Environmental Impact of Cryptocurrency
Cryptocurrency has grown from a niche curiosity to a subject that everyone seems to be talking about. Its meteoric rise has drawn bigger attention to cryptocurrency mining, a process used to enter more crypto into circulation. Crypto mining requires a lot of energy due to the time and computer processing power involved, prompting serious environmental concerns that are being addressed through the creation of more energy-efficient methods.
To learn more about the environmental impact of cryptocurrency, check out the infographic below, created by Maryville University’s online Master of Science in Cybersecurity program.
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<p style="clear:both;margin-bottom:20px;"><a href="https://online.maryville.edu/blog/environmental-impact-of-cryptocurrency/" rel="noreferrer" target="_blank"><img src="https://online.maryville.edu/wp-content/uploads/sites/97/2022/07/Environmental-Impact-of-Cryptocurrency.png" alt="The environmental impact of cryptocurrency mining." style="max-width:100%;" /></a></p><p style="clear:both;margin-bottom:20px;"><a href="https://online.maryville.edu/online-masters-degrees/cyber-security/" rel="noreferrer" target="_blank">Master's in Cybersecurity Online</a></p>The Rise of Cryptocurrency
Cryptocurrency’s growth in popularity makes it necessary to understand what it is and does, starting with the basics.
What Is Cryptocurrency?
Cryptocurrency, or crypto for short, is a digital asset created by computer networking software. Because of its digital design, it allows for secure ownership and trading.
The asset is supported by what is known as the blockchain, a concept that requires its own level of understanding. The blockchain tracks which person owns a specific item, makes each record tamper-resistant and secure, and operates in a decentralized fashion. This means that there is no centralized authority like a government or bank associated with it. This decentralization increases transaction transparency, security and integrity, as all users control assets collectively and all transaction records are irreversible and viewable by all.
Cryptocurrency is also highly volatile for several reasons. First, it’s a nascent asset class, so its price hasn’t settled into a predictable range yet. It’s also in limited supply: Bitcoin, the most famous cryptocurrency, has a maximum threshold of 21 million. The lack of government regulation also makes it subject to increased volatility, as there is no central authority to step in and subdue or bolster the markets.
Cryptocurrency by the Numbers
As of 2021, cryptocurrency had a global market value of $1.63 billion. This number is projected to reach $2.73 billion by 2025. Cryptocurrency has also penetrated the public consciousness: 86% of Americans have heard at least a little about it, 24% have heard a lot about it, and just 13% haven’t heard about it at all.
Some 16% of Americans have invested in crypto, with more men investing than women (22% versus 10%). Asian individuals lead the way on this path, as 23% have invested, followed by Hispanic (21%), Black (18%), and white (13%) people. The dominant age demographic is adults 18 to 29 at 31%, and this demographic skews toward men — 43% of men 18 to 29 have invested in crypto versus 19% of women in this age range. Additional investment levels by age category include adults 30-49 (21%), adults 50-64 (8%), and adults 65 and older (3%).
Popular Cryptocurrencies
Investors have more than one form of cryptocurrency to consider. Bitcoin is the most famous and most highly valued, with a market capitalization of $729 billion as of February 2022. Other noteworthy cryptocurrencies include ethereum ($321 billion), tether ($79 billion) binance coin ($62 billion), USD coin ($53 billion), and XRP ($35 billion).
Key Cryptocurrency Terms
Becoming familiar with a few crypto terms is important even for non-investors. Blockchain, for example, is a technology that builds a permanent, unchangeable transaction ledger. Another key term is node, which describes a computer that links into the blockchain network. Wallets are a place to store cryptocurrency holdings virtually. Non-fungible tokens, or NFTs, are units of value representing ownership of singular digital items. Finally, mining describes a process that makes new cryptocurrency coins available.
Cryptocurrency and the Environment
Cryptocurrency may be virtual, but the environmental issues it may create are real. Crypto mining is a competitive process through which transactions on a cryptocurrency blockchain are verified. A miner can “win” the process and gain a portion of the newly created currency by being the first to solve certain equations. The computers used to conduct mining need to have very powerful processing hardware to continuously run these equations, and using this equipment continuously consumes large amounts of electricity. As its popularity continues to increase, its inefficient energy usage will also grow into a bigger threat to the planet.
Cryptocurrency and Energy Use
The competitive cryptocurrency mining process verifies and adds new blockchain transactions for a specific cryptocurrency via a proof-of-work (PoW) algorithm. The winning miner earns some currency or transaction fees in return. Sometimes, they earn both.
Cryptocurrencies were deliberately designed to be difficult to mine. This difficulty prevents monopolies on blockchain networks. The downside to this mining process is that it requires a lot of processing power. The computers that mine crypto require high amounts of energy to complete the process. The bigger the power, the better the chances of success.
Environmental Consequences of Cryptocurrency
Bitcoin mining uses an estimated 204.5 TWh of electrical energy per year, an amount comparable to Thailand’s annual power consumption, according to Digiconomist. Breaking things down further, a single bitcoin transaction used 2,292 kWh as of February 2022, which equals about 79 days’ worth of power consumed by the average American household.
Another consequence concerns cryptocurrency’s carbon footprint. Bitcoin produces an estimated 114 million metric tons of carbon dioxide annually. What’s more, most bitcoin mining facilities are in regions that rely heavily on coal-based power. For instance, 35% of bitcoin mining happens in the U.S., and 18% of bitcoin mining occurs in Kazakhstan — two countries that are heavy users of fossil fuels.
Creating a More Environmentally Friendly Cryptocurrency Process
The world has begun to recognize cryptocurrency’s environmental impact. This acknowledgement has spurred explorations into making cryptocurrency a greener process in different ways.
Cryptocurrency Restrictions
As of late 2021, nine countries had banned cryptocurrency, and 42 more had restricted crypto transactions. Notably, China banned crypto mining in May 2021. This action caused more than 50% of global miners to drop from the cryptocurrency network. China then banned crypto outright in September 2021. It wasn’t just countries imposing restrictions, either: Elon Musk suspended bitcoin as accepted currency for Tesla as of May 2021.
Cleaner Energy Resources
There has been an increased push to move away from fossil fuels and eco-unfriendly processes. For instance, more than 50% of American bitcoin mining relies on renewable energy sources. Additionally, newer mining facilities are being built in locations that primarily rely on renewable power. These facilities have attracted miners displaced from other countries.
The Rise of Alternative Cryptocurrencies, or “Altcoins”
The push to move beyond bitcoin has coincided with the creation of more environmentally friendly crypto forms. For example, litecoins require only about one-fourth of the time to be mined. SolarCoin, another digital asset, allocates one coin per every megawatt hour produced via solar technology. Additionally, the proposed cryptocurrency ethereum 2.0 seeks to eliminate the mining required for ethereum’s current blockchain function.
A Brighter, Greener Future
Cryptocurrency is here to stay. As such, it’s important to make sure crypto mining has limited environmental impacts. By encouraging the use of cleaner energy and stepping away from fossil fuels for mining, the growing world of cryptocurrency doesn’t have to fuel concerns of climate damage.