Crypto Mining: The Energy Debate

Crypto mining is one of the popular alternative ways people make money from crypto. Beyond that, new coins cannot be produced and many crypto transactions cannot happen without miners. 

However, mining consumes lots of power and has adverse impacts on the environment. 

Because of its environmental impact, some people oppose Bitcoin mining activities. But their opposition has not exactly stopped the thousands of miners worldwide, and their number keeps increasing. 

How can individuals and businesses contribute to the reduction of the various atmospheric risks associated with cryptocurrency mining? Read on to find out. 

What is Cryptocurrency Mining?

Mining is the process through which Bitcoin and similar cryptocurrencies verify transactions and create new coins. It involves individuals called miners solving mathematical puzzles to add crypto transactions to a block on a blockchain. 

Once the block is filled, all the transactions in it will be completed and the information about the new transaction is permanently stored on the chain. 

For context, when you send BTC from your cryptocurrency hardware or software wallet to another person, a miner works behind the scenes to validate the transaction and ensure the recipient gets the equivalent amount of BTC. 

Once the transaction block is filled, the miner receives mining rewards. Currently, the reward for mining a BTC block is 3.125 BTC per block. This is because miners are like the blockchain’s auditors who prevent security issues like double-spending. So, they get paid for their work. 

The current mining reward took effect after the 2024 Bitcoin halving event, and every miner gets their rewards added to the coin’s circulating supply, thereby creating new coins through their activities.

Why Does it Require High Energy Consumption?

Crypto transactions are decentralized, which is why decentralized finance (DeFi) platforms and blockchains can execute automated transactions without third parties like banks.

In other words, crypto mining is the automated way of validating cryptocurrency transactions using blockchain technology. However, the transaction validation process requires large amounts of energy because the network relies on powerful hardware and software devices. 

Miners need to connect sophisticated hardware, such as Application-Specific Integrated Circuits (ASICs), to the blockchain network to solve mining cryptographic puzzles and get transactions assigned to them. 

These devices require a lot of electricity and computational power. According to the Cambridge Bitcoin Electricity Consumption Index, the electricity usage of Bitcoin mining can be as high as 240 terawatt-hours (TWh). 

Moreover, blockchain mining difficulty also impacts energy consumption. Mining-friendly blockchains like Bitcoin adjust their mining difficulty from time to time to ensure miners validate transaction blocks at a specific rate. 

As more miners join the network, the network increases its mining difficulty to make it harder to solve the cryptographic puzzle. This requires more powerful tools and higher energy consumption. 

Since the network depends on this to ensure transactions run smoothly and there are thousands of such devices on the market, it’s easy to see why some people have concerns about its impact on the environment and its long-term sustainability. 

Which Cryptocurrencies Use Mining For Transactions?

While crypto mining is popular, it’s crucial to note that not all cryptocurrencies use the transaction validation model. To understand this better, let’s talk about the popular consensus mechanisms blockchains operate with. 

Proof-of-Work 

The proof-of-work (PoW) consensus mechanism uses mining activities to secure its blockchain networks. So, any cryptocurrency that requires miners to validate transactions operates using proof-of-work. 

The network participants solve complex mathematical tasks and the fastest miner to do so gets the transaction assigned to them. Afterward, the transaction is successfully validated and they get rewarded with new coins that are added to the blockchain. 

When speaking of cryptocurrency and its environmental impact, it’s actually PoW blockchains that contribute the most. These blockchains require high computational power and energy to function. So, any coin you can mine uses the PoW consensus mechanism. 

Examples of PoW coins include Bitcoin, Litecoin, Dogecoin, Bitcoin Cash, Monero, and Ethereum 1.0. 

Proof-of-Stake

The proof-of-stake (PoS) consensus mechanism is a newer crypto validation model that uses less energy to confirm transactions. Unlike PoW, which uses network miners, PoS secures its blockchains and creates new tokens by using validators. 

In other words, PoS doesn’t require mathematical puzzles and intensive energy to execute transactions. Instead, validators stake their assets in a smart contract. Crypto staking requires locking up your assets for an agreed period, but you may unlock them if you want to. 

In PoS, the network chooses validators based on the number of their staked assets. So, the more coins you lock up in a staking pool, the better the odds of your node being selected to validate transactions. 

It’s important to note that there’s no fixed reward in the PoS ecosystem. After validating transactions, you’ll receive new crypto based on your percentage of stake in the overall staking pool. So, how much you staked determines your reward. 

For instance, the new Ethereum 2.0 operates using PoS, and you need to stake 32 ETH to join the validator network. The ETH staking reward is around 4% to 7% per year. That means you’ll get about 1.6 ETH to 2.24 ETH annually if you stake 32 ETH for that period. 

Besides Ethereum 2.0, other cryptocurrencies using PoS consensus include Cardano, Polkadot, Solana, Tron, and Polygon. Due to the low energy required to operate, their environmental impact isn’t as significant as PoW blockchains. 

What Are the Environmental Impacts of Crypto Mining?

Cryptocurrency mining negatively impacts the environment in many ways. Some of the ways Bitcoin mining activities affect the environment include:

Growing Carbon Footprint  

Some miners use fossil fuels and natural gas to power their equipment. These emit toxic gasses into the atmosphere, contributing to environmental issues like global warming and climate change. 

For instance, Digiconomist states that the Bitcoin network contributes about 95 million tons of carbon dioxide (CO₂) to the global annual volume. This is about the same amount of gas emissions in small countries like Nigeria. 

Since there are still numerous PoS networks out there and more are being created, it’s safe to say the carbon emissions won’t slow down anytime soon. 

Growing Water Footprint 

Besides its air pollution, Bitcoin mining activities also contribute to global water consumption. Mining equipment generates a great amount of heat and needs to be cooled to prevent overheating, resulting in increased water consumption. 

In a year, Bitcoin mining consumes over 2600 gallons of water. According to data from Digiconomist, the mining water footprint is similar to the total water consumption in a country like Switzerland. 

So, if mining activities happen in countries with limited water resources, the residents will suffer due to reduced water supply. 

Electronic Waste 

Crypto mining activities also contribute to a considerable amount of IT equipment waste globally. Since mining hardware like the ASIC gets old and wears out quickly, miners often discard them and upgrade to newer ones within a short period. 

Since these tools are difficult to discard or recycle, they become physical wastes.  

According to the same data source, about 31,000 tons are generated in IT equipment waste per year due to crypto mining. This is equivalent to the same waste figure in the Netherlands. 

Increased Energy Consumption 

As stated earlier, crypto mining tools are sophisticated and they require lots of power to run. The more mining activities around a location, the more electricity miners consume. 

For context, Bitcoin mining alone consumes about 170 Terawatt hours (TWh) annually, which is equivalent to the power consumption of a relatively small country like Poland. 

That means electricity providers can make miners their primary customers and deprive people in some locations – particularly local communities – of adequate power supply. 

The major driver of these impacts is the increased interest in Bitcoin and other cryptocurrencies, especially as investors are keen on investing in the bull markets. With an increase in the fear & greed index and the fear of missing out (FOMO), the energy consumption of Bitcoin and similar in-demand cryptocurrencies increases. 

Can Crypto Mining Consume Less Energy?

Cryptocurrency miners can reduce their electricity consumption through various means. Some argue that they can use renewable energy like solar and wind to power their machines. Others suggest mining pools that allow users to combine their resources instead of having individual mining stations. 

However, there are arguments in some quarters about the limitations of these mitigative measures. For instance, powerful mining hardware will still be relied upon by Bitcoin miners, contributing to heat, gas emissions, and other highlighted challenges. 

So, the most effective way to drive down the adverse effects of crypto mining on the environment is to embrace more proof-of-stake projects. These projects do not require extensive computing power or tools, making them environmentally friendly. 

For instance, Ethereum’s carbon dioxide emission was reportedly about 35.4 million tons in 2022, but it dropped to 0.01 million tons after it switched from PoW to PoS. Like Bitcoin mining, validators also get rewarded for their efforts, so miners can be reduced. 

Other consensus mechanisms like proof-of-history (PoH), and proof-of-authority (PoA) also rely on smart contracts and do not require energy-intensive equipment. 

If you’re a developer or company looking to build the next green crypto project, you can collaborate with crypto service providers like Zypto to bring your project to life. 

We have tailor-made solutions, including custom blockchain project development to support businesses looking to contribute to the reduction of the environmental impacts of crypto mining activities. You can contact us to learn how we can be a part of your project. 

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Personally, which would you prefer between PoW and PoS if you were building your own Web3 project? Leave a comment below to let us know your thoughts.