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Cryptocurrency has a carbon problem

Updated: Jun 15, 2023

How bad is Crypto's carbon problem and what can we do to regulate it?

Bitcoin by Dhritti Shah

What is Cryptocurrency?

Cryptocurrency is a decentralized digital currency. Currencies like the rupee, dollar, etc are issued by central banks and are physically available in the form of notes and coins. Cryptocurrencies are decentralized- anyone can create new currencies or create more of the existing currencies. These currencies have no physical form. All transactions in cryptocurrencies are recorded on the blockchain which is an electronic list of transactions and this list is impossible to alter.

What is Crypto Mining and How does it cause Carbon Emissions?

An investment in bitcoin at the beginning of 2020 would have yielded an exponentially higher return than an investment in gold or the S&P 500 (500 of the largest publicly traded American companies.) As a result, cryptocurrencies as a whole have captured enormous investor interest.

[Performance of bitcoin vs gold and S&P 500 in 20201]

There are two ways of acquiring cryptocurrency:

  • Buying the crypto on an exchange by using conventional currency; or

  • Cryptocurrency mining.

During the process of mining, miners track the source of the money being spent, prevent double-spending of the same money and create a unique hash value to identify the correct block of transactions. Miners are rewarded with a given number of coins for their efforts.

As the value of cryptocurrency soars, the number of miners and the electricity needed to mine coins soars as well. Mining is a competitive sport. If ten computers are trying to verify transactions simultaneously, the winning computer must verify transactions accurately and be the first to generate a hash value. Only the fastest and most accurate computer will be rewarded with coins while the other nine computers will gain nothing. Now imagine this on a global scale- millions of computers are utilizing electricity but only one of them will be rewarded and this process can go on infinitely.

Corporate miners tend to set up shops in places with cheap electricity to utilize maximum computing power at the lowest possible cost. Cheap sources of energy are generally the most polluting.

Cryptocurrency & Carbon Statistics

Current emissions

The Cambridge Bitcoin Energy Consumption Index studied the extent of the energy consumption crisis:

[Energy consumption of bitcoin vs developed countries]

Bitcoin mining alone consumed 140 Terawatt hours of energy. This exceeded the annual energy consumption of developed countries like Chile and Greece.

[Carbon emissions of bitcoin vs large corporations]

The study also highlighted that bitcoin emitted more carbon dioxide than several large corporations & was almost at par with the emissions generated by the US Federal government as a whole.

Projected emissions

China currently accounts for more than 75% of the bitcoin network’s mining power. Analysis by Tsinghua University in Beijing, China, suggests that the total carbon footprint of bitcoin mining in China will peak in 2024, releasing around 130 million metric tonnes of carbon. This figure exceeds the annual carbon emissions of countries including Italy and the Czech Republic.

Technical Solution

Proof of stake

Under the current system, many computers simultaneously try to compute the hash value but only the fastest computer is rewarded. Under a proof of stake system, the miner of a new block is chosen by the network at the initial stage based on certain parameters.

For example3:

If you hold 100 coins and the other miners in the pool only have 50, you are more likely to be chosen.

Or; if you have held that 100 coins for more than a year, compared to someone who has held 100 coins for a month, your chances of being chosen increase.

This system prevents competition and wastage of electricity by unsuccessful miners. However, it works on a model wherein ‘the rich get richer’ as a person already having a high number of coins is automatically preferred to mine more coins.

The lightning network

The lightning network enables off-the-chain transactions. If you intend to transact multiple times with your friend, you only need to record the following transactions on the blockchain:

  • Opening of the payment channel.

  • Opening balance in your account and your friend’s account.

  • Closing of the payment channel.

  • Closing balance in your account and your friend’s account.

All the transactions between opening and closing need not be recorded on the blockchain. This cuts down energy consumption as miners need not waste computational power to verify petty transactions.

However, considering the extreme volatility in crypto prices, it is undesirable to make payments to businesses or people that you transact with frequently.

Regulatory Solutions

Government regulation

Regions with cheap electricity and a dry temperate climate are most attractive for crypto mining. Hence, Quebec and the Inner Mongolia region of China have witnessed a surge in mining operations. In light of huge power consumption, towns in Quebec have declared mining moratoriums in the past. These moratoriums were lifted under the condition that mining companies will create local employment and that at least 10% of their electricity will be sustainably produced from heat generated by the mining rigs.

Mongolia’s crypto farms run on coal-powered electricity. To meet its clean air goals, the government of China has banned mining operations from April 2021, forcing miners to move their equipment elsewhere in China where operations can be powered by renewable sources of energy.

However, to circumvent the regulation, many Chinese companies have moved overseas to Kazakhstan, Iran & Malaysia where they once again have access to cheap and polluting power sources.

Crypto Climate Accord

Popular crypto companies such as Ripple and Consensys have decided to self-regulate and entered into a crypto climate accord with the following objectives:

  • to enable all of the world’s blockchains to be powered by 100% renewables by 2025.

  • Achieve net-zero emissions for the entire crypto industry, including all business operations beyond blockchains, by 2040.

However, the success of this accord depends entirely on the initiative of the participants as crypto is yet to face universal emission-based regulations.


A blanket ban on cryptos will lead to unregulated mining & stealing of electricity. Governments around the world should mandate crypto mining through renewable sources of energy and ensure that such energy is available at competitive prices.

Increasing ESG awareness has led crypto companies to self-regulate which is an encouraging sign. The decentralized and autonomous nature of crypto gives it a unique platform to reject conventional systems and pivot to renewable energy quickly and efficiently.


Magazine, B. (2021, January 1). Bitcoin Will Rise Above $100,000 In 2021. Nasdaq.

Matt Hussey. (2021, January 19). Proof of Work vs Proof of Stake: What is The Difference?

Lu, D. (2021, April 6). Bitcoin mining emissions in China will hit 130 million tonnes by 2024.New Scientist.

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