What is the environmental impact of crypto mining?
Bitcoin! Blockchains! Environmental Crisis?
Whether you’ve got a diverse portfolio of stable and unstable coins, or you’re just sick of hearing the topic brought up at parties - it's worth knowing exactly how much of an impact the global crypto industry makes on the environment. Knowledge is power either way.
Australians are becoming more conscious of the environmental impact of their finances, so if you’re thinking of putting your money into crypto you should consider the footprint that crypto might be leaving.
The environmental impact of cryptocurrency is a product of how much electricity is used in the production process, or mining.
So is it headed to the moon, or straight towards disaster?
What is bitcoin mining?
Here’s a crash-course in crypto mining: the easiest way to explain mining for currencies like bitcoin, is to think of it as follows:
- You leave your computer idling away overnight, and the processors chug away towards solving a really complex maths problem.
- When your computer has solved enough of these puzzles, it unlocks a fraction of a bitcoin that you can trade over the web or sell for more conventional currency like AUD. This is called ‘proof of work,’ and it's what gives these currencies their value.
- The more powerful your computer is, the faster it can solve these puzzles to generate more of the currency - but the kicker is: it also uses more electricity.
So essentially - more computing power = more money, but more electricity demand.
How much electricity does crypto mining use?
Since crypto mining has become a global industry, the amount of electricity that it takes to run all the millions of computers has skyrocketed. It used to be talked about like the difference between running your air-con in the summer or not.
But in 2022, it’s estimated that globally crypto currency mining uses 131 Terawatt Hours of electricity.
For perspective, last year Australia’s annual electricity consumption was 182 Terawatt hours of electricity. Bitcoin will soon pass the electricity demands of many of the world’s countries.
Is it bad for the environment?
Using electricity for bitcoin mining is not inherently bad for the environment - the problem is that it's driving a massive growth in electricity use globally.
We’ve known for a long time that the growth of crypto-currencies would mean a massive jump in electricity use. The more people who are trying to mine, the more electricity each coin takes to decode.
The growth of the crypto industry has often led prospective miners to seek out cheap sources of electricity, but this doesn’t mean they are renewable. Bitcoin miners will get power wherever they can, and for the lowest possible cost.
So while a lot of the world is trying to reduce electricity use, or ensure that it is generated sustainably, the runaway growth of the crypto industry puts more pressure on energy grids that are trying to become carbon neutral anyway.
It's like deciding to go on a diet, so you promise to only eat ice cream on weekdays. The two goals aren’t exactly working together all the time.
What is the environmental impact of crypto mining globally?
The topic has recently jumped back into the news following China’s decision to regulate the crypto-mining industry in September 2021.
Since banning mining and trading of cryptocurrencies, the many miners who made money from the practice have moved into countries without major renewable energy infrastructure.
As a lesser of two evils, it's better for bitcoin mining to draw electricity from sources like hydroelectric and wind power. China’s decision to outlaw crypto means that miners are simply going to move to places where they can get cheap electricity, whatever the source.
Alex De Vries, a leading academic on the subject reckons that crypto-mining is now responsible for “65.4 MtCO2 annually, which is comparable to country-level emissions in Greece.”
That number could soon grow to the size of Australia’s emissions, if the projected growth of bitcoin continues over the coming years.
Bitcoin mining in Australia
The Australian government has been advised to consider tax breaks and concessions for bitcoin mining operations that can draw their power from 100 percent renewable sources.
In October 2021, the Australian Senate proposed changes to the rules around Capital Gains Tax (CGT) for cryptocurrency and digital assets, hoping to update Australia’s laws to account better for a technology that's shaping the future.
A proposed site in Byron Bay is planning to operate bitcoin mining on 100% renewable energy, using 20 Mw of solar electricity. The future of crypto mining in Australia clearly holds a lot of potential, the question is if people will be able to capitalise on this in an environmentally renewable fashion.