It’s no secret we’re living through a period of unprecedented and catastrophic climate change. And every day, serious problems from the crisis become more apparent.
The climate catastrophe affects almost every aspect of our life. EWG is talking about cryptocurrency because how we create it can have a significant impact on the climate.
What is cryptocurrency?
By now, most people have heard of cryptocurrency, a digital currency that does not depend upon financial institutions like banks. Instead, cryptocurrency transactions are recorded on a “blockchain,” which is a public digital ledger of “blocks” of data.
Does EWG oppose cryptocurrency?
No. Millions of people own cryptocurrency. We don’t need to eliminate the use of digital currencies. But we do need to change the way digital currencies are validated if we want to avoid the worst effects of climate change.
How is cryptocurrency acquired?
There are two ways to get cryptocurrency: Purchase cryptocurrency already in circulation through a cryptocurrency exchange or “mine” cryptocurrency to acquire new coins. To mine for cryptocurrency, powerful computers are used to solve complex mathematical puzzles. The first computer to solve the puzzle is awarded the new cryptocurrency coins.
Why do some forms of cryptocurrency use more electricity?
Deploying powerful computers to solve complex puzzles uses a lot of electricity. As the price of cryptocurrency increases, the incentive to use more and more powerful computers grows – and so does the amount of electricity these computers consume.
What are ‘proof of work’ and ‘proof of stake’?
Using powerful computers to solve complex puzzles to generate new cryptocurrency is called “proof of work,” or POW. Once puzzles are solved, new cryptocurrency coins are added to the blockchain. By contrast, cryptocurrencies that use “proof of stake,” or POS, or other energy-efficient methods to validate cryptocurrency transactions do so without using computing power to solve complex puzzles.
Do cryptocurrencies that use proof of work use more electricity?
Yes. Most cryptocurrencies use POS to validate cryptocurrency transactions. By contrast, bitcoin, ethereum, dogecoin, litecoin and other cryptocurrencies use POW. As a result, the amount of electricity needed to produce cryptocurrencies like bitcoin is far greater than the amount of electricity needed to produce most other cryptocurrencies.
Although electricity use can be difficult to measure, experts at the University of Cambridge estimate that bitcoin mining consumes 137.2 terawatt hours per year – more electricity than is used by countries like Sweden, or than Americans use to power our lights and televisions.
Will electricity use from cryptocurrencies that use proof of work increase?
Yes. The bitcoin protocol is designed to allow a new block to be mined every 10 minutes. As the computing power increases, the bitcoin protocol automatically adjusts to make the puzzle more difficult to solve. As the price of cryptocurrencies like bitcoin rise, the incentive to invest in more and more powerful – and electricity intensive – computers also increases. Last year, the estimated annual electricity use of the bitcoin network, for example, grew from 77.78 terrawatt hours to more than 200, according to one estimate.
Are cryptocurrencies that use proof of work worse for the climate?
Yes. Although miners use a variety of power sources to provide electricity for their computers, experts estimate that mining for cryptocurrencies like bitcoin results in far more greenhouse emissions. The electricity used to mine bitcoin in 2020 resulted in almost 60 million tons of carbon dioxide emissions, according to one estimate. The carbon dioxide emissions from mining etherium and bitcoin equaled the tailpipe emissions of more than 15 million gas-powered cars.
Why isn’t EWG focusing on the electricity used by other industries?
Every industry can reduce its electricity use, including the financial sector. A recent study found that U.S. industries could realize more than $1 trillion in electricity savings through efforts to improve energy efficiency. What makes cryptocurrencies that rely on POW different is inherent demand to increase computing power – and electricity use – to solve increasingly complex puzzles. As other industries become more energy-efficient, cryptocurrencies like bitcoin will use more and more electricity.
Is data mining keeping dirty coal- and gas-fired plants on line?
Yes. One company acquired two coal-fired power plants in Pennsylvania to generate more than 150 megawatts to support mining operations. Another company converted a coal plant in New York to natural gas to power mining operations. Emissions spiked after miners set up an operation in Montana.
Has mining increased electricity prices?
Yes. In some communities, the presence of mining operations have strained electricity supplies, increasing rates. Cryptomining in one New York community used 20 percent of their electricity, increasing electricity prices. One study estimates that mining has already increased U.S. electricity bills by $1 billion.
Can’t proof of work cryptocurrencies power their mining with renewable electricity?
Experts agree that renewable electricity will not address the climate and electricity impacts of cryptocurrencies like bitcoin. Cryptomining requires a steady source of power, so miners are seeking cheap sources of electricity generated by burning coal and natural gas or from hydropower dams. Unless renewable electricity like wind and solar is paired with large-scale battery storage, renewables are not an attractive option for miners. There is also no way to ensure that cryptocurrencies that use POW will switch to clean energy.
Can cryptocurrencies switch from proof of work to proof of stake?
Yes. Etherium is switching from POW to POS and estimates that changing how its cryptocurrency is validated could reduce electricity use by 99.99 percent. Cryptocurrencies using POS generally require far less electricity than those using POW, according to expert estimates.
What should Congress do?
Congress can amend federal laws governing digital currencies to prohibit mining to validate cryptocurrencies. For example, Congress could amend the Commodity Exchange Act to prohibit the use of POW. But phasing it out in the U.S. could just shift mining to other parts of the world.
What should the Biden administration do?
The Biden administration has issued an executive order to create an interagency task force to “ensure the responsible development of digital assets,” including likely impacts on climate change and electricity use. This task force should quickly identify measures, including legislative proposals, to phase out mining through POW. The administration should also leverage our participation in international exchanges to phase out POW to avoid shifting mining to other parts of the world.
What should investors do?
What should investors who want to invest in digital currency do if cryptocurrencies like Bitcoin don't switch from PoW to PoS or other energy-efficient validation methods? Investors should sell their stake and invest in PoS-based cryptocurrencies.