Digital currencies, as in so-called cryptocurrencies like Bitcoin and Ethereum, may represent the future of our monetary system, but so far, they’ve been terrible for the environment.
That’s the conclusion of researchers from the Oak Ridge Institute for Science and Education (ORISE) in Cincinnati, Ohio. In a new report they estimate that the amount of energy required to “mine” one dollar’s worth of Bitcoin is more than twice the amount required to mine the same value of copper, gold, platinum or rare earth metals.
Cryptocurrency “mining” is the process by which new transactions are added to the digital ledger, also known as the blockchain, and new currency is created. Mining is described in the report as “a process of consensus, or agreement, [that] is performed by ‘miners’ through repetitive calculations using specialized computer hardware. The first miner to determine the correct ‘answer’ adds a new block to the chain and is rewarded for this energy-intense calculation with several newly generated coin.”
Just like gold mining in the Wild West, mining currencies like Bitcoin is a competitive process. But rather than using a pick and shovel, cryptocurrency miners use powerful, energy-hungry computers. The miner with the fastest computer is more likely to win and reap more coin.
No doubt, blockchain technology is gaining a lot of attention for its ability to create secure, transparent and virtually incorruptible ledgers of transactions. The ORISE report, which is the first to quantify the energy requirements on a cost-per-dollar basis, describes blockchain as a “potentially revolutionary new technology for securely transferring money.” At the same time, the authors are hoping “to encourage debate on whether these energy demands are both sustainable and appropriate.”
The researchers estimated the amount of energy required to mine four popular cryptocurrencies – Bitcoin, Ethereum, Litecoin and Monero – over the period from January 1, 2016 to June 30, 2018. For example, Bitcoin, which is currently the largest existing blockchain, was estimated to consume about 17 megajoules of energy to mine, almost four times the amount of energy per dollar than gold and three times the amount versus platinum.
With energy consumption comes related CO2 emissions, which during the study period for these four currencies was estimated at 3–15 million tonnes of CO2, with Bitcoin again being the biggest contributor. The high end of this estimate would equal the annual emissions of about three million passenger cars, according to the EPA’s calculator.
This problem is amplified by the fact that a large portion of cryptocurrency mining occurs in China where generating electricity results in higher carbon emissions compared to other countries.
To provide some idea of the scale of the Bitcoin network, consider this mind-boggling number from the report estimating the transaction rate. These computer transactions are measured in “hash” functions and referred to as the “hash rate.” As of August 2018, there are approximately 50 quintillion (that’s 50 with 18 zeros after it or 50 million trillion) hashes performed on the Bitcoin network every second of every day.
As cryptocurrencies continue to grow in popularity, expect the number of transactions to increase. While this might suggest even worse news for the environment, some of these cryptocurrency companies are exploring alternative mechanisms for mining.
Bitcoin, Ethereum, Monero and Litecoin all use a “proof-of-work” scheme to track changes to the blockchain. An alternative method, known as “proof-of-stake” is being explored by big players like Ethereum, which would greatly lower the energy demand.
Blockchain ledgers also have many other applications besides currency. You are starting to see the technology used for digital home deeds, car titles, driver’s licenses, birth certificates and medical records.
These types of industry-specific applications were not studied in the ORISE research. Still, Dr. Max Krause, one of the report’s co-authors, told TriplePundit that he expects these “utilitarian” blockchains would be “significantly less energy intensive” because there would be little or no competitive element involved to build the blockchain.
That’s good news as more organizations will look to use blockchains to promote sustainable business practices. For example, 3p recently highlighted a plastic recycling program in Indonesia that is using a blockchain ledger to track transactions between collectors and recycling facilities. Blockchain is also being used to bring transparency to the diamond supply chain to prevent “blood” diamonds from reaching the market.
Organizations like these should be assured they are getting the benefits of blockchain, creating secure and transparent records of their business operations, without the negative environmental impacts.
Image credit: BTC Keychain/Flickr