The popularity of cryptocurrencies and NFTs continued to grow in 2021, attracting more investors, traders, and miners. However, this surge in demand also highlighted the environmental impact of Crypto Mining, which requires vast amounts of electricity to power the mining rigs and cooling systems.
Despite the market downturn that hit cryptocurrencies in 2022, research reports indicated that Crypto Mining was still a major contributor to energy consumption and carbon emissions worldwide. The scale of energy consumption was likened to that of a medium-sized country, with Crypto Mining using more power than some countries and leaving a carbon footprint comparable to others. This has spurred efforts to find more sustainable and efficient ways to mine cryptocurrencies and reduce their impact on the planet.
When Bitcoins are traded, computers across the globe race to complete a computation that creates a 64-digit hexadecimal number, or hash, for that bitcoin. This hash goes into a public ledger so that anyone can confirm that the transaction for that particular bitcoin occurred.
The computer that solves the computation first gets a reward of 6.2 bitcoins, which amounts to approximately $134,000 at current prices. Other cryptocurrencies and NFTs use similar mining technologies, contributing to overall energy usage.
There are various methods for mining cryptocurrencies, each with its own unique time requirements. During the early stages of the technology, CPU mining was commonly used, but it’s now considered impractical and slow due to the time it takes to earn even a small profit, the high electrical and cooling expenses, and the increasing mining difficulty.
Alternatively, GPU mining involves combining multiple GPUs in a single mining rig, maximizing computational power. A motherboard and cooling system are necessary for this type of mining.
Another option is ASIC mining, which is specifically designed to mine cryptocurrencies and produces more units than GPUs. However, it is a costly option that becomes obsolete as mining difficulty increases.
As GPU and ASIC mining expenses continue to rise, many people are turning to cloud mining, which allows them to benefit from major corporations and dedicated crypto-mining facilities. By renting a mining rig from a free or paid cloud mining host, individual miners can mine cryptocurrencies in a hands-free manner.
Crypto Mining Rig
A crypto mining rig is a barebones computer that does the work to complete a computation. Unlike a regular computer, it has multiple graphics cards (GPUs) to handle calculations and requires high-wattage power supplies. Rigs with three GPUs can consume 1,000 watts of power or more when they are running, which is equivalent to having a medium-sized window AC unit turned on.
Crypto mining businesses can have hundreds or even thousands of rigs in one location, with each rig generating heat. The more rigs a location has, the hotter it gets, which requires more cooling. Small operations, like those run by individuals, can get by with a typical standing fan. However, mining centers require a lot more cooling, which in turn requires even more electricity.
Bad For The Environment
Fossil fuels account for more than 60% of the energy sources in the US, with natural gas being the primary source and coal being the secondary source. The carbon dioxide produced by fossil fuels is released into the atmosphere, where it absorbs heat from the sun and causes the greenhouse effect.
As mining rigs consume more energy, nearby power plants must produce more electricity to compensate, which raises the likelihood that more fossil fuels will be used. States that have struggling coal power plants, such as Montana, New York, and Kentucky, are trying to cash in by wooing crypto mining companies.
The Ethereum network is currently transitioning to a new consensus algorithm called proof-of-stake, which requires less energy than the current proof-of-work algorithm. In proof-of-stake, validators are required to lock up a portion of their cryptocurrency holdings as collateral, and they are selected to create new blocks based on the size of their stake. This eliminates the need for powerful hardware and energy-intensive computations, making it more environmentally friendly.
The Digiconomist’s Bitcoin Energy Consumption Index estimated that one bitcoin transaction takes 1,449 kWh to complete, or the equivalent of approximately 50 days of power for the average US household.
To put that into perspective, the average cost per kWh in the US is close to 12 cents. This means that a bitcoin transaction would generate an energy bill of approximately $173.
The Bitcoin Energy Consumption Index also found that bitcoin mining uses around as much energy as Argentina. At an annualized level of 131.26 terawatt-hours, crypto mining would be in the top 30 countries based on energy consumption. Energy consumption for bitcoin mining was at its highest at the end of 2021 and the early months of 2022, consuming more than 200 terawatt-hours.
Sustainable Energy Sources
Other initiatives aim to make crypto mining more sustainable by using renewable energy sources. Some mining operations use hydropower, wind power, or solar power to generate electricity, reducing their carbon footprint. In addition, companies are developing technology to repurpose waste heat generated by mining rigs for other purposes, such as heating buildings or growing crops.
Governments and regulators are also taking steps to address the environmental impact of crypto mining. In June 2021, the Chinese government cracked down on mining operations in several regions due to concerns about energy consumption and carbon emissions. The US state of New York has proposed a law that would impose a three-year moratorium on crypto mining facilities that do not meet certain energy-use requirements.
Crypto mining, the process of verifying cryptocurrency transactions and earning rewards, consumes a significant amount of energy and contributes to the climate crisis.
One Bitcoin transaction consumes the equivalent of 50 days of power for the average US household and generates an energy bill of around $173. Crypto mining currently uses around as much energy as Argentina and has a carbon footprint equivalent to that of Greece.
The transition to a new consensus algorithm called proof-of-stake and the use of sustainable energy sources can make crypto mining more environmentally friendly. Governments and regulators are taking steps to address the issue and encourage a more sustainable crypto-mining industry.