https://www.newsweek.com/bitcoin-mining-track-consume-worlds-energy-202…
What point are you trying to make here?
Use credible resources. Don't rely on MSM as your single source of truth. Above I have linked to the most appropriate resource for BTC energy consumption - the Cambridge Bitcoin Energy Consumption Index (https://ccaf.io/cbnsi/cbeci).
Should be noted that chains like Cardano, Solana, Algorand etc were all Proof of Stake by design before the energy use of PoW chains became an issue. So they aren't really turning green, they were always green.
Most of the old guard PoS have all been doing a lot of work on Governance, trying to include the community as much as possible. Centralisation is more efficient, by can also be more risky.
I used to get involved in governance more, but to be honest I couldn't be bothered with voting and spending the time it takes to be involved.
The last bit is inaccurate. The Ethereum 2.0 upgrade WAS the shift to Proof Stake consensus about a year and a half ago.
Full state sharding was actually abandoned on the Ethereum roadmap back at the start of the decade in favour of a roll-up centric approach. Proto-danksharding (improved data efficiency) was already activated during the recent Dencun update to the network.
Do we have statistics on how much energy all the central banks use world wide, so we can compare ?
Stay Humble and Stack Sats.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.