Breaking Down the Emissions of Crypto

We can debate endlessly on whether investing in crypto is a good idea. But we cannot debate the fact that cryptocurrency has a massive carbon footprint, which contributes to the climate crisis.

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The environmental impact of cryptocurrency

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Cryptocurrencies like Bitcoin operate differently than government-issued currency, which is regulated by the federal government and tracked by banks.

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Cryptocurrency utilizes an anonymous, online public ledger called blockchain to maintain transactions, instead of relying on banks. A network of computers powers this ledger, which requires massive computing power.

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The validation process for a block of transactions before it can make it onto the ledger is a complex mathematical equation that needs to be solved. This process is called mining and consumes a lot of electricity. Every time a cryptocurrency is bought or sold, the validation process takes place.

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Mining rigs have cropped up as a way to handle the huge influx of growth in the buying and selling of cryptocurrencies. Mining rigs are warehouses full of computers that handle cryptocurrency transactions.

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As of 2021, fossil fuels powered 60% of Bitcoin mining. Also, 65% of the mining happened in China, where the majority of the power comes from coal. Although China banned crypto mining in 2021, miners moved to Kazakhstan and the U.S., where the primary energy sources are still fossil fuels like coal and natural gas.

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Bitcoin is on its way to consume ~143 TWh of electricity in 2023. If Bitcoin were a country, it would be in the top 25 countries with the highest electricity consumption.

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How can we reduce crypto emissions?

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The process of validating each transaction is known as the proof of work model. An alternative to this is the proof of stake model that significantly cuts down on energy usage. Here’s a handy explainer on proof of work vs. proof of stake.

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The second-largest cryptocurrency network, Ethereum, is a great example of that. When it moved from proof of work to proof of stake model, the crypto emissions dropped from 35.4 million tons of carbon dioxide to 0.01 million tons.

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Governments and regulators can incentivize crypto companies to move to the proof of stake model. This could significantly bring down the crypto carbon footprint.

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In 2021, a group of 150 crypto companies signed the Crypto Climate Accord to reach net zero emissions by 2030. This includes switching to renewables and purchasing offsets.

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Some other companies are trying to find creative ways, like repurposing the heat generated by mining to serve agriculture, heating, and other needs.