The Environmental Impact of Crypto: What’s the Solution?
In November, Bitcoin reached its ever-that-high price going over $68,000 and fell down below $56,000 within a couple of days. With people watching Bitcoin reach new highs, experts predicting it to hit $100,000, and the simple human desire to get rich overnight, the interest in cryptocurrency has significantly grown, too.
Miners are competing to be the first to win Bitcoin, and as a result, the energy consumption of Bitcoin is hitting its epic rates. This brings strong concerns about the negative environmental impact crypto mining causes.
The equation is pretty straightforward:
Crypto price growth = more activity = more mining = more energy consumption = more Carbon emissions
In this article, we are going to analyze the energy consumption of Bitcoin and the Carbon impact of crypto on the environment. We will also provide insights into our solution to compensate for the crypto Carbon footprint.
Crypto Means Energy Consumption
Based on different resources, Bitcoin and other crypto currencies consume enormous amounts of energy the size of whole countries:
– According to Philipp Sander, Bitcoin consumed 90.86 TWh from September 2020 through August 2021.
– In 2021, The BBC reported that digital currencies spend 21 Terawatt-hours of electricity every year. The amount of crypto energy consumption could be compared to the entire country consumption of Argentina.
– According to the Cambridge Bitcoin Electricity Consumption Index, as YouMatter states, these numbers are even higher – 133.68 TWh per year. This puts the Bitcoin energy consumption pretty much at the levels of Sweden (131.80TWh per year) or similar to Ukraine (128.81TWh/year), Argentina (125.03TWh/year), and more.
But why does Bitcoin need so much energy? The answer lies in the concept of its mining mechanism.
Bitcoin’s mining process, as other “proof-of-work” crypto currencies, is deliberately based on energy-consuming computers. In its simplest meaning, mining is the process of validating (and then recording) new transactions in the blockchain network, and the people who run such computers are called miners. It is estimated that there are more than 1 million miners worldwide right now, and they all compete to be the first to validate a series Bitcoin transaction (aka Block), by solving complex cryptography puzzles.
Those who manage to solve the puzzles, get rewarded with Bitcoins as well as are paid transaction fees. However, in order to be able to find the puzzle solutions (“nonces”) fast, miners need to use very powerful machines. The more powerful, the higher chances they will solve the puzzle before anyone else.
The Bitcoin system aims at maintaining this race, by ensuring that blocks are validated approx. every ten minutes. If there are more people mining Bitcoin with more powerful computers within the network, it’s easier to find nonces in less than ten minutes. In this case, the system will increase the puzzles complexity to get back to a 10-minutes-per-block pace.
This means, the higher the Bitcoin price is, the more miners compete, the harder the puzzles get, and the more energy is spent.
Environmental Impact of Crypto
Crypto mining, like any other task that requires compute power, consumes electric power. It produces Carbon emissions that are harmful to the environment – if the used power sources are not renewable.
Based on Philipp Sandner’s study, Bitcoin’s Carbon footprint made 37.97 MtCO2eq (Carbon Dioxide million tons) from September 2020 through August 2021. Taking into account the average Bitcoin transaction size is 670 bytes, the Carbon footprint of one Bitcoin transaction makes 369.49 kgCO2e.
Diversifi Green Crypto
At Diversifi, we have built Green Crypto – a crypto Carbon offsetting solution that enables our users to offset their crypto Carbon footprint and avoid affecting the environment. The service is applicable to Bitcoin mining, Ether mining, and smart contracts execution (including minting NFTs) and is already available through the Diversifi platform for institutional investors.
Green Crypto is very intuitive: just specify the amount of BTC or ETH you want to offset. The Diversifi platform then automatically calculates and offsets the Carbon footprint. We partnered with Cloverly to determine the exact cost and execute the offset process.
Interested to learn how we offset Carbon emissions produced by crypto? In the next article, we will talk on how to calculate the Carbon footprint, how much the credits cost, and what the current offset concerns are.