When I think of environmental destruction, oil spills and smokestacks are the first that come to mind. But alongside the archetypes of pollution lies an unsuspecting industry: cryptocurrency. In fact, it is one of the main culprits in energy consumption, consuming almost 1% of global electricity consumption.
The intense computing power required for Bitcoin mining has enormous environmental consequences. Therefore, government regulations must be implemented to mitigate these impacts.
Bitcoin and many other cryptocurrency platforms are completely decentralized. Unlike national currencies backed by a gold standard or by third-party banks, the creators of Bitcoin programmed it so that it would not be regulated at all by a central force. Instead, it relies on a set of pre-programmed mechanisms to keep it running. The first mechanism is fraud prevention, which works as a vast network of computer systems verifying transactions by solving complex mathematical equations. When a computer solves an equation, Bitcoin adds the transaction as a “block” to an immutable record of accounts known as the blockchain. Then the code rewards the person behind the computer for adding a block to the blockchain with Bitcoin. We call this whole process crypto mining.
The other two mechanisms are halving and complexity progression, both of which help maintain Bitcoin’s value as a currency.
All of this initial programming contributes to the value and legitimacy of Bitcoin as a whole. However, alongside the considerable advancements brought about by its mechanisms, the complexity of Bitcoin is also responsible for a rather worrying scene: insurmountable piles of old computers, ungodly electricity consumption, and neighborhood-wide power outages.
For starters, the ever-increasing difficulty and competition to mine a block requires Bitcoin miners to continually upgrade their computer hardware systems to keep up. Due to their incentive to beat the market, Bitcoin miners generate a large amount of waste in electronic devices, called e-waste. In fact, miners on the platform reject more than 67 million pounds of electronic waste each year.
Excessive e-waste is harmful to the environment because it contains materials like lead, mercury, and cadmium, which can contaminate groundwater and release toxic chemicals. The Bitcoin mining industry’s contributions to improper computer disposal increase e-waste risks.
Not only does this create major health concerns for local residents near landfills, but it also disproportionately impacts low-income communities where they do not adequately enforce pollution regulations. Poor e-waste management has already proven detrimental to landfills in Kenya and Nigeria, where non-recyclable electronics flood the air, soil and food supplies.
Bitcoin mining also drains power grids. To consolidate costs, miners sometimes consolidate their resources into mining farms and cluster in regions of the world with low energy costs to save on operational losses. This consolidation, however, puts immense pressure on local energy networks. A farm that mines a single Bitcoin uses the same amount of energy that a household would use in about 50 days.
Local networks physically cannot support this outrageous consumption of electricity. In foreign countries – where the clustering of mining farms is more serious – local governments suspect Bitcoin mining farms of being the cause of power outages and blackouts. Entire neighborhoods are facing power shortages, or even complete blackouts, due to the strain on the energy grid. So far, reliance on domestic energy hasn’t had any negative effects, but it’s only a matter of time before these power outages start happening in the United States as well.
Despite Bitcoin mining’s fatal externality flaws, the industry remains unchecked in the absence of federal or international regulation over its use. Unfortunately, without restrictions on the amount of mining that can take place, there is no clear plateau for the power consumption of these constantly updating hardware systems.
Many cryptocurrency advocates support free Bitcoin operations, saying that eventually mining energy consumption will stabilize. But Bitcoin’s creators didn’t design it to improve its energy efficiency, so it makes no sense to expect an unlikely self-correction.
Fortunately, moderate federal oversight can help control the excessive environmental implications of Bitcoin mining. Bitcoin’s competitive evolution is driven by miners and not the platform itself. Thus, regulatory agencies have some options regarding the objective of their regulation.
Iceland and Norway have managed to reduce national electricity consumption thanks to cryptocurrency mining legislation.
While the United States doesn’t want to get rid of Bitcoin completely, advocacy groups are pushing for more environmentally friendly programming., which might be more feasible than nationwide bans. The current system described above is a proof-of-work system of record, where verifications rely on peer-to-peer data mining. But proof-of-stake programming is a less power-intensive alternative, in which validators (instead of miners) verify transactions based on the number of coins they are willing to put up as collateral. Government intervention could involve a ban on proof-of-work to encourage a complete shift to the more energy-efficient proof-of-stake.
Without regulatory oversight, Bitcoin’s thirst for energy undermines the planet’s green goals for the future.
Stephanie Bouserhal is an opinion columnist who writes about cryptocurrency in her “Crypto Critiques” column. She can be contacted at scbous@umich.edu.
