For many of us, our exposure to Bitcoin is limited to the spam emails that clog up our inboxes.
“YOU’VE WON 30 BITCOIN, CLAIM NOW!!!,” a typical subject line screams.
Thirty bitcoin is nothing to sniff at — it’s worth roughly A$2.35 million today.
Vastly more expensive, however, is the energy it takes to keep Bitcoin turning.
In this article:
- How does mining work?
- What about energy consumption?
- Proof-of-work versus proof-of-stake
- Crypto and carbon emissions
- Digital greenbacks
- What does the future hold?
Crypto platform Digiconimist is dedicated to tracking the energy, emissions and e-waste tied to cryptocurrency mining.
Its Bitcoin Energy Consumption Index reports that one Bitcoin transaction chews up 1,544 kilowatt-hours of energy — that’s enough to power an average US household for just under two months.
So just why is Bitcoin mining so energy-intensive? And is it likely to stay that way?
How does mining work?
The crypto world is booming — but it takes a lot of energy to keep up with its own meteoric rise.
Basically, new digital coins hit the market — where they’re stored on the blockchain — thanks to a process known as mining.
Cryptocurrency miners across the globe compete for tokens like Bitcoin by being the first to solve complex equations that add the currency to the blockchain.
But that process is arduous — and it requires a helluva lot of computational power.
So what keeps miners coming back for more? The answer shouldn’t surprise you.
At present, Bitcoin miners earn 6.25 BTC for every block they complete on the chain.
With the pioneer cryptocurrency fetching around US$58,000 apiece in late November, miners are walking away with $362,500 from a single block solve.
It just goes to show that crypto is well and truly the new digital gold.
What about energy consumption?
With so many computers working to solve the complex blockchain equations, Bitcoin’s energy consumption is well up there.
And Bitcoin mining is by far the most energy-intensive cryptocurrency to mine, thanks to something called a proof-of-work system — more on that a little later.
While the digital currency’s massive energy consumption is something future-thinkers want to curb, it’s also a big security feature.
Analysts argue Bitcoin is so tough to crack thanks to the extremely complicated algorithms that make up its home base.
And if you want to add or change the blockchain, you better have the computational power — and the mammoth energy — to do it.
However, there’s also an upside: because miners can work from anywhere in the world, they can tap into energy sources where others can’t.
Provinces like Sichuan in southwest China, where hydroelectric is plentiful, have become hubs for cryptocurrency mining.
It also means energy sources that would once go to waste become part of a major financial system.
Aussie crypto exchange SwyftX’s CEO Ryan Parsons told Proactive that Bitcoin’s future is green.
“Estimates vary, but anything between 40% to 70% of Bitcoin mining is thought to come from green energy and we expect that percentage to significantly increase over the next five years.
“Mining can occur anywhere with operations established in areas with access to high levels of stranded renewable energy sources.”
Gallant Token’s CEO Steven Walters spoke to Proactive about emerging synergies between public and private spheres in an effort to curb energy consumption.
“It's evident that a change needs to happen,” he posited.
“As policymakers and governments work together with mining firms/miners to implement these more energy-efficient strategies … we will see the consumption of energy by Bitcoin decrease.”
While crypto reaches new heights, innovators remain eager to uncover less energy-intensive mining systems.
And that’s where proof-of-stake and proof-of-work comes in.
Proof-of-work versus proof-of-stake
While Bitcoin relies on a proof-of-work system to verify transactions on the blockchain, other cryptocurrencies are looking at a new — and far less energy-intensive — system known as proof-of-stake.
The SwyftX CEO explains it best: “The proof-of-work consensus mechanism, used by Bitcoin, requires miners to compete to solve complex mathematical problems, the outcome of which is a high level of energy consumption.
“By contrast, proof-of-stake consensus allows individual owners of a cryptocurrency to validate transactions without solving complex problems, making it much less energy-intensive.”
The second-largest cryptocurrency, Ethereum, intends to scale up by transitioning to the proof-of-stake mechanism next year.
That move will require far less energy — in fact, Ethereum’s developer claim it’s on track to reduce the crypto’s environmental impact by 99%.
According to Gryphon Digital Mining CEO and director Rob Chang, the innovation in this space reflects a changing attitude among crypto miners.
“As mining technology improves, we expect to see increased efficiencies,” he stated.
“We are also seeing a strong trend towards carbon-neutral energy procurement.
“Just a year ago, the majority of miners did not appear to consider the environmental impact of their energy procurement strategy as they mostly focused on finding the cheapest option.
“Currently, it appears that finding carbon-neutral energy is a major consideration for most miners.”
Carbon emissions
In the wake of COP26 and the global energy revolution, it’s not just energy consumption under the microscope.
Zumo, a UK-based crypto wallet, has pledged to reach net-zero emissions by 2030 across its own business, blockchains and broader ecosystem.
Zumo’s environmental consultant Kirsteen Harrison insists the crypto sector must aim for full decarbonisation by 2030.
“For crypto to reach its full potential and be widely adopted by society, the sector urgently needs to address its carbon footprint.
“Fortunately, the crypto sector has a relatively easy decarbonisation path ahead of it, compared to many other sectors.
“In crypto, decarbonisation can be achieved simply by using renewable electricity.
“There are no complex supply chains, no deeply entrenched ways of working, and we have a clear understanding of where the impacts are.
“This puts us streets ahead of many other sectors, including traditional finance, which has a complex web of financed emissions to deal with.
“We are a young and agile sector, and we have a huge opportunity to show the world how an entire sector can fully decarbonise.”
Digital greenbacks
Swyftx chief executive Parsons reckons a focus on carbon neutrality is fuelling wider demand for greener coins.
“We’ve seen a definite shift in customer behaviour over the last few weeks and months, with increased trading in coins that require less computational power.
“This is despite Bitcoin hitting new price highs during this period, which usually precipitates heavier trading volumes.
“There are a number of factors at play here, one of which is probably heightened awareness around the environment.”
As the crypto market becomes even more diverse, new variations are coming out of the woodwork — and the blockchains they live on are getting greener, too.
Edgeneering owner and chief technology officer Myles Wakeham has been farming on a blockchain known as Chia for about three months.
BitTorrent inventor Bram Cohen is behind the chain, which is focused on spotlighting sustainable blockchain technology.
It’s also garnering international attention — the World Bank just announced it will use Chia for green energy project tracking in 2022.
It might be early days for a blockchain like Chia, which only set up shop in March 2021, but Wakeham told Proactive he’s intrigued by the impact it could have on the green coin market.
“I suspect it will be one of those projects where a version two or three will result in a more resilient and ‘enterprise-level' project,” he explains.
“Clearly there are few green energy cryptos out there that could satisfy the need to do commercial transactions and smart contracts, but this is one of them.
“As a result, I've invested pretty heavily in this space and I think it has a future."
What does the future hold?
SwyftX’s CEO told Proactive he believes the future is bright, but crypto’s volatility means it’s tough to know exactly what’s next.
“The fact that the world’s most popular digital currencies, Bitcoin and Ethereum, currently need significant computational power to mine new coins is a concern for the industry.
“With the advancement of the Ethereum ecosystem into new and innovative areas like gaming and NFTs, we may well see a continuing upward trend.
“If you’re being optimistic, you’d say the overwhelming majority of new coin projects are now underpinned by far less energy-intensive technology than Bitcoin.”
Zumo’s Kirsteen Harrison shares Ryan’s sentiments.
“We believe crypto and the blockchain will help generations regain control over their financial futures — but we don’t believe that should come at the cost of the planet,” she explained.
“As our industry matures, we have the unique opportunity to ensure we develop the products and behaviours that will help the future of our Earth.
“We’re determined to play our part in setting a positive example and showcasing what industry-wide decarbonisation could look like.
Of course, Harrison understands it’s only a part of the puzzle.
“Miners, platforms, users — we’re all going to have to pull together on this.
“We continue to work closely with our partners and the wider industry to deliver the transformational change we all know will be required to meet our ambitious net-zero targets.”