When the first cryptocurrency Bitcoin was created in 2009 the whole universe of crypto caused first overwhelm and disbelief but later on, curiosity. Bitcoin was the first cryptocurrency as a decentralized platform and the only one until Ethereum came to the crypto market in 2015. All the cryptocurrencies modeled after Bitcoin are called altcoins. These altcoins are often improved, better versions of Bitcoin using blockchain technology to allow peer-to-peer financial transactions.
Today, the cryptocurrencies are receiving more attention and airspace than ever before. Bitcoin is widely accepted as a legal tender in several countries. Global enterprises such as Google and Tesla have invested, cashed out and reinvested in crypto many times creating turbulence in the crypto market. Crypto is quickly becoming mainstream. Curiosity has led to action and many are trying out this relatively new, still quite volatile form of investing. Although, the most recent events in the crypto market caused deep disbelief. FTX, one of the world’s largest cryptocurrency exchanges enabling customers to trade digital currencies or traditional money, and vice versa, collapsed in November 2022. The company’s business was built on trading options that were risky and not fully legal in the United States.
As the crypto market is growing quickly so are its negative impacts to the environment. The negative environmental impacts of crypto consist of energy intensiveness, dependency of fossil based energy sources and growing e-waste problem. In this blog post I look at the crypto market’s environmental impacts and evaluate if a green cryptocurrency can exist. I also want to highlight crypto’s social impact of which democratizing finance is the most notable positive social impact. But first, let’s start by talking about energy.
Cryptocurrencies are energy intensive
The biggest environmental impact of crypto comes from its energy intensiveness when computers use energy to generate new digital tokens. Bitcoin uses a process called “Proof Of Work” that consumes huge amounts of energy in calculations requiring processing power to produce one single token. It is said that Bitcoin’s “Proof Of Work” concept uses as much energy as entire countries. The more the Bitcoin price rises the more energy is needed to create one token. End of 2021 Bitcoin was estimated to reach 100 000 dollars where one Bitcoin at the time of writing this blog post is worth 16 980 dollars.
So, we need to get serious about doing something to crypto’s energy usage. The newer cryptocurrencies (5-6 years old and newer) don’t use “Proof of Work” anymore as it is an outmoded technology. Ethereum being the second biggest crypto by its value is one of the cryptocurrencies that recently made the move to a more energy efficient mining model that also increases its scalability. The “Proof Of Work” process is replaced by a ”Proof of Stake” or “Proof of Storage” system that uses far less energy. There are also crypto currencies using a technology called block lattice, which doesn’t require mining at all.
Greening cryptocurrencies – from fossil fuels to renewable energy
In addition to what technology is used to mine crypto, it’s important to pay attention where the data centers are located and what energy they consume. Today, many mining facilities already use renewable energy to power the blockchain. Currently 57% of the energy used for crypto mining comes from renewable sources (Bitcoin Mining Council Q3 2021 Report).
Logically wind and solar energy, “green energy”, goes to waste if it’s not used when it’s generated. For example, wind energy can be put into the power grid only on a windy day. Powerful batteries are needed to store the green energy and this market is blooming. A data center can be located next to a hydro plant or wind farm and thus be directly connected to the grid to use renewable energy. This is sustainable but only to an extent when more energy is needed and a new power plant is built. Renewable energy sources include hydro, wind, solar, nuclear and geothermal. The use of green energy is estimated to grow quickly. However, even though this is great news for the environment, it’s also a challenge for the energy supply system.
The demand for renewable energy is on the rise everywhere. Countries are setting their net zero targets directing the energy transition from fossil fuels to renewables throughout the economy. In addition, the new sustainability reporting standards such as the CSRD (Corporate Sustainability Reporting Directive) by the EU Taxonomy that provide common shared practices for businesses to report on their climate, environment and social impact actions and progress create a momentum for this shift.
Then there is the energy crisis caused by the war in Ukraine that’s effects are felt with shortages of energy supply and increased prices not only in Europe but globally too. All these factors are interconnected and it is clear that renewable energy is needed in households and businesses more than in crypto mining. As a result, China is so far the first country to ban crypto mining. Probably mostly due to this problem.
Greening cryptocurrencies – E-waste is a huge problem
The hardware used in cryptocurrency mining data centers needs to be refreshed every five years. If the servers in a data center used for mining crypto must be renewed so often, what happens to the old hardware?
E-waste is any electrical or electronic product that has been discarded, and is currently one of the fastest growing pollution types in the world. Producing new electronic equipment, such as servers require scarce natural resources. Resource efficiency plan is needed to sustainably manage the end of life of hardware. It aims at minimizing virgin material use and maximizing recycled materials use in producing new servers and computers, for example, to the cryptocurrency mining data centers.
So why do electronic devices need to be renewed so often in the crypto mining industry? Using newer equipment increases energy efficiency as well as performance. New servers and computers are less energy intensive. They require possibly less cooling due to how they circulate so less energy is needed to cool the water and that results in less carbon emissions.
Environmental sustainability actions that help crypto miners become more sustainable:
- create an energy efficiency plan
- use renewable energy sources (hydro, wind, solar)
- refresh hardware of data centers regularly. Favor hardware made from recycled materials.
- focus your water stewardship strategy on reducing water withdrawals
- during cooler months, use the outside air to cool down the servers and during warmer months, drawn air through water-moistened pads
- capture the heat that comes out from the other end of the data center. That is possible if the data center is located next to a production facility that could benefit from thermal energy.
- optimize the location of your data centers will help to implement most of these sustainability actions.
Read more here about sustainable business practices and why sustainability is elementary for all companies.
What is crypto’s social impact
As decentralized platforms, blockchain-based cryptocurrencies allow individuals to engage in peer-to-peer financial transactions or enter into contracts. There is no need for trusted third-party intermediaries such as banks or monetary institutions to validate these transactions.
Cryptocurrencies are fully electronic. Anyone with interest and capital can build, operate, and maintain a facility to mine or generate the currency. The technology has the potential to disrupt the existing financial order and democratize finance. Everyone have access to crypto currencies if they want to.
Are there any green cryptocurrencies?
Coming back to the question if green cryptocurrency can exist the answer is not simple. On the one hand decarbonizing crypto market is possible in theory with renewable energy usage but on the other hand the amount of energy needed for the growing crypto market is so significant that it can disrupt energy supply at any moment in the areas where crypto mining takes place. What is so huge in volume and dependent on something that is volatile, cannot be sustainable in the long term.
The energy sector is in a transformation to answer to the growing need for clean renewable energy when and where its needed. Could the smart grid be an answer to net zero? A smart grid is a highly distributed network of clean renewable energy deployed at the edge of the existing grid. It uses the system approach balancing between multiple fluctuating energy sources, new renewable energy technologies and consumption levels. It works so that it incorporates all distributed loads, with advanced level of computing, designing them to look and act like traditional carbon-based loads. Energy flows omnidirectionally both to and from the source of generation. This gives energy providers the flexibility to distribute energy where and when it is needed most.
Seems that new technology like the smart grid is needed to reach net zero carbon emissions. Are you concerned about the environmental impact of crypto? Is greening cryptocurrencies possible? Does green crypto exist in your opinion and on what do you base it? I would love to hear your insight in the comments.
Be Smart. Live Sustainably.
