Since the advent of Bitcoin in 2008, the cryptocurrency industry has grown by leaps and bounds to become an industry that exceeds $1.4 Trillion U.S. Dollars in market capitalization. The industry purports to be the solution to financial inclusion, financial equity, data privacy and much more. But, as the industry continues to expand, we have begun seeing its adverse impacts on climate. With any nascent technology, we must ensure that these innovations are developed in a responsible, equitable, and just manner. We hope the federal government will provide needed oversight to ensure that they are, and on this, they have taken an initial encouraging step.
President Biden, in an executive order on ensuring responsible development of digital assets, of which cryptocurrency is a part of, tasked the Office of Science and Technology Policy (OSTP) with developing a report that discusses, among other things, the energy and climate impact of digital assets. This prompted the OSTP to issue a “Request for Information on the Energy and Climate Implications of Digital Assets” (RFI).
In response, NRDC has written a comment letter detailing the climate impacts of cryptocurrencies and its underlying blockchain technology.
It’s well documented that the energy consumption and carbon footprint of cryptocurrency is enormous and is only going to increase. To put this into context, the annual energy consumption of bitcoin is the equivalent Thailand, ranked 23rd in the world in terms of energy consumption, while its carbon footprint is as large as the Czech Republic. Moreover, it is estimated that fossil fuels power over 60% of the bitcoin network.
The energy consumption and climate pollution of the industry are large and growing, at a time when it is critical that we reduce greenhouse gas emissions to keep average global temperatures from rising more than 1.5C above pre-industrial levels,” we write in our comment letter.
The central reason for the industry’s intensive energy consumption is the Proof of Work (PoW) protocol used to mine cryptocurrencies. Mining is a competitive validation method that pits pools of miners against one another, with the pool of miners that expends the most computational effort receiving the highest probability of collecting the financial rewards. It is this protocol’s computational intensity that results in PoW’s consuming enormous amounts of energy.
While the industry may aspire to power its operations from renewable energy, currently over 60% of this energy demand is supplied from fossil fuel generation. In addition, research has shown that this energy consumption is directly correlated with the price of Bitcoin, suggesting that if cryptocurrency prices continue to rise, more resources will be employed for mining and more energy
If cryptocurrency mining is ever to become climate-friendly, the indispensable first step is to cut down the energy consumption of the mining algorithms. Shifting from a PoW protocol to a Proof-of-Stake (PoS) protocol is projected to decrease energy consumption by 99.95%, which is essential if the industry is to operate in an environmentally responsible manner and the most immediate way to reduce its carbon footprint. PoS is a consensus protocol where instead of miners competing through computational power, miners are randomly selected to validate transactions. The improvements in energy efficiency and reduction in hardware requirements make this proposal a climate-friendlier alternative for the cryptomining industry.
Beyond computational intensity, the discarded hardware will also have huge climate and broader pollution implications as well. E-waste is the dark side of our technology in that the chemicals —among them mercury, cadmium, and lead— that allow our devices to function are highly toxic when consumed or absorbed into the bloodstream. Global e-waste is on a trajectory to reach almost 82 million tons while the global recycling rate of e-waste is only at 17.4%. In 2019, the world generated 59 million tons of e-waste, and within the 82.6% of unrecycled e-waste was 62 tons of mercury that has either already been released into the environment or will be eventually. And for cryptocurrency, the specialized hardware used only lasts on average 1.29 years due to the huge toll mining takes.
The cryptocurrency industry makes many claims about how cryptocurrency mining can be beneficial to local communities, how it can stimulate renewable energy investments, or how it can even use existing wasted energy sources, such as using energy lost to curtailment or methane gas lost during fracking, for mining. However, these arguments are not supported by existing research [insert comment letter link here] and divert from the fact that crypto mining, particularly using the PoW methodology, has been a voracious user of energy, inconsistent with combatting climate change; and that any benefits to climate or local communities, whether economic development or jobs, have been largely unproven. Even with the industry moving towards more renewable and sustainable energy sources, we must question whether cryptocurrencies are the best use for this energy.
Ultimately, we must recognize that as it stands, the energy consumption and carbon footprint of cryptocurrencies are excessive and will increase if it maintains the status quo. The industry’s energy consumption and carbon footprint will continue to grow exponentially if proper guardrails aren’t put in place to guide them. Decreasing the energy consumption of the industry while protecting local communities must be top of mind when creating policies to ensure a responsible and equitable development.
We conclude our comment letter with this suggestion: “The OSTP should consider all options, including mandatory adoption of the PoS methodology, to mitigate the threat to achieving our climate goals.”