Why is Crypto Bad for the Environment?

Crypto has grown out of obscure digital communities and into the mainstream. Now anyone can invest in Bitcoin, Ethereum, or...

Crypto has grown out of obscure digital communities and into the mainstream.

Now anyone can invest in Bitcoin, Ethereum, or Neo, or any of the other seven thousand cryptocurrencies in existence. More Asimov than Bank of England, they certainly sound sexier that sterling, euro, and dollar. The promise of a more secure and transparent way of making and completing transactions and their popularity is growing.

Crypto looks set to stick around.

Or at least a handful of currencies will. We should all expect to see casualties similar to the dot.com bubble burst in early 2000, but the currencies that do survive could become the alternatives to the centralised banking system in use today.

But crypto's rising popularity comes with an environmental cost.

Cryptocurrency and the Environment

Knowing the basics of how crypto currencies work will be key in understanding their environmental impact.

What is Crypto?

Investopedia describes a cryptocurrency as a form of digital asset based on a network that is distributed across many computers.

Digital assets are files. Cryptocurrencies use these rather than coins and banknotes. These files aren't stored in a central location, nor are they regulated by a single authority. They're spread over a network of computers. The value of a cryptocurrency is based on demand: when more people want it, its price goes up.

Traditional currencies are overseen by financial institutions or trusted third parties to prevent double-spend and manipulation. For example, PayPal ensures that when you send money to someone else, that money leaves your account: you cannot spend it again. Crypto currencies don't use a centralised regulator or trusted third party.

So far so eco-friendly, right? Not quite. To understand why, you need to understand what blockchain is.


What's Blockchain?

Traditional currencies use centralised institutions, banks and trusted third parties to verify transactions. Cryptocurrencies don't. They use blockchain to ensure coins are accounted for.

Blockchain is an encrypted digital leger. Think of it like an open-source spreadsheet that anyone with a computer can access. Each transaction in that currency is recorded on the blockchain. Blocks are just data records added to the leger one by one in a chain of information.

Adding a new block to the chain requires the other computers on the network to agree. Cryptocurrencies use consensus to protect the currency against misuse. This is how it's regulated without a centralised authority.

Blocks can't be added or altered without this peer-to-peer consensus. Once a block is added to the chain it's almost impossible for it to be manipulated or removed. It also then becomes available for anyone to see.

The Environmental Impact of Crypto and Blockchain

Crypto's decentralised approach relies on its peer-to-peer verification process. This makes the system more secure and transparent but also more energy intensive.

Take Bitcoin for example.

Users in the network get rewarded for validating new blocks and adding them to the ledger. But that's not all they have to do to get rewarded. They must also guess a 64-digit hexadecimal number before anyone else.

Or rather, their computers must. Computers with greater processing power can make more guesses more quickly. The more guesses made, the more likely a user or a "miner" is to get rewarded. This proof-of-work system compensates miners for the time, effort and processing power used to ensure the currency's smooth running.

And game theory is at the heart of crypto's reward system.

Cryptos like Bitcoin set clear protocols and use incentives to ensure that miners uphold best practices. It's in the miner's best interests to comply because that's how they get rewarded. There's less incentive to try and cheat the system because those miners will get punished.

Game theory isn't only used in crypto. It's used in the fitness world, too. Take Energym's recent partnership with Sweatcoin, for example. Users earn coins to spend on rewards just for working out. It incentivises behaviour change.

But what does all of this have to do with the environment?

There are now only 2 million Bitcoins available for mining. As more are mined, those algorithms behind the validation process become harder to solve. Computers must then work harder and longer to verify each block and guess those 64-digits. That's why it's no longer possible to mine Bitcoin on a laptop or regular PC. Miners must now use specially adapted computers with souped-up processing power to mine for crypto. Known as rigs, these adapted computers often run 24/7, and miners may have many rigs running at once.

This adds up to a lot of electricity being used during the mining process and is at the heart of crypto's high energy usage.

Researchers at the University of Cambridge analysed energy usage in the Bitcoin network and found it used 121-terawatt hours of energy per year. If it was a country, that would make Bitcoin one of the world's top-30 energy consumers. For a clearer example, 121-terawatt hours is more energy than Argentina uses in a year.

It goes on to say that a single Bitcoin transaction is equal to the power consumed by an average U.S. household over 24 days. Or the same as watching 50,000 hours of YouTube.

These are sobering statistics.

There are an estimated 1 million Bitcoin miners working globally. Around 70% are in China. It's believed that 40% of Chinese rigs run on electricity generated from coal-fired power plants.


bitcoin buried in sand

Can Bitcoin Become Eco-Friendlier?

The CATO Institute argues that Bitcoin shouldn't be held accountable for its high energy use because it doesn't control how the electricity is produced or priced.

Miners go where energy is most affordable and reliable. Choosing one country over another is a matter of economy. The problem, therefore, is the world's continued reliance on non-renewable energy rather than just Bitcoin's high usage.

The CATO institute goes on to cite Iceland as an example. Iceland is popular with crypto miners because its electricity is cheaper. Thanks to geothermal power, the country runs almost entirely on renewable energy. Access to clean power will make running digital currencies less harmful to the environment. It's a similar story in Norway. Almost 100% of the country's power comes from clean energy sources.

Miners should be encouraged to set up in countries where renewable power is available. One of the biggest advantages of crypto mining is its mobility. Rigs can set up next to clean power sources even in relatively remote locations. You can't move a gold mine or a central bank so easily. Crypto doesn't need the expansive infrastructure required by centralised currencies, either. This suggests there's potential for crypto currencies to become far more energy efficient.

Nor should we forget that traditional currencies have a carbon footprint, too. The gold mining industry uses around 139.9 terra-watt hours of power each year. It's believed banking systems use around 140 terra-watts. Of course, these industries do far more for economies and consumers than virtual currencies that can only be traded online or spent with a handful of niche merchants.

Some currencies are also moving away from the proof-of-work mining system described above to a proof-of-stake system. Proof-of-work means that those with the greatest processing power (and energy usage) are the most likely to be rewarded. But according to Investopedia, a proof-of-stake system means miners can 'validate or block transactions' based on the amount of currency they're holding.

If someone has 1% of the available coins, then they should only be able to mine 1% of the blocks.

Taking away the incentive for greater processing power and energy usage could help save crypto networks a lot of energy.

Several smaller cryptos already use this method. Ethereum - the world's second largest digital currency - started unrolling a proof-of-stake system in December 2020. When it's completed (and if it goes well), many believe that Bitcoin will follow.

The environmental cost of crypto is now having an impact on their market values, too.

Elon Musk announced recently on Twitter that Tesla no longer accepts Bitcoin as payment for its cars. He wrote "Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment".

Environmental awareness could be what forces cryptocurrencies to adopt more responsible mining practices.

We need more ways of generating clean power. We need to significantly reduce our reliance on fossil fuels. This is as true for crypto as for anything else.

It's why Energym built the RE:GEN. It's an electricity producing fitness bike that rewards users with Sweatcoin. The RE:GEN won't produce enough power to offset the electricity used by mining rigs, but alongside hydro, solar, and wind power, it can help contribute to a cleaner renewable network overall.

And whilst collecting Sweatcoins won't make you rich, it will give you access to rewards and discounts without the financial risk that comes with investment. What's interesting is that Sweatcoin is launching its own crypto in Summer 2022. 

Find out more and pre-order your RE:GEN today


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