EarthTalk: How is cryptocurrency harmful to the environment?

Dear EarthTalk: I don’t get how cryptocurrency is so bad for the environment?

— L.H., via email

Cryptocurrency’s impact on the environment is a big cause for concern. While cryptocurrencies (e.g., Bitcoin, Ethereum) offer various benefits, such as decentralized transactions and financial inclusivity, their underlying technology, known as blockchain, has significant environmental drawbacks.

One of the main environmental issues associated with cryptocurrency is its energy consumption. The process of “mining” cryptocurrency involves complex mathematical calculations that require substantial computational power, primarily from fossil fuel sources. The Bitcoin network relies on a consensus mechanism called Proof-of-Work (PoW), which demands vast computational resources that consume more electricity than entire countries like Argentina or Ukraine. As a result, the carbon footprint of Bitcoin alone is substantial, contributing to greenhouse gas emissions and exacerbating climate change.

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Furthermore, the energy requirements of cryptocurrency mining have led to the emergence of large-scale mining operations, often located in regions where electricity is cheap and abundant. These mining farms consist of rows upon rows of powerful computers running around the clock, consuming vast amounts of energy. In some cases, they rely on coal-fired power plants, a highly polluting energy source.

Another ecological concern is electronic waste. As mining becomes more competitive, miners require increasingly powerful and specialized hardware. This leads to a constant cycle of upgrading or discarding older equipment. The discarded waste, which contains hazardous materials, poses risks to both the environment and human health. Moreover, the popularity of cryptocurrencies has contributed to a surge in demand for graphic processing units (GPUs) and other hardware, which has led to supply shortages and inflated prices, as well as the creation of new manufacturing facilities. The production of these components requires significant amounts of energy and raw materials, further straining the environment.

It’s worth noting that not all cryptocurrencies have the same environmental impact. Some newer cryptocurrencies, such as Ethereum, are transitioning from PoW to a more energy-efficient consensus mechanism called Proof-of-Stake (PoS), which requires validators to hold and “stake” a certain amount of the cryptocurrency, eliminating the need for energy-intensive mining. This transition could potentially reduce the impact of some cryptocurrencies in the future. Another option is the use of renewable energy sources for operations, reducing the industry’s carbon footprint. Additionally, more widespread adoption of PoS and other energy-efficient consensus mechanisms could help minimize energy consumption.

Of course, cryptocurrency’s recent fall from grace in the wake of crypto giant FTX’s late 2022 flame-out might be a good thing for the planet. The moral of the story on the evolution of cryptocurrency is that as we continue to explore and develop new forms of digital currency, it is crucial that we prioritize sustainability and consider the long-term environmental effects of the tools and instruments we are unleashing on the world.

Fred Thiel, chief executive officer of Marathon Digital Holdings Inc., talks about the challenges facing Bitcoin miners and how they’re facing more pressure from regulators in Washington. He’s on “Bloomberg Crypto.” Follow Bloomberg for business news & analysis, up-to-the-minute market data, features, profiles and more: http://www.bloomberg.com Connect with us on… Twitter: https://twitter.com/business Facebook: https://www.facebook.com/bloombergbusiness/ Instagram: https://www.instagram.com/quicktake/?hl=en


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