While evangelists and critics argue whether cryptocurrency represents the future of money or is nothing more than a giant Ponzi scheme and haven for ransomware gangs, drug dealers and terrorists, a basic fact is often overlooked: Cryptomining devours enormous amounts of energy.

According to Digiconomist, a site that tracks Bitcoin and other cryptocurrencies, just over 0.5% of world energy goes to mining these digital coins. And well on its way to equaling the total energy consumed by data centers globally.

The Cambridge Centre for Alternative Finance (CCAF) in the UK reports that current cryptomining operations consume about 118.79 TWh a year -- higher than many countries around the world, including the likes of Argentina, The Netherlands, Finland, and New Zealand.

Yet the problem isn’t only that cryptocurrency consumes so much power -- it’s the type of power that it consumes. Around the world, previously shuttered coal and fossil fuel-powered facilities are suddenly reopening to accommodate these mining operations.

“The carbon footprint that cryptomining generates is enormous and continuing to grow,” says Camilio Mora, a data analytics professor at the University of Hawaii. “It represents a significant environmental problem.”

Power Shift

Cryptocurrency mining operations operate on a straightforward principle. Regardless of the type of crypto coin -- Bitcoin, Ethereum or Dogecoin, for example -- a miner uses a computer to solve highly complex mathematical puzzles. When a miner cracks the code on the blockchain, a digital coin is minted. As of early November, 1 Bitcoin was worth about $61,300.

Mining systems rely on specialized processors -- these typically consist of Application Specific Integrated Circuits (ASICs), GPUs or cloud mining frameworks -- to power through the blockchain puzzles. “These aren’t typical desktop computers. They are specialized machines that consume a huge amount of electricity,” says Chris Bronk, an assistant professor at the University of Houston.

Adding to the energy consumption problem is the fact that participants compete within a winner-take-all model. Greater processing power translates into higher odds of being first to grab the limited number of coins available. CCAF says that unlocking a single bitcoin requires about 150,000 kWh of electricity. The energy is equivalent to powering about 170 homes in the US over a one-month span.

Today, cryptomining companies operate enormous banks of these specialized computers. Mora and a group of researchers at the University of Hawaii found that at the current rate, Bitcoin emissions alone could push global warming above 2°C. “It is playing a substantial role in accelerating climate change,” he warns.

Mining the Business

Some, like Alex de Vries, founder of Digiconomist, argue that cryptomining is actually negating years of progress in reducing greenhouse emissions. There’s substantial evidence to support the notion. A group from the University of California, Berkeley, reported that cryptomining primarily relies on fossil fuels, with 48% of the energy derived from coal.

In fact, coal and gas-powered energy generation plants are re-opening around the world. For example, in Seneca, N.Y., a private investment firm converted a previously shuttered coal facility to natural gas in 2017. It stated that its intent was to power the grid -- though the region had no electricity shortage. Today, it operates thousands of supercomputer bitcoin mining operations at the facility.

The company, Greenidge Generation, generated electricity for 19 megawatts of mining capacity in March 2021. However, capacity is expected to quadruple by the end of 2022. In addition, the firm is drawing water from Seneca Lake for datacenter cooling but returning it at a warmer temperature. Nevertheless, the company states that the project doesn’t harm the environment and that it is 100% carbon neutral.

Another issue -- and one that’s often overlooked -- is embedded carbon in computers used for cryptomining. Manufacturing and transporting these devices requires large volumes of energy. In addition, their carbon footprint extends back to the mining and processing of rare earth materials but also to the e-waste they generate. Some estimates run as high as 135 grams per cryptomining transaction, roughly equivalent to an iPhone.

It should come as no surprise, then, that there’s a growing backlash against cryptomining -- even as Wall Street and investment firms join the cryptocurrency party. “One of the problems," Bronk says, “is that it’s not clear that bitcoin mining is contributing anything significant to society. It’s consuming enormous amounts of energy and making a few people wealthy, but not creating meaningful jobs or societal gains.”

Alternating Currents

The cryptomining picture continues to shift. In September 2021 China banned cryptocurrencies as well as all mining operations. China had been the top miner of digital coins -- with an array of companies operating in the space. The Chinese government cited a lack of transparency and anonymity in cryptocurrencies as primary reasons for the ban.

Immediately, many of the miners began moving operations out of China, and now the US has emerged as the world’s top cryptomining country. But Mora says that operations are also flourishing in developing nations with few environmental controls and near-zero regulation.

While cryptomining can conceivably be located anywhere -- including adjacent to sustainable energy sources such as a wind farm or hydroelectric facility -- this isn’t typically the case. “There is a clear pattern of cryptomining pairing with coal,” he states.

Meanwhile, the cryptomining industry says it is taking major steps to reduce the footprint of cryptocurrencies and introduce green mining methods. This includes computers and systems that easily connect with wind, solar, hydroelectric and other renewable energy components -- and use advanced battery technology.

New energy models are also emerging. For example, in Texas, a demand-response model allows cryptominers to pull electricity under normal conditions but shut down mining computers and receive rebates during peak demand periods. This, proponents say, makes it possible to use less electricity and generate a bitcoin for about $2,000 per coin, versus a typical figure of $11,000.

Some cryptocurrencies, open-source blockchain Ethereum is an example, are also building mining frameworks that require lower levels of energy to mint coins. In fact, Ethereum now bills itself as a greener alternative.

Yet the energy consumption problem and socio-political overtones aren’t likely to disappear anytime soon. Concludes Mora: “The social costs of cryptocurrency and cryptomining are something that we need to pay a lot more attention to. It isn’t clear whether cryptominers will find ways to make their operations truly environmentally friendly.”