Crypto is a Gamble for Your Wallet and the Planet
Not only is cryptocurrency a risky investment, its creation uses a shocking amount of energy.
Bitcoin mining farms like this run 24/7, 365 days a year, using immense amounts of energy.
If you’d asked me about it in 2009, Bitcoin was just a digital currency I was tempted to buy so I could advance in a Facebook game. More than a decade later, Bitcoin and other cryptocurrencies like it have become both a valuable investment — according to the celebrities promoting them — as well as a method by which these same people get paid.
Full disclosure, I did invest about C$200 in cryptocurrency at my brother’s insistence two years ago when crypto exploded. But I have recently learned that even though digital currencies are good for lining the pockets of the rich and famous, they could be really bad for the environment.
What is cryptocurrency, again?
Often abbreviated to just “crypto,” cryptocurrency only exists in a digital format, and is secured by cryptography (hence the name) to prevent counterfeiting or double-spending. While regular currency is usually regulated by a central authority — like the Bank of Canada, which is wholly owned by the Canadian federal government — crypto is decentralized. Instead of relying on that central authority to create trust, crypto does so by having every transaction recorded on a publicly available ledger called a “blockchain.”
“The core idea is that you’ve created a system, a database, where you can transfer value without the involvement of a trusted third party,” says Dr. Andreas Park, a professor of finance at the University of Toronto.
Crypto is typically “mined” by computers solving equations or mathematical puzzles. These computers run 24 hours a day, 365 days a year. Given that there are currently thousands of cryptocurrencies, and that a crypto mine can contain anywhere from thousands to a million computers, to say that crypto uses a lot of energy is an understatement.
How much energy does it use?
Digiconomist — an independent “platform dedicated to revealing the unintended consequences of digital trends” founded by a Dutch PhD student in economics — has created the Bitcoin Energy Consumption Index to answer this question. In March 2022, the frequently updated index reported that a single Bitcoin transaction produced approximately 1 metric tonne of carbon emissions, 370 grams of electrical waste, and used approximately 2200 kilowatt-hours (KWh) of electrical energy — equivalent to an average American household’s power consumption over about 73 days. That’s a lot for one transaction.
Annually, the site estimates the entire Bitcoin network uses over 200 terawatt-hours (TWh, or 1 billion KWh) and emits 114 megatonnes (Mt) of carbon. Those figures are comparable to the yearly power consumption of Thailand and carbon footprint of the Czech Republic. Maybe it’s just me, but it seems ridiculous that a currency emits as much carbon as a country of 10.6 million people going about their full, carbon-intensive lives.
The Cambridge Bitcoin Electricity Consumption Energy Index created by the University of Cambridge’s Centre for Alternative Finance (CCAF) has a lower estimate. It calculates that the Bitcoin network uses approximately 137 TWh of electricity annually. This is still more than the United Arab Emirates, which CCAF estimates uses nearly 122 TWh per year. Again, for one cryptocurrency to use an entire country’s worth of energy is shocking.
Meanwhile, the platform that hosts Ether (arguably the biggest crypto player after Bitcoin) uses nearly 270 KWh and emits 150 kg of carbon per transaction, according to Digiconomist. Annually it uses over 112 TWh and emits about 63 Mt of carbon, on par with Serbia’s carbon footprint. The combined annual electricity usage of these two major crypto platforms (approximately 317 TWh) is only slightly lower than the electricity usage of the UK (331 TWh), Digiconomist estimates.
I should note that electricity usage is not synonymous with carbon impact, which only Digiconomist currently measures — though the CCAF is working on it. But since less than 30% of the world’s electricity was generated from renewable sources in 2021, I feel comfortable assuming most crypto mines aren’t fully powered by low-carbon energy sources like solar or wind — and the energy they are powered by will be contributing to climate change.
Can crypto be greener?
Crypto mining uses so much energy because many currencies use the “proof of work” (PoW) protocol to mine new tokens. PoW, as I understand it, rewards the computer that has done the most computational work (solved the mathematical puzzle the fastest) with whichever currency it is mining. But there are alternative protocols that use less energy.
In “proof-of-stake” (PoS) mining, users have to “stake” tokens they already have — sort of like a security deposit — for the opportunity to mint more. With the “proof of burn” protocol, users have to send tokens to an unspendable address — essentially destroying, or “burning” them — for a chance to mine more. “Proof-of-capacity” mining determines which computers are allowed to mine based on the amount of hard-drive space they have available.
If any of these protocols were more widely adopted, crypto could become greener. But they would also give people with more tokens or hard drive capacity an advantage, which is the antithesis of crypto’s decentralized, democratic ethos. So I’m skeptical they will be widely adopted.
Ether planned to transition to proof of stake in 2019, but pushed it forward to 2022 due to security issues. If Ether successfully transitions to PoS this year — and I am not convinced it will — it could motivate other cryptocurrencies to do the same. This could reduce crypto’s energy consumption, but it is a big “if.” It feels unwise, to me at least, to invest in energy-intensive cryptocurrencies in hopes they might eventually become greener, while climate change disasters are wreaking havoc around the world — including North America — right now.
Many crypto enthusiasts defend its environmental record by arguing that digital currency uses less energy than traditional banking, or the transportation and agriculture industries. They also tend to point out cryptocurrencies mined with green or renewable energy as proof that crypto is environmentally friendly.
For argument’s sake, let’s compare the annual energy usage of a cryptocurrency (Bitcoin, with an estimated 106 million users in 2021) to a payment system (Visa, which claimed 2.5 billion cards in use in 2015). In its 2020 Environmental, Social & Governance Report, Visa stated it consumed 0.2 TWh of energy in the forms of electricity, natural gas, and other fuels. In contrast, Bitcoin consumed something like 60 TWh of electricity in 2020, based on averaging both Digiconomist’s and CCAF’s monthly figures. The difference is almost comical.
Even if one compares crypto’s energy usage to the global banking system it aims to replace, the numbers of people involved are dramatically different. A 2021 report published by popular exchange platform Crypto.com estimates that there are 221 million crypto users worldwide. Meanwhile the World Bank Group estimates that 1.2 billion adults obtained a bank account between 2011 and 2017. And those are just the new accounts opened during those years. If crypto were to become widely accepted and used by even a fraction of bank users worldwide, its energy consumption would presumably no longer be lower than banking’s.
Enthusiasts also often point to carbon offsets as a way to neutralize crypto’s environmental impact. But I’m not convinced that this solves the problem. Especially since carbon offsets are — as a four-month-long investigation by the Christian Science Monitor and the New England Center for Investigative Reporting found — a scam at best.
Would crypto going green solve all its problems?
Whether we’re talking about fashion, the oil industry, tech generally, or crypto specifically, environmental destruction often gets ignored when profit is on the line. But for most of us, investments in crypto probably won’t be particularly profitable either. Even if all cryptocurrencies somehow quickly transition to less energy-consuming protocols and/or only use renewable energy, this won’t solve the underlying problem with digital currency. And that underlying problem is that most, if not all, cryptocurrencies are a bit of a “crock” as Dr. Henry Kim, a professor at York University’s Schulich School of Business, refers to them in an interview with Asparagus.
Cryptocurrencies — initially meant to be an alternative to physical cash, free from external interference, manipulation, or regulation — now resemble stocks. People buy and trade them in hopes they will go up in value and the owner will make a profit. Like stocks, crypto’s value usually increases as more people buy it. This has led speculators to buy numerous tokens of a specific currency to create the illusion of demand and artificially inflate its price, before making a profit by selling them to buyers who fall for this illusion.
This, as Park emphasizes, is not a good economic model. “If your idea of a good investment is you’re going to find some idiot… to sell it to in the future, that is a problem,” he says. “Because that person who wants to buy it in the future from you also has to find somebody in the future. You iterate this forward. It’s not going to work.”
There’s also the fact that crypto’s decentralized nature leaves its users financially vulnerable. For example, if someone loses the password to their crypto wallet, or is defrauded out of it, there is no intermediary who can help them recoup the loss like there would be at a bank. Neither can an intermediary help someone if they have their tokens stolen by hackers, or buy fraudulent tokens to begin with.
So, what do we do?
Ultimately, the decision about whether to invest in crypto is an individual one, but in the same way the decision to litter is. While all of us are free to do both, it seems wrong to do so at the expense of our planet. I certainly can’t continue to invest in cryptocurrency knowing that the possibility of my investment making me rich is hypothetical, but the odds of it harming the planet are real.
Print Issue: Spring 2022