Cryptocurrency is the financial sector’s ‘Knight in Shining Armour’, introducing millions of people to the great things it comes with – anonymity, adaptability, security among others, with Bitcoin and Ethereum being its two most loved squires.
However, for cryptocurrency to be made and transactions to occur, people need to mine them. Sadly, cryptocurrency mining consumes massive amounts of electricity and while Bitcoin is the most used cryptocurrency, it is thus, the most mined.
If you are familiar with the crypto space, then you are more likely to be aware that Bitcoin mining has been attracting growing criticism for its unknightly effect on the environment.
Specifically, the mining process of the genesis crypto asset accounts for 0.6 per cent of the world’s total energy consumption and burns more electricity annually than Norway, at least, going by the Cambridge Bitcoin Electricity Consumption Index.
In addition, the global Bitcoin industry’s overall C02 emissions have also risen to 60 million tons, equal to the exhaust from about nine million cars. That’s up from 20 million tons recorded back in 2019. The increasing rate in C02 emission, however, can be attributed to the increase in crypto activities in recent times.
Energy consumption and evolution of cryptocurrency mining
Twelve years ago, you could mine Bitcoin with a simple setup at home. The amount of energy needed to mine one was a few seconds’ worth at best, and the value of Bitcoin was practically zero.
Fast forward to 2022, and you’d need a room full of highly specialised machines, each costing a lot of dollars (upward of $3,000) and the amount of energy required is about $12,500.
The process of mining Bitcoin to spend or trade gulps nearly 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million people. Furthermore, mining bitcoin goes beyond consumption and bad emissions.
Hardware used in mining is used and disposed of since every mining group or company wants the fastest and most efficient equipment out there. The effect of this is a new e-waste problem. Economists say that Bitcoin alone is creating more e-waste than midsize countries, which is certainly not a compliment.
Regulation of cryptocurrency mining
China is one country that has banned cryptocurrency mining over the high energy consumption of electricity involved in the process of cryptocurrency mining. Today, crypto mining no longer exists in China – an action that has unfortunately upended the global Bitcoin mining industry, as much of Bitcoin mining was done from China.
On the other side is Iran – a country that battled power outage last year – banning cryptocurrency mining centres as part of an effort to ease the strain on the country’s power plants and avoid blackouts until March 6 2022. This will, in turn, free up 209 megawatts of power for consumption in the household sector.
The European Union could take this route too as top regulators recommend that the body should ban a mining method called “proof of work” to reduce energy consumption.
Clearly, these won’t be the last of hard regulations on cryptocurrency mining and they certainly won’t solve the electricity problem in crypto mining in the nearest future.
Is zero crypto mining energy consumption a reality?
Well, alternative sources of energy are already being explored by miners. Some say solar power is the future of cryptocurrency mining, but this can be disputed as some countries are climatically colder than others. It takes approximately 6,000 watts of solar panels to run a Bitcoin mining rig with multiple GPUs during the day, while also charging batteries so as to mine at night.
Some miners are experimenting with harnessing excess natural gas from oil and gas drilling sites. However, this is still hard to quantify. Moreover, this could lead to more drilling. This doesn’t come up nicely on a large scale.
Regardless, there are quite a number of countries that have an advantage such as Paraguay which has a 100% energy supply based on hydroelectric sources. This signifies that cryptocurrency mining in Paraguay will have a lower carbon footprint than Bitcoin mined in nations dependent on fossil fuel.
In conclusion, cryptocurrency is already solidifying its place in the global financial system and will only expand more. However, if left unchecked by not just regulators, but itself, cryptocurrency mining will absorb a lot more energy that could threaten national and international climate targets.
Regulators, for now, will keep sanctioning cryptocurrency mining to safeguard the electricity sector. Ultimately, cryptocurrency mining will have to begin to intensely explore and use renewable energy as this will take one of the thorns in the regulator’s flesh, possibly allowing them to consider cryptocurrencies like Bitcoin as a legal tender.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.