Updated on 04/20/2022 11:04
- Cryptocurrencies are criticized for their extremely high energy consumption.
- How bad is Bitcoin & Co. for the climate?
- And are there less energy-intensive cryptos?
High transparency, security, low cost transactions – cryptocurrencies promise a whole host of advantages. But there is a downside: the extremely high power consumption. Bitcoin, Etherum & Co. are considered real climate killers.
The University of Cambridge estimates the energy consumption needed to generate Bitcoin per year at 144.30 terawatt hours (as of April 10, 2022). That’s more electricity than the whole of Poland, Norway or the Netherlands, for example. Please note: we are only talking about Bitcoin here, i.e. one of more than 10,000 cryptocurrencies – although the largest.
This makes bitcoin worth 65.4 megatons of CO2emissions per year, as calculated by Dutch economist Alex de Vries. This roughly corresponds to the amount produced by Greece.
It is therefore not surprising that a Bitcoin ban is being considered in many countries and regions. It was only at the beginning of March 2022 that the Social Democrats, Greens and Leftists launched a plan to ban cryptocurrencies at EU level. However, the European Parliament voted against the corresponding directive.
Server farms for mining: this is why Bitcoin consumes so much energy
But what makes Bitcoin so energy-intensive? Bitcoin is produced by what is called “prospecting” or “mining”. Simply put, high-performance computers solve a mathematical problem, for which “miners” are then rewarded with Bitcoin. To cope with such arithmetic tasks, a simple laptop is not enough. Instead, entire server farms are used here, which consumes a corresponding amount of energy.
Moreover, there are always several miners working on the same task. Whoever solves the task first gets the bitcoin. But only the calculations of other miners confirm the result. This procedure is called “Proof of work”.
The high energy consumption is therefore inherent to the system. Benjamin Schaub of management consultancy INTAS.tech agrees: “As these are purely decentralized networks, this decision in the architecture was made deliberately, because the high power consumption ultimately guarantees data security. Schaub sees high power consumption as an obstacle to protection against manipulation. “The effort (power consumption) to write data is so high that there is no incentive for malicious participants to want to modify that data.”
The more crypto, the more harmful it is for the climate? There are alternatives
The problem: cryptographic technology is still in its infancy. The more people use crypto and the more coins are mined, the higher the energy consumption. If Bitcoin were a country, it would already be among the 30 most electricity-consuming countries in the world, according to environmental organization Greenpeace. Strong upward trend.
There are certainly alternatives to proof of work. With the “Proof of Stake” method, for example, few miners calculate on a task at the same time, but only one. He is determined by a kind of random selection, his reputation depending on his ownership (stake) of coins.
One of the best-known cryptocurrencies, Ethereum, wants to change its mechanism during this year “so that energy consumption is massively reduced”, specifies Benjamin Schaub. And by more than 99%, as the online portal “Trending Topics” reports. With Bitcoin, however, such a change is not in prospect at the moment, not least because the mining mechanism is firmly established here.
Are renewable energies the solution for cryptocurrencies?
High power consumption remains a central problem for cryptocurrencies. On the other hand, there is the question of what sources this energy comes from. “There is a clear and strong trend to use renewable sources here,” says Schaub. “So the crypto industry is well aware of the problem and is addressing it.”
This doesn’t seem to apply to Bitcoin yet, at least if you follow Alex de Vries. In an article, he describes Bitcoin as “the least green ever”. And that, surprisingly, is due to a ban.
A large portion of Bitcoin miners were active in China until recently. The miners mainly used energy from Chinese coal-fired power plants. In 2021, however, the government imposed a nationwide mining ban. However, according to a study in which de Vries participated, this decision reduced the use of renewable electricity sources.
Future of Bitcoin: Will Sustainable Cryptos Prevail?
In China, for example, at least some energy still comes from renewable sources, such as hydroelectric power during the rainy season during the summer months. Now the miners have moved to countries like Kazakhstan, where electricity is generated almost exclusively from coal or gas. As a result, “the share of renewables that feed electricity into the grid has fallen from 41.6% to 25.1%,” says de Vries. In the same period, CO2– Emissions up 17%.
Bitcoin therefore continues to face major challenges. “Addressing Bitcoin’s shortcomings and strengthening its role represents a significant opportunity to make Bitcoin a more sustainable investment,” writes Bitcoin expert Philipp Sandner of the Frankfurt School Blockchain Center in a study.
Benjamin Schaub hopes market power will make crypto production greener: “Promote high-quality, sustainable projects to offset any CO2-Emissions are already and becoming an increasingly important criterion for investors, automatically “forcing” the market to become even more sustainable.”
It is quite possible that the topic of sustainability will be decisive for which cryptocurrencies will play a role in the future.
About the Expert:
Benjamin Schaub is a senior consultant at INTAS.tech, a management consulting firm specializing in securities and blockchain issues.
- Interview with Benjamin Schaub
- University of Cambridge: Cambridge Bitcoin Electricity Consumption Index
- Digiconomist.net: Bitcoin Energy Consumption Index
- Digiconomist.net: Bitcoin less “green” than ever
- tagesschau.de: No Bitcoin ban in the EU
- greenpeace-magazin.de: Can Bitcoin go green?
- trendingtopics.eu: Crypto: Ethereum energy consumption would be reduced by 99%
- medium.com: Study: Bitcoin’s Carbon Emissions from an Investor’s Perspective