Crypto's carbon footprint and the climate impact of our digital future
Bitcoin’s energy usage is enormous. Recent studiesshow that expanding demand for cryptocurrencies and the resulting carbon emissions adds up to the overall effects of global warming. But today, there’s even more concern over the wider carbon footprint of the Fourth Industrial Revolution’s latest technologies.
What is the relation between these technologies and climate? Coined by the World Economic Forum, the so-called Fourth Industrial Revolution consists in a number of new technologies like Artificial Intelligence (AI), the Internet of Things and other distributed ledgers like blockchain. With these digital technologies come great positive outcomes and even sustainable progress. On the downside, they also consume exorbitant amounts of energy and require heavy hardware.
The CleanCoin project, part of the Climate Ledger Initiative, found that the cryptocurrencies’ greenhouse gas emissions were much higher than other forms of money: Bitcoin in particular which generates more than 10 times the amount of CO2 than a traditional banknote.
With over 7.7 million tons of CO2, its 2017 footprint was roughly equivalent to the total carbon emissions of Costa Rica for one year. And with 101 million crypto asset users – a 189 per cent increase since 2018- and two per cent of millennials’ assets invested in Bitcoin according to Charles Schwab, their carbon footprint has not improved since.
Sanna Setterwall, greenhouse gas (GHG) expert from South Pole, a Swiss carbon finance consultancy based in Zurich, said:
“The lack of accurate calculations of processing power, energy consumption, and resulting GHG emissions caused by the use of blockchain-type technology are alarming.”
Energy-hungry technologies. The core principle of distributed ledger technologies -like blockchain- is for different people to share a “database” or account books based on consensus in a decentralized system.
Cryptocurrencies - which are not always blockchain - work in more or less the same way. This distributed system with no central party goals is obtained by a process called “proof of work” - where a global network of machines races to solve complex mathematical puzzles.
Producing a valid proof of work is a costly time-consuming random process with low probability which requires a lot of trial and error “on average”. This is where proof of work can be very hungry in energy and therefore have a large carbon footprint. Bitcoin technology in particular is extremely energy demanding due to the inbuilt increased need of computing power in the system. A distributed ledger like a blockchain allows for equality and decentralization but it comes at a price.
Nick Beglinger, chief executive of CleanTech21, a Swiss foundation that organising the Climate Hacks around UN Climate change conferences, said:
“In order to have a solid security system and ensure all participants are equal, cryptocurrencies have to decentralize as much as possible which requires a lot of calculations and therefore a lot of energy.”
For AI, if the purpose is not to get consensus, the idea is to gain insight or intelligence by artificially letting computers crunch numbers – which requires also a lot of calculations- to predict what the future will look like.
Other distributed ledgers can have a much lower energy demand depending on the type of functions used to solve transactions.
Sustainable energy. Using energy is not something bad per se. The primary factor is not the quantity but whether it comes from a sustainable source. For instance, clean generation resources, such as wind and solar, produce energy without emitting greenhouse gases. Beglinger:
“It's not a problem as long as you use energy in a limited and clean way like solar panels but it’s not easy when you have 24-hour operations...”
The top six proof of work crypto assets collectively consume an average 82 TWh (terawatt per hour or a million megawatt per hour), the equivalent of the total energy consumed by the entire country of Belgium. It is “less than 0.01 per cent of the world’s global energy production per year,” according to the latest The University of Cambridge Judge Business School published in September but only 39 per cent of proof of work mining is powered by renewable energy on average - primarily hydroelectric energy (70 per cent is produced in Europe, 66 in North America and 25 in Asia and the Pacific).
The energy waste was always going to be a temporary problem, says Sheila Warren, head of blockchain and data policy at the World Economic Forum.:
“What everyone agrees on is that how crypto-miners originally started could not continue forever. They were going to eventually have to find alternative sources of power or alternative ways to mine.”
The sources of energy on which miners bet to reduce their carbon footprint are hydropower and the surplus of oil from drilling oil companies that would otherwise be wasted.
Cost-benefit analysis. If these technologies use energy, they also deliver a service so they need to be individually evaluated, says Setterwall:
“It is a complex question. IoT, for instance, is also developed to save energy from other perspectives. A broader analysis is needed to compare possible savings to the energy demand of the technology.”
“A cost benefit analysis has to be made in each specific case to see whether it makes sense or not, whether the energy and emissions spent on it are justified.”
“You have to think about this in context: if you're comparing Bitcoin to printed money, its energy footprint is ridiculous but no one really uses Bitcoin like printed money. It’s not a fair comparison. If you see it as digital gold - mining gold is very energy intensive- Bitcoin comes out okay.”
AI can even have very positive sustainability effects and help tackle climate change. A 2019 report, Tackling Climate Change with Machine Learning, lists 13 potential fields where it can help finding solutions. It can give better climate predictions and simulations thanks to data and climate science, which show the effects of extreme weather or measure where carbon emissions come from.
How to reach digital sustainability? CleanCoin provided digital “wallet holders” tools to track their progress and reduce their carbon footprint over time. A set of solutions applicable to all the technologies of the Fourth Industrial Revolution:
Proof-of-stake: A more energy efficient alternative to the proof of work system to verify and validate a transaction or block. In proof of stake, everybody can vote but the votes of those with a lot of coins count more so there are less turns in voting. Although Warren puts it into perspective:
“Proof-of-stake is not amazingly climate friendly, it's just better than proof of work.”
Putting compliance and regulation in place: in its third study, the University of Cambridge Judge Business School notes a progressive harmonisation in standards (only two out of the five firms surveyed are licensed and they are located in Europe).
Green labels: certifying that the technology is driven by renewables or use more energy efficient systems.
More efficient or even renewable hardware.
Where does Switzerland fit in? With plentiful safe and clean hydro power even if not the cheapest, a cool climate to mitigate the heating of mining, a stable crypto-friendly government and a very important innovation environment with the ETH and universities, Switzerland has been steadily building its reputation as a hub for cryptocurrency and blockchain industries. The canton of Zug, home of cryptocurrency founder Ether and the Ethereum Exchange platform and more than 200 start-ups, has been dubbed “Crypto Valley”. According to the Swiss Federal Council, the country aims to become “the crypto nation” and “a green crypto financial center”.