Bitcoin is red hot. Can it ever be green?

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Crypto is destroying the planet? Digital assets such as Bitcoin depend on so-called miners whose giant server farms consume electricity day and night to run the networks that support them. The industry’s carbon footprint has grown so rapidly that its alarming climate activists, governments and other big energy consumers. China banned crypto mining in 2021 and Elon Musk stopped accepting Bitcoin as payment for his Tesla electric cars. When Bitcoin rival Ethereum reduced its power consumption in a major upgrade in September, it pressured other parts of the crypto world to clean up their act.

1. How much energy does crypto use?

Estimated bitcoin power consumption has grown from an annual rate of 14 terawatt hours in 2017 to 105 terawatt hours in 2021, more than all of Belgium’s domestic consumption, according to the Cambridge Center for Alternative Finance, which maintains an estimate. current. He expects demand to decline in 2022, when a fall in the value of crypto assets pushed some miners out of business. However, the Digiconomist research platform has projected that the pollution created by electricity generation for crypto will still amount to around 64 million metric tons of carbon dioxide in 2022, more than the annual global emissions avoided through increased use of electric vehicles.

2. Why does crypto need so much energy?

To order transactions on a blockchain, Bitcoin and many other networks use an algorithmic process called hashing. This produces a number that miners compete to guess in a brute-force effort that can involve trillions of tries. The first to succeed is rewarded with newly issued coins through a process called proof of work. As more and more miners enter, the guesswork is made more difficult, forcing them to invest in ever more powerful machines. Many miners now have thousands of computers working in cavernous warehouses.

3. How are miners trying to reduce their carbon footprint?

Some have settled in places like Norway and Texas, where there is often plenty of emission-free solar, wind or hydropower. The miners say their presence encourages the development of these clean energy sources by helping to balance the grids – buying up surplus renewable energy when it’s plentiful and shutting down their computer banks when the demand for electricity threatens to exceed supply. Some miners have installed solar panels above their server rooms or struck deals to buy low-carbon nuclear power. Others source their electricity from surplus natural gas that would otherwise be flared or burned just to get rid of it.

4. So, is crypto getting greener?

It’s hard to say. A February 2022 study in the research journal Joule estimated that the environmental impact of bitcoins worsened after China’s mining ban, with the share of renewable energy used to power the grid rising from more than 40% in 2020 to around 25% in August 2021. Some miners moved closer to carbon-free energy sources after the ban, while others popped up in places where coal still dominates the energy mix. The picture was further clouded by the crypto winter of 2022, which saw some less efficient mining operations disappear.

5. How are governments reacting?

Some oppose the mining of cryptography to protect their environmental goals and the stability of their power grids. China’s ban was a response to power shortages that forced the government to cut industrial output. Iceland, Iran, Kosovo, and Singapore have also restricted crypto mining. The European Commission urged member states in October to end tax breaks for miners and be prepared to close them, in response to the region’s energy crisis. Some governments would prefer to reserve renewables for older, energy-intensive manufacturing industries trying to decarbonize.

6. Is the carbon footprint of cryptos an obstacle for users?

This has prevented some large companies and investment funds committed to fighting climate change from investing in crypto. Ethereums is moving to a new system known as proof-of-stake, where people offer or stake some of their tokens for the chance to order and validate blocks of transactions, further reducing its power consumption. 99%. Ethereum backers hope this will change the minds of developers who had avoided using the platform for finance, gaming and other applications due to its large carbon footprint.

7. What does this mean for Bitcoin?

Climate activist groups have called on bitcoin supporters to come up with their own low-power technology, but many die-hard token supporters are against meddling in the system. And it’s unclear who would lead such a change. The Ethereum switch was initiated by the Ethereum Foundation, which was created to ensure the long-term success of the tokens. A number of organizations champion Bitcoin, but it has no clear leader.

–With help from Eric Lam, Olga Kharif and Josh Saul.

More stories like this are available at bloomberg.com

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