Cryptocurrency Energy Usage and Why It’s a Problem
Currency as a form of value for the exchange of goods or services has been present in ancient civilizations so long as there has been trade between people. With each passing generation, currency as a concept constantly evolves and changes. From simple bartering, to coins stamped in precious metals, to notes representing those coins, and recently the end of the gold era completely, the new age of digitalization has brought forth a new way users can store value, which is cryptocurrency.
From being worth pennies on the dollar to now costing an arm and a leg for a single coin, Bitcoin has inevitably been the standout of the crypto boom. In fact, there are over 5,000 different such currencies in circulation, and the total market capitalization of the industry has increased to over $2.3 trillion, larger than the GDP of Canada and many other developed countries. With such a boom, it’s no wonder that many individuals are claiming their spot in the new age crypto “gold rush”, and using custom built computers with powerful graphics cards to mine these currencies while prices rise increasingly.
However, just because cryptocurrency is centralized in a completely digital platform, it doesn’t mean there’s no emissions attached to it, and the recent splurge of crypto miners have decimated supplies of new graphics cards for gamers, while drawing increased environmental concerns in the process. The vital question needed to be addressed here is whether crypto’s energy usage is a real problem, and if it is, how do we go about transforming the industry into a more sustainable one?
To understand the problem at hand, we need to understand the hardcore cryptocurrency miner. Someone who likely doesn’t pay for their own energy bill, and thus is free to hook up an array of high end graphics cards to a mining system while using every last KWh at their disposal to cool these systems. When you have around a million such people mining bitcoin alone, the environmental issue becomes more clear. For a miner to mine a single bitcoin block, they would consume enough electricity to power more than 28 U.S. homes for an entire day. Pair this with the fact that the market value of the industry is increasing at an astounding rate, and we will likely only see more and more future miners hopping on the bandwagon.
On the crypto team’s side, an argument has been mentioned that traditional banks consumed 520% more energy than bitcoin does, which has caused quite a debate. To quantify this allegation, notice how banks worldwide processed over 200 billion transactions in 2020 alone, compared to a meager 200 million or so bitcoin transactions. When more facts are presented, it becomes clear the shocking amounts of energy cryptocurrencies such as bitcoin are consuming. Even at its current rate, bitcoin consumes 129.24 TWh per year, more than sizable countries such as Ukraine. If the number of transactions for bitcoin grew 1000 times to reach that of traditional banks, it would easily become the world’s largest consumer of energy.
Bitcoin may be a key culprit for huge amounts of energy consumption, but the same cannot be said for other coins in the market. This is because Bitcoin and other leaders like Ethereum all use a process known as Proof of Work (PoW) instead of Proof of Stake (PoS). The difference between the two is that PoW requires an insane amount of energy to continue, and miners ultimately need to sell their coins to cover these bills, whereas PoS grants mining power given the percentage of coins held by the miner. Although PoS consumers far less energy, allows for more scalable blockchain, and ultimately a higher transaction throughput rate, it is true that it is still less secure than PoW, making it hard to implement for coins worth hundreds of billions or even trillions.
While cryptocurrency as a concept cannot be targeted as environmentally unfriendly, the means of mining the coins are the real culprit, and many have claimed that more advanced PoS systems that will replace old PoW systems will be the saving grace for coins such as Ethereum to become greener. Other solutions mentioned by governments as prominent as New York’s even considered an outright ban on the mining of cryptocurrencies, and could essentially be enforced to a certain extent by scanning heat signatures of houses to gauge unusual patterns of energy consumption. Perhaps the biggest culprit of all is the investor in every one of us, eager to buy and hold prominent coins and bet on up-and-coming meme coins, which only further incentivizes the miners to increase their energy output to mine for more coins.
What do you think about the current state of energy consumption in cryptocurrency? Are you personally invested in crypto? Tell us below, and don’t forget to share with your friends!
Written by: Benny Fang