With cryptocurrency and digital currencies becoming increasingly popular in the recent past, it is important to evaluate the costs of adopting this new mode of transaction and evaluate its downsides. While doing so, one of the major concerns that arises is the environmental costs of mining bitcoins.
Bitcoin mining is a two–step process. Miners check existing bitcoin transactions to make sure there is no double spending of bitcoins (the same bitcoin should not be used in two different transactions) and ensure their legitimacy. Mining also includes the creation of new bitcoins. All this is possible by solving extremely complex computational mathematical problems, and the miners receive bitcoins as a reward for their efforts.
However, this process consumes a lot of energy. According to the Cambridge Bitcoin Electricity Consumption Index, the bitcoin industry uses 99.3 terawatt hours annually, which is greater than double the annual energy consumption of Singapore. A study published in Nature Climate estimates that bitcoin usage can increase global temperatures by 2°C by 2033. Each bitcoin transaction leaves a carbon footprint of 844.35 kgCO2, equivalent to 1,871,365 VISA transactions. This gives us an idea of the adverse impact of crypto mining on climate change.
Amid controversy over environmental costs, crypto supporters argue that most of the energy used for mining comes from renewable sources and uses cheap electricity even when it uses non-renewable energy. However, these arguments do not have a rational basis. Mining operations are mostly concentrated in China, a country that primarily relies on coal for its energy production. Mining is also common in the Middle East, where cheap electricity is available. But it has led to illegal mining and nationwide blackouts in these countries. Furthermore, the hardware required to set up bitcoin mining creates 22.79 kilotons of electronic waste annually.
Given this information, we understand that adoption of cryptocurrency can significantly exacerbate climate change and negatively affect the environment. Even Elon Musk, an active cryptocurrency advocate, said that Tesla would not accept bitcoins until they could be produced sustainably. And there is hope. Cryptocurrencies such as EOS and Cardano do not use mining due to their proof-of-stake mechanisms. However, established blockchain networks such as Ethereum and Bitcoin will take time to move to greener mechanisms.