Cryptocurrency's Dirty Secret: Energy Consumption

by |May 4, 2022

Though skeptics may characterize cryptocurrency as “fake money,” “worse than tulip bulbs,” or a “greater fool” scheme, it is a very real business. The market capitalization of the almost 19,000 cryptocurrencies in circulation is currently around $1.75 trillion — about the same as the gross domestic product of Italy, the world’s eighth largest economy. Even though you might not be able to buy a loaf of bread with Bitcoin at the corner store, many investors are putting a lot of legal tender money into cryptocurrencies.

But crypto has a dirty little secret that is very relevant to the real world: it uses a lot of energy. How much energy? Bitcoin, the world’s largest cryptocurrency, currently consumes an estimated 150 terawatt-hours of electricity annually — more than the entire country of Argentina, population 45 million. Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually — comparable to the emissions of Greece — making crypto a significant contributor to global air pollution and climate change.

And crypto’s thirst for energy is growing as mining companies race to build larger facilities to cash in on the 21st century gold rush.

“Bitcoin mining operations are in an arms race between time, the volume of miners, and the efficiency of the machines they use,” said Joshua D. Rhodes of the Center on Global Energy Policy. “When it comes to Bitcoin’s energy use, it’s currently something of a ‘wildcatter’ market. The Texas grid operator ERCOT estimates that crypto miners may increase energy demand by up to 6 gigawatts by mid-2023, roughly the equivalent of adding another Houston to the grid.”

In February 2021, Texas suffered a major power crisis after severe winter storms caused failures across the state’s troubled power grid. The transition above shows NASA satellite images of nighttime lights in Houston before (Feb. 7) and after (Feb. 16) power outages caused by the storms. Some four million customers across the state were without power during the crisis.

As Bitcoin mining increasingly comes under fire for its growing energy use, the phenomenon may be approaching a tipping point where, in order to prove to be a true game changer, crypto will need to come clean and go green.

The Line Goes Up

Bitcoin enthusiasts, or miners, earn coins by using computers to solve puzzles in the decentralized database that underpins it, the blockchain. In the early days of Bitcoin, about a decade ago, miners could use home computers to mint new coins that were worth a few dollars, at least on a screen. As the market grew over time, the puzzles the miners had to solve to earn new coins grew more and more complex, requiring increased computing power and, by extension, energy.

Today, Bitcoin mining is a highly competitive business, with sprawling, climate-controlled facilities that house tens of thousands of high-tech computers operating around the clock. Though highly volatile, so far this year the value of a single Bitcoin has hovered around $40,000.

Value of a single Bitcoin in USD (area) and trading volume (bars at bottom), Jan 1, 2016 – May 2, 2022. Source: Yahoo! Finance [view large]

Like any evolving industry, cryptocurrency mining companies have sought to streamline their operations and maximize profits as they’ve scaled up. Finding cheap, plentiful energy is a key part of this strategy, and a deciding factor in where mining operations choose to set up shop. Until recently, about 75% of all Bitcoin mining took place in China, which offered access to both cheap electricity and hardware. But, citing concerns about fraud, economic instability, and meeting its climate goals, China’s government abruptly pulled the plug on decentralized digital currencies in 2021. Mining companies raced to find suitable locations with more lenient policies. Today, the lion’s share of Bitcoin mining takes place in the United States, where 35% of Bitcoin’s hashrate — the total computational power used to mine and process transactions — is now located.

Map of the percentage of Foundry USA’s Bitcoin hashrate by U.S. state, March, 2022. [view large]

Unfortunately, China’s crackdown on digital currencies appears to have made crypto mining even dirtier. Some mining operations in China had reduced their carbon emissions by taking advantage of cheap and abundant hydropower — a renewable energy source — during the rainy season. But after China’s crackdown, the share of natural gas used in Bitcoin’s electricity mix doubled to 31%. And Kazakhstan, now the world’s second largest Bitcoin hub, gets about 50% of its energy from high-emissions coal-powered plants.

Perhaps even more concerning, some companies in the U.S. are now bringing retired power plants back online in order to cash in on crypto. Greenidge Generation, a natural gas-powered Bitcoin mining plant in the picturesque Finger Lakes region of upstate New York, is a controversial example of this trend. Local groups point out that the plant not only pollutes the air, but also harms the Seneca Lake ecosystem by discharging up to 134 million gallons of hot water a day into New York’s deepest glacial lake. More broadly, there are concerns the plant may be a canary in the crypto mine both for New York State and the nation.

Digital Dollars and Sense

Like other disruptive new technologies, cryptocurrency has caught governments unprepared and unsure how to regulate the explosive new market. Though Plattsburgh, NY became the first U.S. city to temporarily ban cryptocurrency mining in 2018, currently there is no federal legislation that specifically focuses on crypto mining. At the state level, last week the New York State Assembly passed a bill that would impose a two-year moratorium on energy-intensive proof-of-work cryptocurrency mining facilities that receive behind-the-meter power from fossil fuel power plants.

“Such a moratorium is important because it would give New York the time to assess the environmental risks of the state’s expanding cryptocurrency mining industry, including the industry’s potential impacts on the state’s ability to meet the Climate Leadership and Community Protection Act’s greenhouse gas emission reduction targets, and to develop appropriate regulations in response,” said Jacob Bryce Elkin. Elkin is a fellow at the Sabin Center for Climate Change Law who authored a paper on the topic in March.

A corresponding bill currently awaits approval in the state Senate, where it faces fierce opposition from the crypto industry. However, the fate of the existing Greenidge plant remains unclear.

The Greenidge Generation power plant. Photo: Brian Kahn

Greenidge Generation’s air quality permit expired last September, but the New York Department of Environmental Conservation has twice delayed making a decision on the renewal. During this time, Greenidge has raced to install thousands of new computers and dramatically increase its power generation capacity. Though it prohibits expansion, if passed in its current form the state’s moratorium would not apply to existing mining facilities. But critics of the Greenidge plant, including DEC Commissioner Basil Seggos, have pointed out that it conflicts with New York’s landmark Climate Leadership and Community Protection Act, which calls for reducing economy-wide greenhouse gas emissions 40% by 2030. It’s been estimated that crypto mining could account for as much as 7% of all carbon emissions in New York State by the end of the decade.

The deadline for a decision on Greenidge’s permit has now been set to June 30 — two days after statewide primary elections. In the meantime, Greenidge’s mining operations and expansion continue.

The Future of Cryptocurrency: Can Gold Go Green?

Proponents of digital currencies and the blockchain point out that they are innovative technologies, and that we’ve only just begun to explore their potential.

“There are certain inefficiencies in our financial services industry that can be alleviated using blockchain technologies, enabling us to tackle important issues such as equity, access and costs,” said R.A. Farrokhnia, the executive director of Columbia’s Advanced Projects and Applied Research in Fintech. “With the right safeguards, oversight, and responsible deployments of innovation, we could couple advances in fintech and blockchain with ever-more sophisticated data analytics tools, in particular machine learning and AI, to create and offer robust products and solutions more efficiently, intelligently, ethically, and inclusively.”

Graphic of Bitcoin emissions and wind turbines

Graphic: Freepik.com

Still, such promise may not be enough for skeptics — especially when it comes at such a high price. But crypto may have another opportunity to prove its value beyond its financial portfolio: by becoming a leader in the transition to sustainable energy sources.

“Some of my research has shown that, if the mines are willing to be flexible, they can pair well with renewables by quickly adjusting their energy use depending on current grid conditions,” said Rhodes. “However, it is not a given that they will do so. It is important for crypto mining to support the development of renewable (or other zero-carbon) energy because otherwise it will just be another industry contributing to the climate crisis.”

Like other industries, the cryptocurrency space will face many challenges if it attempts to go green, such as acknowledging its impact on the environment, integrating truly sustainable practices (such as the proof-of-stake consensus mechanism) into its operations, and ultimately eschewing the pursuit of profit at any cost.

If the crypto community is willing to meet these challenges it may yet prove itself to be truly transformative by harnessing both finance and technology to spur the transition to renewable energy sources. If not, then perhaps the skeptics are right: when the Bitcoin bubble finally bursts, it may not only leave investors but the planet itself holding the bag.


Update: New York Denies Air Quality Permit to a Cryptocurrency Mining Facility (July 7, 2022)


Subscribe
Notify of
guest
19 Comments
Oldest
Newest
Inline Feedbacks
View all comments
Kalah
Kalah
4 months ago

I love all these simpletons who jump on the bandwagon without having a clue. Instead of regurgitating the same false narrative others have concocted, try to come up with some real analysis. Research the energy requirements of traditional banking and then compare that to the needs of cryptocurrency. The “crypto is bad for the environment” argument will fall flat. I won’t hold my breath waiting for the report.

Doug
Doug
Reply to  Kalah
3 months ago

False. Energy use by crypto is primarily to power blockchain, which isn’t used at all in traditional banking. But do keep sticking your head in the sand if it’s convenient, like most people.

Tony H
Tony H
Reply to  Kalah
3 months ago

If only you understood that crypto currencies are doing completely useless computations. It is a complete waste of energy, period. Comparing it to traditional banking, which is necessary for the world economy, is totally missing that point.

james
james
Reply to  Kalah
2 months ago

traditional banking has a reason to exist…it replaced the ancient bartering system…crypto has no reason to exist…its beyond pointless and unleashes so many types of misery

Bob
Bob
Reply to  Kalah
2 months ago

Other than it’s “too good to pass up,” crypto has no worth, no backing. The traditional banking system keeps world economies chugging along.

Elliot David
4 months ago

Hi Jeremy, this is a really interesting article, I’m working on addressing bitcoin sustainability and would love to discuss!

Stuart
Stuart
4 months ago

Dollar volume does not make this any less “the greater fool” scam than if it were beanie babies. I think the love of money blinds people and the love of lots of money makes them completely stupid.

Ravi
Ravi
3 months ago

Would it grievously damage Columbia’s academic minds to come up with more relevant comparisons than “more than Argentina” and “comparable to Greece” and simply say “about 3.5% of annual US electricity”? I know the US media is fond of meaningless comparisons, but surely Columbia should demonstrate a higher standard?

Bill Gould
Bill Gould
Reply to  Jeremy Hinsdale
2 months ago

The problem is that very few people realize that Greece only contributes 0.1% of global emissions. It’s barely a rounding error and has no meaningful impact on the environment. If anything, it’s a distraction from real environmental issues.

What you are doing is known as Presenter Bias—you can make something seem large, to induce shock value, by comparing it to a country. You can make something seem small by comparing it to a city. Greece and some large cities both have similar energy footprints.

It would be more fair to compare crypto mining to other industries, like Zinc mining, which also has a similar footprint.

According to the Rapid Transition Alliance, the $500B global sports industry produces 0.6% of global emissions, which is 3 times the emissions of Bitcoin mining and comparable to the emissions of Spain or Poland. Yet, nobody thinks sports is an ecological disaster… because it isn’t.

Doug
Doug
3 months ago

It would be far more useful to state the amount of energy that bitcoin uses in relatable terms, such as: Supposing it was possible to conduct all transaction using it, how much energy would using bitcoin instead of USD add to an average American’s energy budget? Is it the same as leaving on a 60W lightbulb, as driving X% less, as turning down/up a house’s thermostat by X degrees in winter/summer?

Comparing the energy used by the entire industry to some small country doesn’t really mean much.

Bill Gould
Bill Gould
Reply to  Jeremy Hinsdale
2 months ago

Digiconomist is not a reliable source. It is an exaggerated personal blog run by an employee of the Dutch Central Bank, which just happens to be testing a Euro CBDC to compete against open payment rails. The author is heavily biased. Digiconomist is not peer reviewed research and nearly all of the author’s published works are published as “commentary.” One might as well cite TikTok.

The more reliable and neutral Cambridge University Bitcoin Electricity Index states in its FAQ that the “energy per transaction” metric is highly misleading, since a single Bitcoin transaction can batch thousands (even millions) of L2 transactions, much like FedWire does for bank transactions. Digiconomist conveniently ignores this. His research should not be taken seriously.

Bouvar
Bouvar
3 months ago

What do you think about envirement friendly cryptos like iota?
https://blog.iota.org/energy-consumption-of-iota-2-0

Angela Myers
Angela Myers
2 months ago

I believe that crypto’s have been created as a “novelty” to entertain and distract Humans from the Real Focus on Our Money system !!!
After reading about the Electricity that it takes to make or MINE one Bitcoin : it should be considered a total waste to ALL OF US since our LEADERS are shoving their climate control AGENDA down our THROATS !!!!
BITCOINS AND THE CRYPTO ARE PURE NONSENSE !!!
HOW MUCH Real tangible money is it taking to pay for a Year’s worth of cryptocurrencies ?
My opinion : it’s Assinine !!!!!!
People are starving around the world and yet these Elites and Gamblers and Nerds are throwing MONEY into a useless Pit !!!!

bettina
bettina
2 months ago

I’m glad you had the courage to speak up in a time where crypto is being glamourized. For every article similar to yours there must be a hundred others which spew their nonsense about bitcoin being the latest and greatest. We all, as consumers, must simply turn away from this and be the change we need to cut down on mindless energy consumption.

Mark
Mark
1 month ago

Why does this article only focus on the Bitcoin Proof of work consensus algorithm .. yes this protocol uses lots of energy but to generalize this to all crypto currencies is incorrect as there are numerous other crypto networks which use more energy efficient protocols with the same amount of security. Take the blinders off and do a more in depth analysis to paint the full picture.

drhalftone
drhalftone
Reply to  Mark
20 days ago

You are absolutely correct that this author refers to bitcoin as crypto, and we all know that while all bitcoin is crypto, not all crypto is bitcoin. That being said, let’s not ignore that bitcoin has 99.999% of crypto mind share. And in that regard, a professor in finance whom I’m a friend with says there are two kinds of coins, bitcoin and shitcoin. The full picture is that bitcoin is bad, and all the crypto evangelists know this. So they immediately change the subject to blockchain. I know what blockchain is, and I know why people think it is the future. But this isn’t about blockchain, this is about bitcoin.