Empowering Crypto: the Energy Costs of Cryptocurrency
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By Spencer Aitken
In early 2009, a new form of currency was introduced that would take the world by storm: the block-chain currency Bitcoin. Bitcoin is a centralized currency separate from any national government and is a fairly anonymous currency. Even the creator is unknown, with the currency tied to an enigmatic “Satoshi Nakamoto” who has yet to be identified. When Bitcoin was introduced, its price was $0.00. From there, the cryptocurrency has steadily grown, in December 2016 it was valued at a little over $19,000. It reached its peak in November of 2021 at $67,549.14. This 12-year meteoric rise has garnered much attention from the public and has spawned numerous other cryptocurrencies including Ethereum and the joke currency Dogecoin. But as interest in cryptocurrencies has increased, so have criticisms. One such criticism involves the environmental problems posed by cryptocurrencies. This comes particularly with the electrical needs of cryptocurrencies, and the associated emissions produced.
The energy cost is high due to the way bitcoin transactions work. Transactions in bitcoin utilize proof of work: a consensus mechanism that is secured and verified by miners. It ensures the currency is only spent once within a system that has no central authority. The miners in this scenario utilize vast amounts of computing power and electricity to solve the puzzles and problems needed to verify a bitcoin purchase. In return, a miner who validates a standard block of transactions is awarded with an amount of newly minted bitcoins. This process requires a lot of energy. The global cost of mining has been estimated by Cambridge researchers at 12.136 terawatt-hours a year. This is more than the consumption of Google, Apple, Facebook, and Microsoft combined. Another estimate places the average transaction cost at over 1,700 kilowatt hours (kWH). In comparison, the average US household uses 893 kWh per month. Further exacerbating the problem, the electrical costs are enormous and therefore cheap energy is a major consideration in placing a mining operation. For this reason northern and western New York have blossomed into major hubs for bitcoin mining. This need for cheap energy may necessitate the continued operation of fossil fuel power plants, as some mining operations have done. However, not all power is coming from fossil fuels, with some utilizing renewable energy, including hydroelectric power. Regardless, some worry this need for cheap energy will leave areas dependent on fossil-fuels, since mining operations require a lot of power.
However, cryptocurrencies do not necessarily need to be an environmental pressure. There are a few ways this could be done. First, mining operations can continue to work to locate within areas with zero-carbon resources. Cryptocurrencies can also adapt to changing energy needs, as shown by Ethereum’s Proof of Stake system that is in development. This system would cut down on the duplicative problem solving and reduce electrical costs. Potentially this could cut energy costs per transaction by 99.95%. Further, efforts such as the Crypto Climate Accord could help move the industry itself towards a greener future.
The other route would be governmental interference. While bitcoin and other cryptocurrencies thrive on being decentralized by nature, governments can impose certain widespread policies to curb the environmental pressure. The options available to municipalities and states are varied. A municipality can move for regulatory remedies, such as petitioning state regulatory groups to allow the utility providers to charge more for the energy like Massena did in 2018. Municipalities could enact temporary moratoriums, like Plattsburgh, NY did in March 2018. On the more extreme end, the practice could be outright banned from areas. This year, China banned mining operations to help achieve carbon-reduction. This expulsion has worked well, as mining operations have sought the cheapest energy, which has in some places increased their use of renewable resources. While extreme, this tactic cannot be ignored: in New York some environmental groups warns that this situation threatens New York’s emission-reduction goals.
This problem is not unique to cryptocurrencies; merely the problem is best illustrated by cryptocurrencies. The energy requirements are tied largely with the computing power required to mine and transact cryptocurrencies. This story rings true with any large-scale computing operation. This includes the systems keeping Gmail online, the Facebook servers powering a massive social media network, and the data centers that keep Netflix streaming. The vast records of the internet require vast amounts of computing power, inherently leading to vast amount of electrical power. Cryptocurrencies and their power requirements merely open the door to a conversation about sustainability within technology and the internet. While many large scale data centers are already working towards greener operation, moving to flexible power networks and utilizing more renewable energy are as important with Bitcoin as they are with Amazon.
Cryptocurrencies on their own are not the causes of environmental pressures; but in their current form they threaten to exacerbate and worsen pressures that are already present. A greener market for cryptocurrencies relies on the same changes needed for the tech industry in general. The metaverse envisioned by companies like Facebook (now called Meta) and the now over 6,000 cryptocurrencies that exist in 2021 show that the future will likely continue to grow more digital. Changing to more renewable energies, developing renewable energy technology, and innovating technology to reduce electrical loads is fundamental to the future; and if cryptocurrencies want to continue to expand, they will have to be part of the solution rather than a pressure upon the problem.