Crypto Goes Mainstream, But How Will It Affect The Environment?

BOULDER, CO — The carbon footprint of a single bitcoin transaction, which can take several minutes to complete, is equivalent to the power consumption of an average U.S. household over the course of 77 days, according to Digiconomist. That same transaction is equivalent to more than 2.7 million visa card transactions or 200,000 hours of YouTube consumption.

Annually, bitcoin has a carbon footprint equivalent to that of the Czech Republic at 114 megatons and the same 200-terawatt-hour power consumption as Thailand, a country of nearly 70 million people.

Despite that, in Colorado, bitcoin and other cryptocurrencies are about to go mainstream. Gov. Jared Polis announced on Feb. 25 that the state will be the first in the nation to accept cryptocurrency for tax payments, raising the question of what further expansion of cryptocurrencies might mean for the environment.

An executive order signed by President Joe Biden on Wednesday calling for a greater examination of cryptocurrencies also seeks to reduce the environmental impact of cryptocurrency, further pointing to an even more widespread future for the technology.

For those who have successfully stayed away from that side of the internet, cryptocurrency is a kind of digital money that is signified through computer code and uses encryption technology to make it secure. The blockchain — a term that cannot be avoided when discussing cryptocurrency — is a digital ledger that tracks cryptocurrency transactions.

With the most popular cryptocurrency, bitcoin, “miners” compete every 10 minutes to solve a complex mathematical puzzle for the right to add blocks of transactions to the ledger. The fastest puzzle-solvers are currently rewarded with 6.25 newly-created bitcoins, or about $245,000.

The rise in popularity of cryptocurrency has led to a visible increase in energy use and fossil fuel consumption, resulting in greater carbon emissions across the country, Mandy DeRoche, an attorney with EarthJustice, told Patch.

“What we’ve been seeing in New York over the past couple of years is that fossil-fueled power plants are coming back online that were not operating, or were only operating on a limited basis,” DeRoche said. “Now, they’re operating 24/7.”

According to DeRoche, coal waste plants have ramped up their operations in Pennsylvania and have gone back online in Montana.

“Those are planet-killing emissions,” DeRoche said. “There are crypto miners that use renewable energy, in part; I don’t know of any that use them in whole because solar doesn’t run all night. The economic incentive here is to be mining all the time.”

As with homes, cars and other infrastructure, “there aren’t enough renewables in the U.S. yet” to sustainably power cryptocurrency mining operations, DeRoche said. “To also add another ginormous load like proof-of-work cryptocurrency mining will throw that all off.”

Bitcoin and ether, the two largest cryptocurrencies that are collectively responsible for roughly 60 percent of the sector’s market cap, operate on Proof of Work algorithms. These models are largely the reason for the significant carbon footprint and energy usage of cryptocurrency.

Cryptocurrency transactions and companies operate on one of two models: Proof of Work or Proof of Stake. With Proof of Work, miners compete to solve a mathematical puzzle. Thieves are discouraged from trying to sabotage or hijack the blockchain because doing so would require they spend more time, energy and money than at least 51 percent of other miners.

Proof of Stake is a newer, more energy-efficient algorithm in which miners stake digital coins for a chance to verify blockchain transactions. If they don’t verify transactions accurately, they lose the coins they’ve invested.

While critics call Proof of Work outdated, bitcoin enthusiasts say Proof of Stake is more centralized and less secure.

Jeremy Epstein is one of those critics. He is an investor relations officer for Open Forest Protocol, a startup that hopes to use cryptocurrency and blockchain technology to build markets for carbon offsets, registering land plots and forestation projects on the blockchain to verify and trade.

“No crypto project was built using a proof of work model in the last five years. It is an outdated model,” Epstein told Patch. “Bitcoin being bitcoin, it will probably remain a proof of work protocol forever, and bitcoin mining is probably the single largest contributor to crypto-based emissions.”

Epstein said bitcoin emissions should drop eventually. Ninety percent of bitcoin has already been mined, but since mining becomes harder over time, the last bitcoin won’t be mined until around 2140, according to Reuters, though it is not exactly a straightforward equation to determine when the last bitcoin might be mined. According to Epstein, a future increase in processing power to pursue mining and the number of miners might work against the greater complexity of mining over time.

“Bitcoin has a limited number of tokens — we know that there’s 21 million bitcoins in existence, ever; there can never be more created,” Epstein said. “And then transactions get verified through Proof of Work still, but I think overall, emissions from bitcoin should drop.”

Ethereum, the second-largest name in the cryptocurrency realm, also started on the Proof of Work model. But the company is currently planning a switch to Proof of Stake for its ether token. According to Epstein, the switch will significantly mitigate Ethereum’s energy consumption and carbon footprint.

“When it does that, I believe the figure is, it will drop its energy consumption by roughly 99 percent,” Epstein said. “The date for which Ethereum 2.0 is supposed to happen — I think that’s been pushed back a few times, it’s not a small thing to switch a network to a completely new system — but that should happen probably in the next two years.

“And when it happens, Ethereum is going to go from a total energy consumption [equivalent to] 800,000 U.S. households to about 427 U.S. households — it reduces its emissions per transaction by like 99 percent.”

From an environmental perspective, Epstein said, cryptocurrency’s biggest negative impact is in Proof of Work protocols. Now, he said, competitors to bitcoin and Ethereum, sometimes referred to as ‘alt-coins,’ are “becoming more mainstream and those are all built on Proof of Stake.

“The industry switched very, very quickly. Proof of stake just works better. Again, it’s been five years since anyone’s built anything meaningful on a proof of work platform.”

Beyond the potential for a growing market of less-impactful cryptocurrencies, Epstein believes that “there’s a very good chance the crypto industry supports climate solutions that end up achieving massively beneficial results for the climate and those beneficial results far outweigh any negative effects that crypto has on the environment over time.”

Crypto, Epstein said, has recently brought around 80 percent of the carbon credits in the world onto blockchain technology. A carbon credit is essentially a permit that allows its owner to emit a set amount of greenhouse gas emissions.

“What this does is, it removes poor quality offsets from the market so that corporate emitters can’t claim net-zero by buying the most poor quality carbon offsets available; it raises the floor so that they have to buy carbon offsets at a higher price, and that drives corporate entities to reduce their emissions more deeply before going and purchasing offsets,” Epstein said. “They look deeper into their production and carbon market. So this is having real-world effects, but I think we’re at the tip of the iceberg today.”

Colorado’s decision to allow cryptocurrency payments for taxes is just another step to further normalize the technology, which could eventually mean greater environmental and fiscal regulation for cryptocurrencies.

“Crypto being accepted in Colorado is just another small domino in an inevitable wave of crypto eating the world,” Epstein said. “If you look at adoption curves of who’s using crypto now, we’re essentially analogous as we were to internet adoption in 1998. And it’s following almost to a T the adoption curve of the internet. Think about what the internet has done for us; this is the new version of the internet, and it should continue to march along to the point where everybody is accessing goods and services using blockchain technology, and they may or may not ever even realize it, and that’s the really important thing.”