The environment is footing the bill as more and more people enter the lucrative field of Bitcoin mining.
The popularity of Bitcoin has given way to concerns surrounding its ecological impact. As of writing this article, Bitcoin is trading at US$45,106. The global impact of Bitcoin has been so tremendous that El Salvador adopted it as legal tender and Ukraine legalized Bitcoin exchanges. Read more about the adoption of Bitcoin in El Salvador in “Bitcoin As Legal Tender: What Does This Mean For El Salvador?” and “Crypto Going Global: Bitcoin Legalized In Ukraine”.
With a country-wide adoption of cryptocurrency comes the threat of energy-intensive crypto mining, which can amplify the speed of climate change. Let’s try to break down the interconnections of Bitcoin mining and climate change by first taking a look at what Bitcoin mining is.
Understanding Bitcoin mining
“Bitcoin mining” is the process by which new Bitcoins are added to global circulation. Miners work as auditors to verify the authenticity of each Bitcoin transaction. Once a miner has completed 1 Mb worth of verification, they are eligible to receive Bitcoin as a reward. However, to get this reward, they need to be the first ones to solve complex mathematical problems to generate a 64 digit hexadecimal number called “hash”.
When Bitcoin was first introduced in 2009, it could be mined on any computer. As the value of Bitcoin rises, more and more people seek to enter the lucrative field of Bitcoin mining. Bitcoin has a definitive supply of 21 million coins, this means that over time the number of Bitcoin available to be mined will reduce. About 83% of Bitcoins (18.78 million) have already been mined. As the supply of Bitcoin depletes, the complex mathematical problems required to be solved to mine it have become more and more complex.
Bitcoin mining and global warming
To solve these complex mathematical problems, miners need to use computers with high processing speeds. These computers are energy-intensive, requiring a lot of electricity to operate. Studies have found that carbon emissions from Bitcoin mining have the capacity to push global warming above 2°C.
Besides being energy-intensive, Bitcoin mining also generates a lot of e-waste. According to a research study by the Dutch central bank and MIT, mining a single Bitcoin generates as much e-waste as throwing away two iPhones. This is because the computers used for Bitcoin mining have a very short lifespan of about 1.29 years. Thus, the Bitcoin mining network goes through about 30.7 metric kilotons of equipment per year. This is the same amount of waste generated by the Netherlands in a year.
Towards a green future
Advocates of cryptocurrency suggest that Bitcoin use is a necessary step in the growth of society, and that advancements in technology are almost always accompanied by environmental impact. They state that the increasing energy requirements of Bitcoin mining have largely been met by renewable energy sources.
Research firm CoinShares has estimated that 74.1% of the electricity powering the Bitcoin network came from renewable sources. This has been highlighted by the projects working towards making Bitcoin mining cleaner.
The “Bitcoin Clean Energy Investment Initiative” by the financial services company Square is one such project. The company has committed US$10 million to support companies that help drive the adoption and efficiency of renewables within the Bitcoin ecosystem. Similarly, Agro Blockchain and DMG Blockchain Solutions, two major Bitcoin mining companies have come together to start the “Terra Pool” project under which Bitcoin mining will be conducted exclusively through green energy sources.
The energy consumption implications have motivated the founders of cryptocurrencies, like Ethereum, to make changes to their currency’s algorithm, so that mining can become more environmentally friendly. Ethereum has shifted from using the “proof of work method” of crypto mining (under which miners had to be the first to generate hash) to the “proof of stake method”. Under proof of stake, mining power is distributed based on the number of coins held by a miner. So if a miner owns 5% of the Ethereum coins available, they can only mine 5% coins. This limits the number of people who can mine the currency, ultimately reducing its energy consumption.
Header Image courtesy of Freepik
