Mining accounts for approximately 0.5 per cent of global electricity consumption
The growth of cryptocurrencies has accelerated over the last couple of years. The spike could be partly attributed to the current global pandemic. It caused people to be more aware of their finances and invest more to diversify their assets.
Over the last year, cryptocurrency has traded anywhere between US$5,000 and US$40,000. Could prices rise further? That remains a mystery.
While mining and investing in cryptocurrencies is lucrative, it comes with a mammoth carbon footprint. Let us analyse what this footprint entails.
According to studies, the cryptocurrency industry consumes approximately 77 to 110 trillion W/h of power annually. To put things into perspective, these figures are comparable to the annual national energy consumptions of countries like Chile and the Netherlands and about 17 times the annual electricity consumption of Google’s operations.
In totality, cryptocurrency mining accounts for approximately 0.5 per cent of global electricity consumption.
In terms of carbon footprint, cryptocurrency mining results in about 37 million tonnes of carbon dioxide produced annually. This is comparable to the annual carbon footprint of New Zealand.
Cryptocurrency’s energy use is attributable primarily to the vast amount of data crunching. The process of mining cryptocurrencies involves a multitude of computers solving complex math problems.
The first person to crack the code and arrive at a solution is rewarded with cryptocurrencies, such as Bitcoin. How much bitcoins you can mine is dependent on how much computing power you can allocate to the problem.
Vicious arms race for energy
This effectively means bitcoin miners invest in more computing hardware equipment that runs perpetually 24 hours a day. With an increasing success rate in decoding the algorithms, the price of cryptocurrencies rises. This greater competition incentivises greater participation in the cryptocurrency ecosystem.
This leads to a vicious arms race for energy to power computing systems for mining cryptocurrencies.
The energy footprint required to mine cryptocurrencies is slowly gaining attention among investors. But its revenue-generating capabilities far outweigh the environmental considerations that need to be made when considering such investments.
Cryptocurrencies are being amalgamated into energy transition trades. Tesla’s recent purchase of Bitcoins and plans to accept Bitcoins as a form of payment for its electric cars are examples. This calls into question the environmental credentials of such business portfolios.
(Tesla boss Elon Musk has since reversed that decision. He was concerned over the amount of energy it took to mine bitcoins, with much of it done in China using cheap, climate-destroying thermal coal.)
The cryptocurrency mining community, for its part, is spinning its own narrative around the sustainability of the industry.
One such narrative labels the industry as a load balancer that transfers intermittent or stranded electricity from local grids without stable demand. The fear is it could go to waste to economic assets in the form of cryptocurrencies.
The other narrative postulates that the cryptocurrency industry can potentially drive the global movement towards the mass adoption of renewable energy.
Currently, it is reported that 39 per cent of mining activities are powered by renewable energy, mainly in the form of hydroelectric power generated from dams.
Cryptocurrency miners are increasingly looking to locate their mining centres near renewable energy farms. Such farms can overproduce electricity during periods of low demand that can be used for mining.
This presents a win-win value proposition where the miner gets low-cost power. In contrast, the renewable farm gets a long-term customer.
Epicentre of an ethical conundrum
It is worth noting that half of the world’s cryptocurrency mining capacity is situated in China. They are powered mainly by a mix of cheap coal and hydroelectricity. In some countries, cryptocurrency trades have appeared to influence the price of electricity in the utility market.
Mining activity will continue to outpace the availability of stranded or intermittent electricity across the world. We are at an epicentre of an ethical conundrum.
We need to ask ourselves whether we should champion a virtual currency that has yet to gain formal recognition in the financial world. It could drain our natural capital as we strive to green our grids and decarbonise our world.
Together with financial regulatory bodies and national grid operators, the global mining community has to come together to address this. For a start, alternatives to a carbon tax such as more direct taxation of mining companies’ electricity use can be considered.
If that’s insufficient, then perhaps even more direct taxation on the companies that manufacture cryptocurrency mining hardware could be considered. In some countries, such as Inner Mongolia, grid operators have pulled the plug on mining operators simply because of their overuse of the grid.
Blackouts and power outages have occurred in some areas of Iran as miners drain the grid of electricity required for functional needs.
Another potential initiative would be to consider having alternative sources of energy that are formed as by-products of industrial activities to power mining activities.
One method would be to utilise flare gas, a by-product of oil and gas drilling operations emitted into the atmosphere, to power mining operations.
Larger scheme of things
However, more long-term solutions are required to combat cryptocurrency’s growing carbon footprint. Energy-efficient digital transaction methods need to be explored to shift away from a system that supports the exploitation and overuse of energy to determine the winner.
Scrapping the current mining process to shift towards a less computationally demanding approach towards solving codes would need a strong consensus among the mining community.
There have been new conceptual practices in the industry, as such ‘proof of stake’ and ‘sharding’ that have helped reduce the computational energy load of mining operations. Still, these need to be analysed in the larger scheme of things.
Other ecosystem players, such as digital payment platforms accepting cryptocurrencies, have a massive role in this. They have to agree on best practices that measure, report, reduce and offset these emissions.
There have been talks of concerted clean energy investment initiatives to support ‘green’ mining companies. Still, these have yet to formally take root.
Lastly, cryptocurrency investors have to make a conscious ethical decision about whether they want to champion this industry. It drains energy that could be channelled towards an environmentally or socially beneficial purpose. — @green
Kavickumar Muruganathan is a lecturer at TUM Asia & a renewable energy professional.