Crypto Mining— Environmental Burden or Boon?
Every ten minutes, a race takes place across the world. Over one million participants frantically compete to solve a newly issued cryptographic math problems using computer systems. But perhaps a better word than solve is guess: the rules of this race dictate that all participants should tediously guess and check their answers until a winner stumble upon the correct answer. The winner’s purse: 6.25 bitcoin (~$132,000) and the right to add or “mine” one block to the bitcoin blockchain. This process, already familiar to many technologists today, is known as Bitcoin’s proof-of-work consensus mechanism.
While it doesn’t take much processing power for just one miner to take a few guesses at the jackpot, recall that there were around one million participants total, each guessing as many times as they can until they win or (more likely) lose.
What do their tireless efforts mean for their energy bills? For the world’s energy grid?
The annual energy impact of this mining amounts to around 91 terawatt-hours: an amount greater than the electricity consumption of Finland (a country of 5.5 million people). That’s almost 0.5% of all electricity consumption worldwide, and 10 times jump from aggregate mining energy consumption just five years ago. At face value, this seems like a devastating amount of energy usage and impact on the world’s energy grid. In a global ecosystem already threatened by climate change and other environmental challenges, such insatiable energy consumption can't be sustainable. Or can it?
What if this race doesn’t even need to happen? For some blockchains such as the Ethereum network, the shift towards proof-of-stake consensus has just been realized. The new methodology accomplishes the same objectives as the proof-of-work mining race, but without the need for an entire network of miners to validate transactions. Instead, only a single randomly selected validator would be asked to mine each new block. The lucky miner would stake their own digital assets as collateral to guarantee that their mining efforts were performed honestly and securely.
With the new engine being fully online, the Ethereum Foundation estimates a 99.95% reduction in ongoing energy usage. Such a drastic improvement could mark the end of energy-intensive mining for one of the world’s largest blockchain networks. Still, for other blockchains like Bitcoin, proof-of-work consensus may be forever encoded in their digital DNA. So, how can proof-of-work blockchains like Bitcoin become more sustainable? Remember the $132,000/6.25 BTC prize waiting at the finish line of every race: Miners only participate in the race because it is profitable. In this case, their profit is simply the block reward minus their energy bill. To increase margins, miners all over the world have gravitated towards cheaper power and renewable power.
Depending on location and infrastructure, renewable forms of energy like wind power are often at least half as expensive as coal and other nonrenewables. In fact, 39% of today’s proof-of-work miners use renewable energy to power their mining efforts, and the desire to reduce energy costs in mining is already driving new and creative investments in renewable energy. The tie between renewable energy and the proliferation of crypto mining can be seen in renewables-rich countries like Iceland, where a purely geothermal and hydroelectric power grid drives down energy costs for crypto miners. Other renewable-rich and crypto-friendly states are taking this synergy to what we might even call a green extreme, because it’s both financially and environmentally sustainable.
Shortly after becoming the first global state to accept Bitcoin as legal tender, El Salvador and ts government leveraged the geothermal energy of volcanoes to power their mining hardware. Although the financial results of Bitcoin adoption have not been as positive as the country hoped, their steps toward sustainability could inspire several others. Even in energy economies that haven’t fully adopted renewable energy, crypto mining has found a role in stabilizing energy grids. Bitcoin batteries involve using surplus nonrenewable energy to mine bitcoin. This not only balances energy grids but also frees up excess capital for reinvestment in renewables.
As other global communities begin to follow suit and find other creative means of sourcing energy for mining, the costs behind the seemingly unsustainable practice of proof-of-work mining may become a much smaller concern. Like any other nascent technology, renewable energies will continue to improve as investment and research progress. Consider the journey that solar panel technology has made: The modern-day solar panel is 47.1% efficient in harvesting sunlight, while the first solar panel produced was barely able to achieve 14% efficiency. While 47.1% is not a passing grade in most contexts, each fraction of a percent in efficiency improvement is a decrease in energy production costs. This, in turn, leads to an increase in profit for miners, and even more encouragement to continue investment in renewables. Of course, this trend towards cheaper and greener energy isn’t just important to profit-hungry miners.
As more governments, companies, and communities invest in renewables, green energy will continue to be more efficient at lower costs, creating a virtuous cycle of further investment by miners and others. In other words, Bitcoin itself can provide the incentive to create more renewable grids. Though widely criticized as a burden on our planet’s power grid and ecology, blockchain mining is poised to change. More sustainable methodologies have come to the forefront, and more renewable energies are becoming viable sources for mining. As investment grows in both cryptocurrency and renewable energy, blockchain solutions can continue to disrupt our world’s financial models without disrupting its climate. The race is on for a more energy-efficient future of mining.