Cryptocurrencies entered our daily life and got our attention around 5 years ago in 2016 when Bitcoin started booming. People use cryptocurrencies as an investment or as a gateway for anonymity but how big is their impact for the environment?
The first cryptocurrency created is Bitcoin which first started in 2009. Bitcoin is using a consensus mechanism called Proof of Work (PoW), which is used to verify the integrity of a block but also protect Bitcoin from the famous double spend attack. While integrity-wise it is very efficient, it has really big requirements for processing power. This processing power requires more electricity which produces carbon dioxide for its production. An estimate of how much processing power is consumed to “mine” Bitcoins, can be monitored real time using Cambridge’s Bitcoin Electricity Consumption Index [1]. At the time that this article is written it is consumed on average 128 TWh per year.
An average consumption for a household is around 30KWh per day which would make an average of 10MWh per a year. Bitcoin mining is currently using 10 million times the average consumption, so the size of a whole country like Greece. The maximum potential consumption can be 4 times bigger that that and this is where these famous articles for consumption bigger than the whole Argentina come to play. While this is not accurate because these a lot of times do not calculate the way this energy is produced. 1KWh produced with solar energy has completely different carbon dioxide emissions compared to energy coming from coal. So keep in mind that these are estimates and not the exact impact.
Similar mechanism is used by Ethereum which improves the existing Bitcoin mechanism by adding smart contracts, which can be used to automate processes which include payments but not limited to. Ethereum’s current energy consumption index is around 26TWh per year [2], which is lower that Bitcoin’s but still huge. Ethereum averages around 1 million transactions per year for the past year (2020-2021)[3]. This makes a consumption around 65KWh which produces an estimate of 46kg CO2 [4]. For comparison an email produces around 4g CO2 [5], one hour of Netflix produces 36g CO2 [6], driving a car for 1km produces 0.25kg CO2 and 1 hour use of an MacBook produces around 0.02kg of CO2 [7]. Using the previous information an Ethereum transaction is equal to driving a car for 185km.
An alternative to Proof of Work is Proof of Stake, which does not produce new coins but the validation happens by adding a small fee for the transaction. This transaction fee is transferred to the validator who confirmed the transaction. The validators are chosen randomly based on the number of stakes and there is no need for enormous processing power since it is not based on who will “guess” the secret code first. Multiple cryptocurrencies like Tezos, NEO and Dash use Proof of Stake for transactions and Ethereum is expected to switch too in the near future.
Sources
[1] Bitcoin Electricity Consumption Index
[2] Ethereum Energy Consumption Index
[3] Ethereum Daily Transactions
[4] Greenhouse Gas Calculator
[5] Carbon Cost of Email
[6] Carbon Dioxide Produced Per Hour of Netflix
[7] Ethereum consumption comparison
Further Reading
- The Unreasonable Ecological Cost of #CryptoArt
- Energy power usage CryptoArt, ETH, Blockchain
- Proof of Work vs Proof of Stake