Cryptocurrency, often just called crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
Cryptocurrencies are popular because they don’t have a central issuing or regulating authority, instead using a decentralised system to record transactions and issue new units.
They have soared in popularity – and volatility – over the past few years, but the environmental consequences of the phenomenon has come under scrutiny.
What is cryptocurrency mining and why does it have such a large carbon footprint?
Cryptocurrency mining is the process of generating new units of cryptocurrency by solving complex puzzles.
Critics say the process is environmentally unsound because the process of mining uses a lot of computer equipment and is highly energy-intensive.
According to the Cambridge Center for Alternative Finance, this mining consumes about 110 Terawatt Hours of power per year, or 0.55 per cent of the world’s energy production.
The centre estimates a single cryptocurrency transaction uses the same amount of energy that an average American household uses in one month, with an estimated level of global energy usage equivalent to that of the country of Sweden.
The majority of Bitcoin is mined in China and is largely fuelled by cheap coal power in the Xinjiang region, according to reports.
Researchers from the University of Cambridge have said almost two-thirds of Bitcoin generation as of April 2020 took place in China, with one-third of that being done in Xinjiang.
Even crypto enthusiast Elon Musk has sounded the alarm bell. In May he tweeted: “We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.
“Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment,” he added.
Are regulators cracking down?
In May, New York state put forward a bill seeking to shut crypto mining down until its impact on the environment has been assessed – which it says will take three years.
The New York State Senate bill, introduced by Senator Kevin Parker, would require a study on the greenhouse gas emissions caused by cryptocurrency mining, as well as its effects on air, water, and wildlife. In the meantime, no mining would be allowed.
“Cryptocurrency mining threatens not only New York’s climate goals, under the CLCPA, but also global energy policy, such as the Paris Agreement,” Senate Bill S6486 says.
Accordingly, “there shall be a three-year moratorium on the operation of cryptocurrency mining centers in the state, including, but not limited to cryptocurrency mining centers located in converted fossil fuel power plants.”
Can crypto be mined ethically?
High energy use does not necessarily mean high greenhouse gas emissions. According to the Harvard Business Review, the carbon footprint of Bitcoin mining really depends on which energy sources are used.
Bitcoin miners have embraced renewable energy, often because it is cost-effective.
Iceland, for example, is a cryptocurrency mining hub thanks to its cheap geothermal energy and cold climate, which helps cool the machines.
Meanwhile, hydropower resources in Quebec and British Columbia in Canada and windpower in Texas have also attracted miners.
Miners have even resurrected defunct hydroelectric plants in the US to generate energy to mine cryptocurrency.