Over the last few weeks, there has been a lot of talk around Bitcoin and the environmental impact that Bitcoin and other cryptocurrencies have. How sustainable is mining and what do we really know? This article will cover known facts about Bitcoin, cryptocurrency mining, and its environmental impact.
At the beginning of February, Tesla made headline news for its purchase of $1.5B in Bitcoin. Telsa also stated it would start accepting payments in Bitcoin for its products. As a clean energy company with a goal towards a zero emission future, Tesla's choice of investment has been questioned due to the environmental implications of mining Bitcoin.
Bitcoin and other cryptocurrencies are only getting more popular and the computing power dedicated to mining is increasing. So what does the mining process really entail and what do we know about the environmental impacts of Bitcoin?
Bitcoin is generated through a process known as mining. Unlike traditional mining, cryptocurrency mining occurs online and now requires specialised and complex computer equipment. Cryptocurrency mining rigs around the world simultaneously work to mine these currencies by solving a complex series of algorithms known as a hashing puzzle. For each puzzle solved, a miner is rewarded in Bitcoin.
As there are finite number of Bitcoin available (21 million), the more Bitcoin that is mined, the more complex the puzzle becomes. Currently, a Bitcoin algorithm is solved on average every 10 minutes. However, as the puzzle becomes more complex, more processing power and therefore energy is required for mining.
Currently, it is estimated that cryptocurrency miners are performing 156 quintillion (156,000,000,000,000,000,000) calculations per second. According to a study, it takes 17 megajoules of energy to mine $1USD worth of Bitcoin versus 4 megajoules for $1USD worth of copper.
Mining Around the World
Hardware that is used to mine cryptocurrency is known as a mining rig. Unlike a standard PC, these rigs have been specifically designed to efficiently and effectively mine cryptocurrency. These rigs draw large amounts of energy to keep up with the computing power required for mining. Therefore, many mining rigs are located in areas around the world where energy costs are lower.
In January, Iran experienced massive blackouts in Tehran and other cities. This has largely been blamed on cryptocurrency mining, where Iran has one of the top ten highest cryptocurrency capacities in the world. Electricity in Iran costs $0.04/kWh compared to the US average of $0.13/kWh.
Many miners are located in regions which have cheap hydro-power resources including Scandinavia, The Caucasus, The Pacific North West, Eastern Canada, and Southwestern China. A 2019 research paper found that approximately 73% of energy used to mine bitcoin comes from renewable sources. Conversely, a 2018 research paper estimated that renewables made up less than 30% of energy used by miners.
Renewable Generation Potential
It is unknown what the actual renewable energy mix of the Bitcoin network is. As miners will go to areas where electricity is cheapest, it is possible that mining rigs may operate in areas with predominantly cheaper coal-fired electricity. Presently, two-thirds of electricity output in China comes from coal and the majority of Bitcoin mining currently occurs in China.
However, with the increase of interest in cryptocurrency mining, there may be a drive towards mining rigs being built in areas where renewable energy is more predominant. For example, Norilsk, a Siberian City and one of the coldest places in the world, now hosts the Arctic's first crypto farm with 5,000 mining rigs. This farm is mostly kept cool by the sub-zero temperatures in the region and is powered by both gas and hydropower.
With the increased energy demand from mining, there is a possibility that new rigs and farms will be built in areas where there is more renewable energy capacity.
Changes to Cryptocurrency Mining
The process associated with cryptocurrency mining can also be modified. Ethereum, the second most popular type of cryptocurrency after Bitcoin, is planning on modifying the algorithm to make mining more environmentally friendly. It is estimated that Ethereum mining is currently using as much electricity as Ecuador (24.26 TWh).
Ethereum is planning to change the mining system so that miners are able to randomly enter a pool and complete an algorithm (proof-of-stake) instead of the traditional model of mining where the most powerful computers having an edge to solve a puzzle the fastest (proof-of-work). This change will reduce the energy requirements for mining.
So what is the overall environmental impact of cryptocurrency mining? Key impacts can be broken down as follows:
1. Bitcoin currently has a carbon footprint of 36.96 Mt of CO2 annually, equivalent to the carbon footprint of New Zealand. Energy demand required to power mining rigs around the world is expected to increase and miners often move to locations where electricity is cheapest.
2. Production and manufacture of cryptocurrency mining equipment creates further emissions. However, most studies do not consider the embodied emissions of mining equipment and only look at energy demand.
3. Specialised hardware known as Application Specific Integrated Circuits (ASIC) is used for mining. As units cannot be repurposed, redundant units create around 11,000 tonnes of electronic waste annually.
4. As more large scale crypto farms are built, additional energy will be required for the cooling and ventilation of equipment in these large facilities.
As cryptocurrency mining continues to increase there is a growing need to make these processes more environmentally sustainable. Three key areas may support this going forward:
1. Shifting to Proof-of-Stake mining, where multiple machines are not rushing to solve the same problem simultaneously.
2. Incentivising miners to use renewable energy sources for mining. An increase in demand for green energy can further incentivise technology development in this space.
3. Continued innovation in technology, such as the pilot project by Genesis Mining, who are developing a system to convert excess heat from mining to power greenhouse operations.
What does this mean for Organisations?
At a high level, most organisations will not be impacted by the energy consumption requirements for cryptocurrency mining. However, understanding the environmental impacts from the mining process sheds light on how energy intensive these processes can be.
When completing an emissions inventory, an organisation measures their Scope 1, 2, and 3 emissions. In most cases, Scope 3 emissions, or those that are not owned or in the direct control of an organisation, are the highest. It is therefore important for organisations to understand upstream emissions impacts that may be occurring within their supply chain (use our free calculator to measure your Scope 3 emissions).
With more organisations looking to achieve net zero, understanding Scope 3 emissions and associated impacts is becoming imperative. Organisations can use this information to drive collaboration within its supply chain to reduce emissions and become more efficient going forward.
Want to learn more about the impact of your Scope 3 emissions or the environmental performance of your organisation? Join the Pathzero community and discover your true impact.