Cryptocurrencies, blockchain technology, and decentralized finance have gained a lot of public interest in recent times. Bitcoin and Ethereum are buzzwords that are coming up very frequently in everyday usage by people across the world. With increasing interest in cryptocurrencies, their prices are also increasing significantly. It is often assumed by many that these currencies are mostly sustainable as they are not physically printed. However, it is not exactly accurate.
The environmental cost of Cryptocurrencies
Cryptocurrency is very energy-intensive, making it not-so-ecofriendly, as most of the world’s energy still comes from fossil fuels. While cryptocurrency can be purchased in the market by exchange of money, the way the crypto coins are minted requires virtual mining to be carried out, which takes up a lot of energy. In addition to this, it is also responsible for producing a large amount of electronic waste.
The amount of energy used for Bitcoin mining cannot be directly calculated, however it can be inferred based on the network’s hashrate and the consumption of commercially available mining rigs. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin, the most extensively mined cryptocurrency network, consumes around 136.38 Terawatt-hours of electricity each year. The figure is estimated to be 204.5 Terawatt-hours by Digiconomist, a cryptocurrency analytics website. This equates to around 2,145 kilowatt-hours of electricity every transaction, which is the same amount of electricity utilised by the average American household over 73.52 days.
The second-largest cryptocurrency network, Ethereum, is predicted to consume 112.6 Terawatt-hours of electricity each year, more than the Philippines or Belgium. The typical Ethereum transaction used 268.6 kilowatt-hours of electricity, which is equivalent to the amount of electricity consumed by an ordinary American household in 9.08 days.
If prices and user adoption continue to rise, the quantity of energy needed by cryptocurrency mining is likely to rise as well. Mining cryptocurrency is a competitive process: as the value of the block reward rises, so do the incentives to begin mining. Higher bitcoin values indicate that crypto networks consume more electricity.
Greening the Cryptocurrency
Industry executives, governing agencies, and non-governmental organizations have turned their focus to the large carbon footprint of crypto mining in response to mounting criticism of Bitcoin and other proof-of-work cryptocurrencies.
Some blockchain developers are moving away from the energy-intensive PoW approach, such as Ethereum, an open-source blockchain on which many cryptocurrencies are built. Ethereum has begun to move toward a Proof-of-Stake (PoS) system, in which crypto transactions are validated based on the number of coins held by a user.
This method eliminates the competitive race and requires significantly less processing power and time. According to Ethereum core protocol developer Tim Beiko, the move will minimize Ethereum’s environmental effect by 99 percent.
To promote more innovative solutions, the Crypto Climate Accord (CCA) was launched in April 2021 with the goal of decarbonizing the cryptocurrency and blockchain industries in record time by switching to renewable energy.
The CCA already has over 150 business and individual signatories who have publicly agreed to support a set of goals targeted at decarbonizing the crypto sector by shifting to renewable energy.
Signatories have all agreed to three primary goals:
– Develop standards and tools to help blockchains move toward the 100% use of clean power by 2025
– Achieve net-zero emissions from their own sources of energy by 2030
– Reach net-zero greenhouse gas emissions across the cryptocurrency industry by 2040