The crypto industry has recently been in the news for all the wrong reasons: from a chilling bear market that’s seen the sector lose more than $2 trillion in less than a year to an assortment of high-profile bankruptcy cases involving blue-chip crypto companies such as FTX, Celsius Digital, and Voyager.
To add to the misery, loud rumblings are emerging from pro-environmental groups calling out crypto mining for its high energy consumption and adverse carbon footprint.
Change the Code, Not the Climate
Recently, a coalition of environmental groups began a campaign to change the proof-of-work (PoW) consensus mechanism used to create digital currencies such as Bitcoin (BTC) to reduce their energy consumption, which has increased significantly in the last few years.
Total BTC energy consumption 2017-2022. Source: Cambridge Centre for Alternative Finance
Crypto, especially Bitcoin, is popular among some investors. Still, its energy consumption has enraged environmentalists, alarmed some lawmakers, and pitted the sector against a green movement with a fair degree of support from Wall Street.
Greenpeace USA, the Environmental Working Group, and other affiliated organizations have been running advertisements in publications such as the New York Times, Politico, and The Wall Street Journal, highlighting crypto’s environmental impact and advocating for change.
Some advertisements were aimed at prominent crypto supporters such as Twitter CEO Elon Musk, his predecessor, Block Inc. founder Jack Dorsey, and Fidelity Investments CEO Abby Johnson.
The campaign, dubbed “Change the Code, not the Climate,” sought to convince crypto stakeholders, from mining companies to investors and software developers, that a change is better for the environment and crypto’s reputation and support.
The Deadly Sins of Bitcoin Miners
The group specifically targeted Bitcoin mining, a process that uses the old-fashioned PoW consensus protocol to create new units of the popular cryptocurrency. According to the Cambridge Centre for Alternative Finance (CCAF), BTC consumes about 110 TWh per year, roughly equivalent to the energy used annually by small countries like Sweden, Switzerland, or Malaysia.
Data from Nature Climate Change also suggests that broader adoption of BTC could see the cryptocurrency produce enough CO2 emissions to raise global temperatures by 2°C, which is the upper limit for global warming.
The pro-environmental groups have also alleged that Bitcoin mining has resurrected fossil fuel use. They claim companies such as Pennsylvania-based Stronghold Digital Mining have resorted to buying entire coal plants to satisfy the enormous power requirements of their crypto-mining operations at a time when the world is moving towards reductions in fossil fuel use.
According to publicly available information, Stronghold burns about 600,000 tons of coal waste to run nearly 2,000 mining rigs annually.
The group further alleged that besides making deals with Texas oil producers to use flare gas to fuel their operations, BTC miners also used highly controversial fracked gas.
Fracking, a fuel extraction process that uses large amounts of highly pressurized sand and water in combination with toxic chemicals, has received a lot of negative press in the last few years. Primarily because of the vast amounts of natural resources it consumes and the negative effect it has on air and water quality.
The Solution Is Proof-of-Stake
The “change the code” movement argues that Bitcoin could reduce its ruinous energy use by a whopping 99.9% if it changed its software code to a low-energy protocol such as proof-of-stake (PoS). The group pointed to the Ethereum (ETH) network’s recently successful shift to PoS as proof of what is achievable.
Popularly known as the “Merge,” Ethereum’s transition to PoS was executed on Sept. 15, 2022, and according to the blockchain, it has resulted in a 99.95% reduction in energy consumption.
Proof-of-stake uses a blockchain’s native token instead of complex, energy-intensive calculations to protect the network and create new cryptocurrencies.
On the other hand, proof-of-work requires miners to use sophisticated computing hardware to calculate complex mathematical values, which consumes enormous amounts of energy.
According to the Crypto Carbon Rating Institute (CCRI), since its switch to PoS, Ethereum uses an estimated 2.6 MWh per year, which is about 0.0026 TWh.
ETH’s annualized energy consumption compared to that of BTC and other industries. Source: Ethereum.org
As the chart above shows, Ethereum’s annualized energy usage since the Merge is 30,000 times less than what it consumed in its PoW days. It’s also between 38,000 and 50,000 times less than what Bitcoin uses, depending on the data source.
Ethereum’s annual electricity consumption also translates to a yearly carbon emission of around 870 metric tons of CO2e if you apply region-specific carbon intensity factors. According to CCRI, Ethereum’s new emission figures are a 99.92% reduction from a previous high of 11,016,000 metric tons of CO2e.
Consumers Demand Sustainable Products
While the din for BTC and other proof-of-work cryptocurrencies to follow ETH’s example has reached deafening levels, doing so without sacrificing security and decentralization won’t be easy. It took Ethereum developers years of concerted research and development, with many false dawns and broken promises.
Additionally, many miners still prefer the PoW protocol, as it offers much better rewards than PoS. But pro-environment groups’ continued scrutiny of the industry could soon make their business model untenable.
More and more consumers are aligning themselves with environmentally responsible brands and products. According to a report by the Economist Intelligence Unit, consumers are interacting with sustainable businesses in previously unanticipated ways. This is not a trend limited to first-world countries. Consumer behavior in developing and emerging economies is also linked to climate change concerns, with many expecting companies to commit to protecting nature and natural systems.
The chart below shows the growing number of Google searches for sustainable products between 2016 and 2020. In that period, there’s been a marked increase in the number of people looking for environmentally sustainable products, not only in the major economies but globally.
Google searches for sustainable products 2016-2020. Source: Economist Intelligence Unit
In another survey by McKinsey, 66% of all respondents and 75% of millennial respondents said they consider sustainability when making a purchase. Furthermore, 72% of respondents said they were actively using more environmentally friendly products than they were five years ago, and 81% said they expected to use even more in the next five years.
Customers are now more amenable to brands and sectors that share their values and priorities. And with many people placing a high value on environmental stability, it’s critical that businesses, including crypto miners, do their part to reduce their carbon footprint or face a potential exodus of eco-savvy users.
In addition to the socioeconomic consequences of the pressure from pro-environmental groups, there’s also a real possibility that the noise could reach the ears of lawmakers and policymakers responsible for formulating regulations to govern the crypto industry.
Cryptocurrency regulations are still not clear-cut in many jurisdictions around the world, and growing jitters caused by all the recent scandals in the sector, coupled with calls to curb PoW-based crypto mining by environmental activists, could see governments take more rigid stances against players in the industry.
A recent report by the White House Office of Science and Technology Policy (OSTP) could have dire consequences for crypto mining regulations in the United States.
In response to President Biden’s executive order urging the responsible development of digital assets, the report paints a similarly poor picture of the industry. The OSTP indicated the total global electricity usage for crypto-assets ranges between 120 billion and 240 billion kWh per year—more than many countries’ total annual electric consumption.
The tremendous amounts of electricity used to create crypto-assets result in approximately 0.3%, or 140 million metric tons, of greenhouse gas emissions per year. Miners in the United States produce between 25 and 50 million metric tons of that total.
Combined with the other environmental factors, OSTP suggests crypto mining could impact the ability of many countries to meet their Paris Agreement goals, let alone avoid some of the most severe effects of climate change.
Among its many recommendations, the OSTP report called for lowering emissions and electric costs, maintaining grid reliability, and avoiding negative impacts on communities and the environment. The report also recommended stiffer legislation to severely limit or eliminate PoW consensus if the crypto-mining industry doesn’t achieve the desired results.
Pro-environmental groups are dead serious about their stand on crypto mining. Given the mounting pressure on consumers and regulators, the sector could be forced to a tipping point sooner rather than later.
There’s no doubt that mining is environmentally unsound. The data can attest to this. Therefore, crypto miners need to mitigate the circumstances by adopting more green energy if they are to survive the current onslaught from environmentalists. Additionally, they could also look to buy carbon credits to offset their footprints. Regardless of the solution, it needs to be found fast because a lot of money is being thrown at these environmental campaigns, and more people are taking notice.