Why Cryptocurrency Is Bad for the Environment

Is cryptocurrency bad for the environment? Yes. Indeed, all economic activity contributes to a collective environmental impact. But why and how is cryptocurrency worse compared to other forms of money?

This article provides an overview of cryptocurrency's footprint and discusses potential environmental improvements—some of which we are already seeing take place in the industry.

Environmental Impacts of Cryptocurrency

The problem with cryptocurrencies is their energy consumption. The majority of that consumption comes from crypto-mining, which is the use of computers to solve increasingly difficult 64-digit strings of random numbers and letters.

The “miner” who solves this riddle first is rewarded with new Bitcoins or other currencies, which can earn the miner hundreds of thousands of dollars. This has led to a Gold Rush-like search for faster and more powerful computers—and higher and higher amounts of energy consumed.

In 2021, Bitcoin mining alone consumed an estimated 105 terawatt-hours (TWh)—almost as much electricity as the entire country of Argentina used that year.

One influential 2018 article in Nature Climate Change warned, “Bitcoin emissions alone could push global warming above 2 degrees C.” (The article has been criticized for not adequately accounting for the different sources of electricity Bitcoin mining uses, an estimated 39% to 76% of which are renewable.) Indeed, the energy needs of cryptocurrencies have become an issue of major concern, leading to a Congressional hearing on “Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains” in January 2022.

Crypto vs. Traditional Currency

Criticisms of cryptocurrencies are often made without comparison to other forms of money. Unlike the rest of the money economy, cryptocurrencies exist with few other energy costs other than computers: no banks, no printing of paper money, no mining of gold or metals for coins, no transportation costs, and so on.

Estimates of the carbon footprint of the entire money economy are nearly impossible to calculate, while cryptocurrencies' footprint is easier to identify—and, possibly, easier to improve.

Can Crypto Become Sustainable?

Cryptocurrencies consist of the electricity consumption and electronic equipment. This means, unlike other parts of the money economy, it is potentially much easier to make cryptocurrencies more environmentally friendly.

The most important way to improve the environmental impact of cryptocurrencies is to clean up electricity production and reduce its e-waste. A carbon tax on fossil fuels would do more than anything else to reduce the carbon footprint of cryptocurrencies.

Short of a carbon tax, the cryptocurrency world is attempting to clean up its own act. Part of that involves devising less energy-intensive forms of crypto-mining. Many miners have signed the Crypto Climate Accords, pledging to make their own currencies net-zero by 2030 and to decarbonize the entire industry by 2040. Pressed by Tesla CEO Elon Musk, the Bitcoin Mining Council was formed to promote greater transparency in crypto-miners' energy consumption and pressure them to use a greater share of clean energy.

Also driving decarbonization is the nature of the business itself. Since crypto-mining's energy consumption is its largest cost, crypto-miners move their operations to places where energy is cheap, just as data centers have. With solar energy now the cheapest form of electricity in history and wind power close behind, the more we decarbonize our electricity production, the cheaper and cleaner crypto-mining will become.

The Necessity of Curtailment

Crypto-mining is helping drive the installation of clean energy. With that, electricity is cheapest when it is being reduced to what is only necessary.

In 2017, China curtailed 41.9 terawatt-hours (TWh) of wind electricity and 7.3 TWh of solar—more than the estimated amount of electricity consumed by Bitcoin mining that year. The opportunity is a global one: in 2020 California alone curtailed 1.5 TWh of solar electricity.

As John Belizaire, a developer of green data centers for cryptocurrency mining who testified before Congress, explained: When crypto-miners purchase renewable energy that will otherwise have to be curtailed, they lower their own costs and increase the profits of renewable energy developers, stimulating more investment in renewables.

Electricity production is being decarbonized faster than any other sector of the global economy, which is why climate activists insist that we “electrify everything” as a key step in fighting climate change.

Cryptocurrencies are presently an energy-intensive industry. But the good news is that it is easier to decarbonize an industry that is already nearly 100% electrified than one that is not.