Cryptocurrency Mining and the Environment
Introduction
With Crypto mining valued at almost $2.5 Billion (as of 2022), this industry has high significance. The days of mining for cryptocurrencies on laptops overnight have ended and have been replaced by large-scale firms. Firms strictly invest in machinery with the hopes of making money from mining cryptocurrencies. The rise of crypto mining has largely been due to the rapid rise of crypto’s value, but also due to many companies such as Nvidia and AMD making crypto mining far more efficient and profitable. However, we must address the environmental impacts of the large-scale crypto ‘farms’ that require an enormous amount of power and resources. This is especially important as it has come to global leaders’ attention in COP26 and COP27. Crypto sustainability and crypto mining will become important problems that many leaders around the world will have to address. This article will be useful to all those seeking information on these problems.
Chain 1: What is Crypto Mining?
In short, Crypto mining is the process where computers ‘create’ or ‘find’ new cryptocurrencies by solving extremely complicated and lengthy mathematical problems that verify transactions in the currency. In essence, rather than visualizing it as a ‘mine’, you can think of it as a vast network of decentralized computers that verify and secure these transactions. As a reward for doing this, they are awarded new coins. This is done through computers that can use their internal processors and solve these problems in order to acquire the cryptocurrencies. Whilst it can be visualized as computers such as the ones we have at home doing these processes, when we think of crypto mining today, we tend to think about large-scale corporations that have machinery that only has the computer’s processor. Although it is possible to mine for crypto at home, most environmental impacts of crypto mining are caused by these large corporations (such as Marathon Digital Holdings or Riot Blockchain).
Chain 2: How does this affect the Environment?
Just as every computer needs electricity for it to function, the same premise applies to crypto mining. In order for these computers to do calculations and verify the transactions, they require a lot of power. In fact, crypto mining requires so much power that researchers from Cambridge University found that Bitcoin uses more electricity than Argentina’s annual electricity consumption. Yes, the whole of Argentina! This does not even take into account other major cryptocurrencies such as Ethereum or Litecoin. The amount of energy required to do calculations for one bitcoin transaction has the same carbon footprint as the average American household in 65 days. The Industry was responsible for an excess of 27.4 million tons of carbon dioxide between mid-2021 and mid-2022, which was the highest it has ever been. But it doesn’t just end there. It’s not just the electricity used for mining that accounts for the environmental impact, the environmental cost of the production for all the machinery used as well as the construction of these warehouses or ‘farms’ should be taken into account. This is especially important as the production of all this machinery has its effect on the environment, they lead to a lot of wasted material and require a lot of expensive components that are not easily manufactured.
Chain 3: How do they get away with it?
Miners are able to mass-mine cryptocurrencies in various ways. Firstly, the cost of mining really only comes down to two things. The first is electricity which is required by the processors. Many mining companies have struck deals with other firms or governments to purchase electricity for a cheaper rate and if they still find that electricity is too expensive, they have every reason to just move to an area where electricity is cheap. This is often the defining factor for the location of a crypto mine and the sheer amount of flexibility when it comes to these crypto mines have made it very easy for these farms to just relocate. Another option for many of these firms is to just make power purchasing agreements or to just outright buy power plants. Unfortunately, most of this cheap electricity comes from fossil fuel power plants, as they often provide the cheapest way of generating electricity. The other cost of mining comes down to the investment in capital and machinery. There is great competition between Nvidia, AMD, and Intel on the graphics cards and processors, the prices of these have become very competitive, and this has made crypto mining much easier and more profitable for firms. The unfortunate truth is that it is very easy for firms to get away with their carbon footprint as it is very easy for them to relocate and in order to maximize profit, they have no intentions of switching to renewable sources; fossil fuels just so happen to provide the cheapest and easiest form of electricity that is producible on demand.
Chain 4: What has been done to help the Environment?
Local, national, and global policymakers and regulators can help reduce and ensure that the impacts of the mining of cryptocurrencies will have a lesser impact on the environment. But sadly, not much has been done. There isn’t really a specific ‘crypto mining tax’ or any hard regulations that governments have imposed. And to be honest, why would they? The moment crypto mining seems unprofitable in any area of the world, it doesn't require too much investment to relocate somewhere else where electricity is far cheaper and their firms can reduce the amount of tax they pay or even become tax-free. The only exception where legal action has been done to reduce the environmental impacts of crypto mining is China, where they banned all domestic crypto mining in June 2021, followed by a complete ban on all cryptocurrencies in September 2021. Of course, this is significant as China was and has been by far the leading crypto miner for many years. However, the downhill turn of China’s crypto mining industry saw the uphill rise of crypto industries in other countries, most notably Canada, the USA, and Kazakstan. Another way to reduce the environmental impacts of crypto mining would be to implement new mining hardware. We have seen some of this: Intel announced in February 2022 that they will make an ‘energy efficient’ semiconductor that is specifically designed to reduce energy consumption. This aims to reduce power by nearly 95% which would then make it more environmentally friendly. However, experts are skeptical about the impact this will really have as not many firms are looking to invest in more crypto mining machinery, and also it may just lead to firms using more chips which would increase the overall amount of energy required.
Conclusion
Whilst China’s aggressive tactics of placing bans on crypto may not be a policy other leaders around the world look to replicate, there are still many ways in which governments can reduce the impact. Taxes may be a good idea as it may place stress on firms to mine so aggressively and it may also place stress on firms to update their hardware to more efficient parts. Overall, if more renewables are present in the energy industry and we slowly move away from coal and gas at an affordable rate so that firms don't relocate, it would serve as ultimately the best way of moving away from the environmental disadvantages. This will be challenging, especially for all countries around the world, but in the future, if we are able to achieve this, it may get rid of most of the problems associated with crypto mining and would heavily reduce its carbon footprint. This will require time while governments wait for their energy to become carbon neutral. However, other actions should also be taken, both nationally and internationally.
