This is 8 Minutes a podcast helping you understand the energy and climate challenge . In just a few minutes , I'm your host , paul Schuster . Cryptocurrency has gone from a hobbyist fascination to a legitimate industry in its own right . Since Bitcoin was first introduced in 2009 , the market has simply exploded .
But crypto consumes a lot of energy , and the growth and popularity to these alternative financing technologies has led some to claim that the crypto craze has done more harm than good , especially for the environment . Today I'll dig into this controversy .
I'll try to stay away from the inherent debate around the value of crypto as a finance tool , but we'll focus on how it's mined , the energy it uses and what the industry is doing to minimize its growing impact on emissions .
8 Minutes it's how long it takes the sun's rays to Earth , or well , 50 years ago , on August 11 , 1973 , at a birthday party in the Bronx , we were introduced to a new form of music . So let's raise a toast to 50 years of hip-hop and drop the pin on Rapper's Delight , which will take about 8 minutes to listen to .
Let's get it on 129 terawatt hours of electricity is a lot of energy Enough to power a small country , or the amount of annual electricity usage to mine Bitcoin . According to the Cambridge Center for Alternative Finance , that energy usage is likely to only grow . All that electricity leads to a lot of emissions , too .
The Sierra Club , in partnership with Earthjustice , released a report estimating that between mid-2021 to mid-2022 , the cryptocurrency industry emitted over 27 million tons of carbon into our atmosphere . Why is it so power-hungry ?
Let's try to get a basic understanding as to how crypto is mined currently and what that means for the environment , using Bitcoin as an example . That currency consists of a whole string of blocks , and any new blocks are added to the end of that chain . Think of it as the Fed printing new money .
These new blocks are the blockchain's way of printing new money , but not just . Anyone can add a new block .
That needs to be earned , and the method that Bitcoin uses to prove that you've earned the right to add a block is something called proof of work , and proof of work basically involves a really complex computation that consumes a ton of time on computers and servers , which uses a lot of energy , and what's more is that Bitcoin incrementally increases the difficulty for
each subsequent block in the chain , which means you have to run those computers even harder to get the next block proofed out .
In fact , the difficulty for Bitcoin blocks has increased by about three and a half times over the last couple of years , which means that computers are likely using over three times as much electricity to generate the same value that they did earlier .
And then let's complicate it a bit further , as Bitcoin is set to do what's called a halving in mid-2024 , where the successful crypto miner only gets half of what they did in 2023 . Which implicitly means that it will take twice as much computing power for the same value going forward . Crypto mining is time consuming , it's energy consuming and it's getting worse .
It already consumes about a third of what the global financial community also consumes and only a fraction of the same value . But that doesn't necessarily mean that everything crypto is bad for the environment . The industry has gone out of its way to address these concerns and burnish its green credentials .
For one thing , about half of the energy used by crypto miners is sourced from renewable energy generation . Why ? Well , it's cheap , and if energy is your biggest operating expense , it makes sense to locate your facility where you can access the lowest cost source of power that you can find , which is increasingly new renewable generation .
And while that's impressive that the crypto industry has embraced renewable so much . It also raises something of a philosophical question If crypto hadn't consumed those renewable electrons , would that power have been used by other industries ? Would it have retired a coal facility earlier , instead of having both load in crypto usage and generation in renewable supply ?
Both rise at the same time and this is where some of the crypto activity starts to break down . In its environmental messaging , for instance , there's a real argument to be made that crypto computing could be used as something of an energy sponge for the grid .
During times of really sunny weather or high wind conditions , the grid currently has to shut down renewable facilities in order to avoid overloading the power network . That curtailment is really massive in areas like California and Texas and represents a real lost opportunity to generate clean power .
Could co-locating crypto facilities with those renewable assets mean that , instead of curtailing power , the power simply goes to the mining activities , helps to boost the financial case for the renewable project and maybe get a few more built ? But that means that the facility needs to be directly connected to the renewable asset in order for that effort to work .
Simply locating it nearby but pulling power from the grid isn't going to cut it , or , worse , signing a power purchase agreement with a fossil generating station , which is what happened in Miriam , indiana .
Here , a 1000 megawatt coal facility was set to be decommissioned by Hoosier Energy , but a PPA by a bout-bit , a cryptocurrency miner , saved the facility by allowing them to funnel cheap electrons to the crypto miner , probably against reducing emissions and greening the grid , the activity actually extended the life of a domestic coal generator .
Now it's uncertain as to whether that was a one-off anomaly or a trend , but it is concerning . Elsewhere , though , crypto is trying to assess its impact on the environment , such as with Ethereum , which recently launched Ethereum 2.0 that shifted the proof-of-work model to a proof-of-stake model .
It'll really difficult to prove you deserve a block on the chain , but the energy usage in a proof-of-stake model could be 99% less than that in a proof-of-work . Or take Energy Web Foundation , which is launching a pilot in Australia called Project Edge .
Here , the blockchain tokenizes the electricity being generated from rooftop solar panels and enables those owners to sell that power directly back to the grid or to neighbors or to whomever , maximizing their ability to get revenue from their panels .
In fact , the tokenization of renewable power has a lot of great implications , from tagging renewable energy certificates with a time of day stamp or by using smart contracts to harmonize renewable power agreements across regions and technologies .
Blockchain and cryptocurrency could be a supporter of greenhouse gas reductions by co-locating facilities with renewable projects to reduce curtailment by tokenizing power and opening up the opportunity for peer-to-peer trading or hourly matching by utilizing smart contracts .
But it's not going to get there by greenwashing the industry with PR around siting facilities close to a wind project or God forbid signing a PPA with a coal facility . More needs to be done , and soon as alike it or not , the energy demands for blockchain and cryptocurrency are likely only to increase over the foreseeable future .
I'm Paul Schuster and this has been your 8 minutes .