Blockchain Energy Consumption
Carbon emissions associated with Proof of Work (PoW) consensus protocols represent a tremendous use of energy and are a potential threat to reaching global net-zero 2030 ambitions. In 2022 the Bitcoin network alone will consume more than 1% of global electricity. Unfortunately, more than 60 % of the electricity used to power the Bitcoin network comes from fossil fuel sources.
Until the summer of 2021 most large crypto mining farms were located close to coal-fueled power plants in the provinces of Xinjiang and Inner Mongolia. Since the recent crackdown by Chinese authorities, the carbon emissions of the Bitcoin network have increased even further as miners move to Kazakhstan (coal), Iran (oil), and Canada (natural gas in Alberta and Saskatchewan).
The carbon emissions of Bitcoin transactions are so high that the carbon footprint of a single on-chain Bitcoin transfer is 841 kg. That is the same carbon footprint as a ticket on a 2-hour return flight or 16 years of watching YouTube videos non-stop.
The carbon footprint of a single mined Bitcoin is estimated to be 191 tons of CO2, while the economic impact of a ton of CO2 emissions, often referred to as the “social cost” of carbon is around $417 per ton, which means that the social cost of a single Bitcoin is roughly $80,000.
In other words, donating an entire Bitcoin to environmental causes may not even cover the social costs of that Bitcoin’s existence. While many claim that the traditional financial system is just as bad when it comes to carbon, this simply is not true. The carbon footprint of a Visa transaction is just 0.45 grams. Assuming the same $417 cost per ton of CO2, that comes out to $0.0002 for the social cost of a Visa transaction.
Of course, comparing the cost of mining a Bitcoin and the cost of a Visa transaction is an “apples to oranges” comparison. However, a direct comparison is just as damning, as one Bitcoin transaction has a carbon footprint equal to 1,928,083 Visa transactions.
Naturally, Bitcoin isn’t alone in being environmentally damaging. A new iPhone, for instance, has a carbon footprint of around 74kg, or 0.08 tons, which comes out to a social cost of around $34. Meanwhile, eating meat has tens of thousands of dollars in social costs, over a lifetime.
Cryptocurrency mining uses enormous amounts of electricity, which in turn generates significant amounts of CO2 emissions. The emissions of the Bitcoin network alone now generate as much CO2 as cities like London or Los Angeles and even many countries. Fossil fuels are widely used for this mining process, simply because it’s largely the cheapest option. For instance, Iran is a popular location for mining rigs, where fossil fuel electricity is shockingly cheap. At around $0.005/kWh, it’s 3% of the European price, as reported by Bloomberg. Even while solar power has become dramatically cheaper in recent years, at around $0.07/kWh, most miners naturally choose far cheaper options in places like Central Asia.
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The environmental impact of crypto is not going away anytime soon. Bitcoin’s electricity use has grown tenfold recently, and that will only continue alongside Bitcoin’s price rise. As Bitcoin’s price increases, it becomes more profitable to mine it, to the extent that Credit Suisse estimates that it’d be profitable to use almost all the world’s electricity for mining if Bitcoin hits a price of $1.1m.
While these figures may seem somewhat controversial, the controversy is not whether PoW is bad for the environment, it’s more around just how devastating it is. Cryptocurrencies that rely on the PoW consensus mechanism will continue to consume vast amounts of energy and require even more energy for mining hardware and software upgrades over time. This trend spells disaster for our climate if we do not act now to reduce our carbon footprint while we still can. These trends will only worsen with the mass adoption of blockchain, fueled by the rise of DeFi and NFTs.
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