Some of the hottest debates in the financial world center on cryptocurrencies, the innovative mediums of trade thriving at the cutting edge of the world’s financial markets.
However, factors beyond the financial have threatened to dampen this enthusiasm. The process required to bring new cryptocurrency units into circulation consumes an immense amount of energy. As awareness of cryptocurrency emissions grows, so does recognition of the environmental impact of crypto mining.
As the world’s largest cryptocurrency, Bitcoin consumed 90–140 terawatts of power on an annualized basis in the first half of 2021 alone. In comparison, Sweden and Argentina used 120 terawatts and 125 terawatts of electricity respectively for all of 2019.
Efforts are already underway to green the industry, beginning with the search for alternative mining mechanisms and power sources.
Spotlight on Emissions
In the face of astonishingly high consumption levels, new interest has emerged around climate-friendlier Bitcoin alternatives. These characteristically feature more sustainable models with lower carbon emissions, even if they may still rely on mining.
The Crypto Climate Accord launched in April 2021 with a pledge to achieve net-zero emissions across the entire cryptocurrency industry by 2040, following an interim target of 100% renewable power by 2025.
Cryptocurrencies’ environmental complications have also been exacerbated by high demand in China, which Bloomberg reports accounted for nearly two-thirds of the world’s Bitcoin mining in early 2020. Mining’s electricity consumption and subsequent coal usage prompted government regulators to introduce cryptocurrency mining restrictions earlier this year.
Seeking New Ways to Mine
Currency developers are also weighing in with new innovations such as Chia, a “green” cryptocurrency first available for trade in May 2021. Chia mining relies on hard drives rather than computer processors, allowing it to consume less electricity. It also claims to be more accessible to individuals compared to other cybercurrencies. The currency has proved popular in China and Vietnam, although rising demand swiftly pushed the price of hard drives higher.
Chia’s rapid ascent hampered its environmentally friendly credentials. Critics argued that Chia’s format creates its own waste such as rare metals, citing reports of hard drives burning out in less than two months. The cryptocurrency’s creator countered such reports by asking miners to use commercial-grade hard drives.
Resolving environmental concerns may prove challenging for any government-issued currency alternative that relies on the world’s power grid for its network and technological backbone. Often, gaining an edge on consumption invites concerns in other areas. Dogecoin mining uses a more resource-efficient algorithm than Bitcoin, but that also makes it less secure.
Tackling the issue from another angle, a group of blockchain companies collaborated on a zero-carbon Bitcoin. This alternative marries Bitcoin with crypto carbon credits. Meanwhile, miners such as Gryphon and Digihost aim to achieve exclusive use of renewable energy sources.
Cryptocurrency emissions could threaten to undermine the Paris Agreement. High-profile moves toward environmental responsibility can help avert problematic possibilities for what many consider the currencies of the future.