A study of power consumption in IT would not be complete without a look at one of the biggest offenders – and at a problem that has grown exponentially in recent years: cryptocurrencies. To the user, cryptocurrencies are an efficient, decentralized way to send money around the world, but behind the scenes, the infrastructure that supports crypto mining is consuming power at an alarming rate.

Bitcoin mining alone consumes approximately 91 terawatt-hours of electricity per year [1]. A single US home uses approximately 11,000 kilowatt-hours per year, which means that bitcoin mining consumes as much energy as 8 million homes – more than seven times the total amount of used by Google – and that number is growing every year as Bitcoin gains popularity. According to a recent study [2], if you take the total energy cost of bitcoin mining divided by the total number of bitcoin transactions, every bitcoin purchase has an energy cost of over $100 – even if you're just buying coffee or flagging an Uber.

And keep in mind that Bitcoin is only one of several competing crypto technologies. Overall, the electricity used for crypto mining is about half a percent of all electricity used across the globe (or the same amount of energy used to power the state of Washington for a year). That number has increased by a factor of 10 over the past five years. Obviously, this level of power usage is not sustainable – especially if cryptocurrency becomes the dominant form of currency exchange, as some experts predict.

What's the Problem?

Blockchain technologies such as Bitcoin work by adding blocks (groups of transactions) to the chain (the complete trail of all blocks, recording all transactions since the beginning of the currency). The blocks are signed and interconnected through cryptographic hash values. The details are quite complex, but for the purposes of this discussion, computer installations called bitcoin miners perform the task of guessing a hash value that will validate the block and ensure that the block can be added to the chain. The method used with Bitcoin and other leading cryptocurrencies is called proof of work. In a proof-of-work scenario, miners race each other to discover the correct value, and whoever gets there first is rewarded with bitcoins (BTC). The current reward for mining a new block is 6.25 BTC. At this moment, one bitcoin is worth around $42,000, so this reward is quite significant (more than $262,000), although Bitcoin miners often band together to share the work and split the prize. There is a lot of incentive to get there first, which has caused a rush to larger and more powerful computer systems.

Another feature built into the Bitcoin algorithm is that the puzzles used to validate the blocks are not supposed to get solved too quickly, so as the computers mining bitcoins get faster and more powerful, the problems automatically get more difficult. This increasing difficulty further expands the hardware and escalates power usage.

And of course, the rising value of Bitcoin builds in a big incentive for more powerful systems. By design, Bitcoin inventor Satoshi Nakamoto capped the number of bitcoins at 21 million units to make the currency scarce and control the inflation that would inevitably arise from an unlimited supply. This scarcity, and the current demand for bitcoins, has brought on a price that Satoshi Nakamoto probably never imagined when the system was invented. The amount of the reward halves after the creation of every 210,000 blocks (which equates to roughly four years), so the reward in bitcoins has dropped over the years, but the equivalent reward in dollars has exploded due to the explosion in the Bitcoin price.

That halving of the reward means that the best time to mine bitcoin is right now, not later, which only adds to the current frenzy. It could also mean that, after the next halving, miners will need to throw even more hardware at the problem to try to earn an equal amount.

To stay competitive, companies must employ the newest and fastest hardware to keep up. Another effect of the cryptocurrency gold rush is that hardware turnover is ramping up. As machines become obsolete, more and more electronic waste is produced. According to Digiconomist (Figure 1), the annual total electronic waste created by cryptocurrency mining is at 34.14 kilotons per year, or 382.6 grams of e-waste per transaction [3].

Figure 1: The electronic waste monitor at the Digiconomist site tracks the waste caused by Bitcoin, Ethereum, and Dogecoin.

What Kind of Energy

When it comes to long-term climate effects, the question isn't just "how much energy?" but also "where did the energy come from?" Bitcoin mining that takes place in areas that rely on wind, solar, and hydropower has a smaller carbon footprint than mining in areas that depend on coal. However, the difference between "clean" and "dirty" bitcoin mining is sometimes difficult to quantify, given the interconnected nature of the electrical grid. A study in the energy journal Joule [4] reports that China's recent ban on crypto mining has forced miners to relocate to neighboring areas with less renewable power, resulting in an overall increase in the global carbon footprint of 17 percent.

Another recent development is to use energy that is currently going to waste for crypto mining. For instance, enterprising miners have begun locating portable crypto-mining rigs near oil fields to use the energy that is currently burned off as waste through a natural gas flare [5]. In that case, the carbon footprint is high because the energy source is natural gas, but the rig is running on energy that would otherwise have gone to waste. These kinds of innovations help, but the scale is too small to make an impact on the overall trend leading to more energy consumption for crypto mining.

What Is Being Done?

Governments around the world are starting to wake up to the need to address the energy cost of crypto mining. China has banned crypto mining outright. As this issue goes to print, the Biden administration has just released a comprehensive executive order on cryptocurrencies, which includes a directive to "support technological advances that promote responsible development…" including the need to reduce climate impacts. Meanwhile US, Senator Elizabeth Warren and others have raised the alarm about the energy cost [6], and a bipartisan bill to provide for more regulation of the cryptocurrency industry is currently being debated. In the state of New York, a bill to establish a moratorium on proof-of-work crypto-mining techniques is currently in committee [7]. In the EU, European Securities and Markets Vice-Chair Erik ThedÈen called for a ban on proof-of-work crypto mining [8], stating that too much of the renewable energy gain in his native Sweden is getting used up by bitcoin mining, making it difficult for the country to migrate its overall footprint to more renewable sources.

Several alternative cryptocurrencies make an effort to address sustainability issues in various ways. According to LeafScore (Figure 2), a site that tracks and ranks cryptocurrencies by sustainability [9], the most sustainable cryptocurrency is SolarCoin [10], which creates one SolarCoin for every megawatt-hour generated from solar technology. This cryptocurrency is a service that rewards users in cryptocurrency for solar installations. The company goal is to incentivize solar electricity production.

Figure 2: The LeafScore website keeps a list of the most sustainable cryptocurrencies.

The next on the sustainability list is Powerledger [11], which offers a customized design based on the Solana blockchain to take advantage of the Solana's scalability. Powerledger has partnered with Midwest Renewable Energy Tracking System to help facilitate the trending of Renewable Energy Certificates (a market-based instrument that certifies the bearer owns one megawatt-hour of electricity that was generated by a renewable source).

As of now, these sustainable cryptocurrencies trade at very low volumes. At this time, the best way to truly make a difference to the overall power usage of the cryptocurrency industry is to take on the industry heavyweights. Most experts believe that will require a change to the proof-of-work model used for mining cryptocurrencies such as Bitcoin and Ethereum. One promising option that has emerged as an alternative to proof of work is the proof-of-stake mechanism. Rather than allowing a multitude of miners to race each other to the solution, as is the case with proof of work, the proof-of-stake model calls for miners to put up a stake, a pledge that acts as a kind of deposit for the right to mine the block. Features built into the proof-of-stake model provide the necessary redundancy and ensure that a single operator can't monopolize the system. The security and stability of this model largely depend on the details of the implementation and how the work is incentivized.

The Ethereum cryptocurrency currently uses proof of work but is in the process of migrating to a proof-of-stake protocol. In Ethereum's version of proof of stake [12], a user must put up 32 ETH to become a validator. (An ether, abbreviated as ETH, is the unit of exchange in Ethereum – currently trading at around $2,700.) According to the Ethereum website, "Validators are chosen at random to create blocks and are responsible for checking and confirming blocks they don't create. A user's stake is also used as a way to incentivise good validator behavior. For example, a user can lose a portion of their stake for things like going offline (failing to validate) or their entire stake for deliberate collusion."

Several smaller cryptocurrencies are already using proof of stake. In 2021, Cardano [13] was reported to be the largest proof-of-stake currency in terms of market capitalization. Cardano uses the Ouroboros proof-of-stake protocol, which the Cardano project calls "… an environmentally sustainable, verifiably secure proof of stake protocol with rigorous security guarantees." Cardano believes that, thanks to Ouroborus, their network can sustainably scale to meet global demand, while consuming only 6GWh of power and without compromising speed or efficiency.

The proof-of-stake model goes a long way to reducing the amount of computation power required to verify blocks and transactions. Instead of using a competition-based mechanism, the random selection method means fewer miners will feel the need to continually use more and more compute power to stay competitive.

Unfortunately, the conversion from proof of work to proof of stake can take considerable time to implement, and as long as Bitcoin holds off on committing to the transition, cryptocurrency power usage will continue to rise.

Proof-of-stake protocols are still relatively new and untested, and it isn't yet clear if they will provide a complete replacement for proof of work. Some commentators believe that proof-of-stake protocols could lead back to more centralization. Catherine Mulligan, a professor of computer science at the University of Lisbon's Instituto Superior TÈcnico, says of proof of stake, "A key disadvantage is that, in some systems, you are only selecting validators that have the most money. This means that proof of stake is likely to be significantly less democratic in many cases than Bitcoin" [14]. However, other proof-of-stake systems, such as the Ethereum system, require a minimum stake to be in the game but then choose the validator randomly to avoid a bidding war. Also, although you need to put up a stake to act as a validator, you might not need to buy as much expensive hardware as you would with proof of work, so it is possible that proof of stake could be more democratic if implemented properly.

The other issue proof of stake will face is that it simply hasn't been proven at scale. Yes, in theory, it should have considerably less impact on the environment, but until we see it working at the same scale as proof of work, there's no way of knowing if the theory will transition smoothly to practice. The Ethereum and Bitcoin proof-of-work blockchains currently have a stored value of more than $1 trillion, whereas the proof-of-stake currencies are only beginning to attract real-world users.