One of the main criticisms levelled at digital assets is that the practice of bitcoin mining, and crypto mining, is very energy-intensive and bad for the environment.
Bitcoin Mining & Electricity Use
Cryptocurrencies like Bitcoin are produced by powerful computers that work around the clock to decode complex mathematical problems. When a miner solves the problems, they are rewarded with Bitcoin. Bitcoin now allegedly uses more electricity per year than the entire country of Argentina, according to Cambridge University. Most Bitcoin miners – around 70% – still reside in China, despite the country outlawing cryptocurrencies in 2021.
This has caused many problems for the industry. Blockchain transactions require a million times more energy than one on Visa’s network. Because ESG concerns are front and centre of many people’s considerations, many institutional and private investors therefore won’t get involved in crypto. Even Elon Musk, who has long been a champion of the digital assets space, declared that Tesla would no longer accept Bitcoin as a form of payment because of its impact on the environment. He cited concerns over the “rapidly increasing use of fossil fuels” for Bitcoin mining. The Tweet led to a sharp fall in the value of cryptos like Bitcoin and Ethereum.
Bitcoin Mining in Kazakhstan
This has also caused political problems in emerging markets like Kazakhstan. After Beijing banned crypto in 2021, much of the crypto mining industry moved nearby to Kazakhstan. Because of how much energy is required, this meant there was huge pressure on the country’s national grid. In turn, this contributed to significant social unrest and political pressure.
Because of all this, the market seems to accept that it needs to innovate to make crypto better for the environment. As we have covered previously, former Twitter CEO Jack Dorsey is leading a Bitcoin Clean Energy Initiative (BCEI). He’s arguing that the industry should team up with renewable energy and storage companies. The BCEI has suggested this would be mutually beneficial. Bitcoin could become greener. And renewable energy companies could use greater profits from Bitcoin mining to invest in their technologies, making them more efficient and sustainable in the long-run.
Other players in the industry are experimenting with “altcoins.” The idea is to create another cryptocurrency that doesn’t require as much energy as Bitcoin. Litceoins, for example, function in much the same way as Bitcoin. But they only require standard computer hardware to mine, rather than the complex systems needed for Bitcoin. This means they use far less electricity and are more friendly to the environment. Even more so because they also take just a quarter of the time.
Many DeFi companies are seeking alternatives to energy-intensive cryptos like Bitcoin and Ethereum. We previously spoke to Maxity, a DAO-based charity NFT marketplace. They deliberately chose to run their marketplace on the Polygon network rather than the Ethereum network because it uses far less energy. The Ethereum network consumers about 79,000 gigawatts of energy per year, compared to Polygon which uses about 0.79 gigawatts.
“We didn’t want to be like other blockchain projects on Ethereum, which are so power-hungry and not energy-efficient,” Justin Kairys said. “Polygon is faster, more eco-friendly, and the fees are minimal.”
Bitcoin Mining & Proof of Stake
Ethereum founder Vitalik Buterin recognises the problem. That’s why the crypto is transitioning from a “proof of work” model to a “proof of stake” system. This could cut energy-use by 99.95%. Buterin thinks Bitcoin could and should do the same. “Proof-of-stake is a solution to the [environmental issues] of Bitcoin – which needs far less resources to maintain,” Buterin said. Some other new cryptocurrencies, like candela, go even further by actually requiring solar-powered mining for its production.
There are other interesting projects, too. Bill Spence is running one. He uses “gob,” a form of coal waste, to power Bitcoin mining. Using detritus in this way safely gets rid of toxic waste, while producing Bitcoin at the same time. He’s eligible for Pennsylvania renewable-energy tax credits as well.
Clearly mining is an issue for the crypto industry to confront. The practice currently consumes far too much energy, and therefore money. This means crypto is at risk of falling behind, as the world shifts towards ESG investing. People like Buterin and Spence are trying to find solutions. Innovation in this area will be crucial if the industry is to become truly mainstream.
Author: Harry Clynch