Why Digital Mining Is Bad For The Planet
- A new report into cryptocurrency mining says the process must become less energy-intensive to limit its impact on the planet
- Current crypto mining methods are environmentally unsustainable, say the authors
- Research suggest a new “greener alternative” mechanism for cryptocurrency mining
Last weekend, Binance, the world’s largest crypto exchange, was forced to halt Bitcoin withdrawals due to a backlog in pending transactions. According to a report from MSN.com, crypto miners had not been offered a high enough reward to log the trades on the blockchain, causing a significant slowdown which, in turn, sent Bitcoin’s value tumbling. The good news is, it bounced right back up again not long after.
Cryptocurrencies might be volatile, but there’s no denying their growing level of power. The current cryptocurrency market is currently estimated to be worth about $1.6 billion USD, and, despite regular fluctuations, it is showing little sign of slowing down. Experts predict it could grow to over two billion within the next few years. It no doubt has its risks, with the market widely unregulated, but the future of money may well lie in the likes of Bitcoin, Dogecoin or other digital cash.
Aside of the challenges of policing its wild west landscape, there are other other significantly pressing challenges at play when we look at crypto’s increasing influence that are not as immediately apparent to users as their bouncing values. In their current form, cryptocurrencies are incredibly bad for the environment. In fact, in just one single Bitcoin transaction an average of 1,173 Kilowatt Hours (kWh) is used. In the U.S, this would equate to roughly six weeks of electricity based on an average household electricity usage of 877 kWh per month.
Despite the many benefits cryptocurrencies have the potential to offer, such as an arguably more robust financial system, the wider access and the greater control users have over how their money travels, the fact remains that continued investment in more energy-intensive cryptocurrency is likely to increase the probability of a global climate crisis, says Carmine Russo, a visiting researcher at the Centre for Climate Finance & Investment at Imperial College Business School.
His latest report, Damage Limitation: Cryptocurrencies and Climate Change, maps out the huge environmental costs that current mining systems are currently racking up, and suggests new, less damaging ways in which cryptocurrency could be mined, to ensure that its growing influence does not come at the expense of the environment.
Russo states in the report that the biggest polluter of the crypto market is found in the mining method. The majority of cryptocurrencies are mined using the energy intensive Proof PoW approach. The mining process becomes a race between the miners to solve complex algorithms through the use of high performance machines to track the source of the money spent, checking for double-spending, and unlocking new coins. According to Russo, only the fastest miner who can solve the puzzle receives the rewards, whilst the others are just polluters.
The more powerful the machines are, the more energy they need, which increases the environmental cost. In 2021, the energy usage to mine the most popular PoW cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), was higher than the overall energy usage of the UK as well as Italy in 2020.
Whilst cryptocurrencies are often seen to be a safe haven asset – a type of investment that is expected to retain or increase in value during times of market turbulence – Russo warns that ignoring the environmental damage created by the mining process would be “a grave mistake”. “The question becomes a dubious trade-off: are we more scared of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis?”.
“Cryptocurrency has become a popular trend, with an ever-increasing number of users. However, the picture of digital currency is far from uniformly positive. Behind the decentralised cryptocurrency system there are significant concerns, especially with respect to environmental damage.”, he says.
It is clear that we need a new approach to mining these that is either environmentally-friendly, or at the very least creates much less of an impact on the planet. So, what does Russo suggest?
His report highlights another method of mining – the Proof of Stake (PoS) mechanism – as a greener alternative, due to its design. The PoS method makes entire coin supplies immediately available to those who want to mine for them, removing the complex algorithms that need solving in order to unlock the coins.
In this method the rate of mining is hugely reduced, as is the time and energy it takes. The need for powerful machines is also removed, making the process less energy intensive. Furthermore, the stakers (the miners of the PoS) involved are chosen randomly by the system, and are the only ones given the ability to stake, which takes away the “race” element, reducing energy wastage and enhancing efficiency.
Going further, if cryptocurrency is to become more mainstream, Russo offers a number of recommendations, including forcing cryptocurrency miners to disclose the climate-related impacts of their activities, and advertising more environmentally friendly practices to foster awareness. “In doing this, legislators may be able to maximise the positive financial role that cryptocurrencies can play in the economic system, while also addressing the environmental damage caused by their creation and usage,” he says.
And there is a wider ripple effect to be benefitted from. For example, by ensuring that cryptocurrency miners are actively engaging in more environmental practices, investors also have the opportunity to become more aware of those cryptocurrencies that are environmentally-friendly, and those that are not in their decision-making processes. Therefore, investors too can make better decisions for the planet by choosing the more ethically sound options.
Just like in any other industry or function of society, the warning is stark. If we want further investment in cryptocurrencies, we have a responsibility to reduce their energy use, otherwise they are frankly unjustifiable. The crypto market might have the ability to bounce back from hits, but the planet does not.
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