Cryptocurrency processes electronic payments without a third party by relying on a peer-to-peer network based on cryptographic proof. This system, along with the first cryptocurrency Bitcoin (BTC), was formulated in 2008 by an individual or group under the pseudonym Satoshi Nakamoto. Since its conception, new coins such as Ethereum, Solana, and Dogecoin, which operate using similar technologies, have also emerged. By eliminating intermediaries, these cryptocurrencies have gained popularity for their low-cost transactions, accessibility, and anonymity. Whilst seeming attractive to a variety of sectors, within the operation of cryptocurrency lies an inexorable energy consumption and carbon emission drawback. What are the core mechanisms of cryptocurrency, and why are these systems linked to such high energy expenditure and carbon footprints?
Blockchain technology: The core mechanism
Cryptocurrency is a digital currency whose value is dictated by supply and demand. Unlike traditional currencies, which have ledgers accessible only to central authorities (like banks), cryptocurrencies operate on a decentralised system where all users have access to a public ledger known as the blockchain. The blockchain consists of individual blocks, each containing a list of transactions which end with a unique cryptographic number known as a hash. This number appears at the top of the next block, linking them together in a secure sequence. To update the blockchain, a computer must solve the hash, with greater computational power allowing more guesses per second, a metric known as the hash rate, thereby increasing the chances of success.
When a computer guesses the hash correctly, the user validates the transactions, adds the new block to the blockchain, and receives cryptocurrency tokens as a ‘block reward’. This mechanism, known as Proof-of-Work (PoW), ensures that blocks are only validated by someone who has invested high amounts of computational power to solve the hash. This system makes fraudulent activity financially unviable which secures the network and enables trust. Furthermore, as new currency is introduced into the digital economy, this process is referred to as ‘mining’. This not only generates new cryptocurrency but is also essential for maintaining the blockchain’s integrity.
How much energy does blockchain technology use?
Prominent blockchains like Bitcoin, which dominated over 50% of the market as of 2024, require vast computational resources. In September 2018, the Bitcoin mining network collectively computed around 50 million tera hashes per second (TH/s). By January 2024, this rate surged to over 500 million TH/s, increasing to upwards of 600 million TH/s in recent months. Due to its popularity, mining has evolved into an industrial operation, with thousands of devices housed in warehouses known as ‘crypto farms’ or ‘data centres’.
For instance, Riot Platforms operates one of North America’s largest facilities, running at 450 megawatts (MW) to support over 30,000 mining devices. Following the recent purchase of 31,500 new mining units, their power capacity is set to rise to 700 MW—nearly double their current usage. To put this in perspective, while an average U.S. household consumes around 1,214 watts of power per day, this mining operation consumes the same amount of energy as nearly 600,000 U.S. homes. Moreover, this facility is just one of 137 identified by the Energy Information Administration (EIA) in the U.S. alone. In 2022, the EIA estimated that crypto-mining operations could account for up to 2.3% of U.S. electricity consumption.
The carbon footprint of cryptocurrency
When assessing environmental impact, it is important to consider the nature of the energy being consumed and the associated carbon footprint. In 2023, Digiconomist estimated that Bitcoin’s annualised carbon footprint was 94.89 Mt, a number comparable to the carbon emissions of Nigeria. This high figure results largely from the fossil-fuel-generated energy used by crypto-mining facilities, especially given the intensive computational work required by PoW mechanisms. Studies predict that Bitcoin alone could raise global temperatures by 2°C within three decades, underscoring the urgent need to transition to sustainable energy sources. However, a study conducted by the University of Cambridge estimated that 39% of PoW mining is already powered by renewable energy.
The potential for renewable energy
Although most crypto mining currently depends on fossil fuels, there is potential for utilising more sustainable energy sources in the future. Crypto mining is unique in that it can occur anywhere, allowing it to harness energy sources that would otherwise go to waste. For example, hydroelectric power can be an effective solution. In Sichuan and Yunnan in China, large amounts of renewable hydro-energy are wasted during the rainy season, prompting miners to use this energy at low costs with a reduced environmental impact. However, continuity remains a challenge; while miners can capitalise on this surplus energy, they still need to operate during the dry season, typically relying on coal. Studies suggest that solar and wind energy may also be suitable for blockchain technology, indicating a possible shift from non-renewable to renewable energy for crypto mining.
Blockchain technology has the potential to transform the financial sector by removing intermediaries which reduces transaction costs, boosts security, and supports seamless cross-border transactions. However, the energy demands of the PoW mechanism present significant environmental challenges. Although there are encouraging efforts to decrease reliance on non-renewable energy, incentives for miners to adopt sustainable sources remains limited and regulatory frameworks are largely underdeveloped. To fully leverage the benefits of blockchain while addressing its environmental impact, establishing strong policies and regulations is essential.
