Tesla CEO Elon Musk rocked the crypto market in 2021 when he said his company would no longer accept bitcoin for vehicle purchases. His reasoning had to do with the large amount of fossil fuel-generated energy that's required to mine cryptocurrency. Musk has since taken a new tack, delivering Tesla Megapack batteries to a Texas bitcoin mining facility in May.
Bitcoin, ethereum, dogecoin and other popular cryptos reached record highs in 2021, as did crypto-reliant NFTs, raising concerns about the increasing amount of energy needed to mine the coins. As the crypto markets crashed in 2022, crypto mining continued to consume roughly as much power as Argentina and to have a carbon footprint equivalent to that of Greece, according to a research report titled "Revisiting bitcoin's carbon footprint," published in February. As the energy bill for crypto mining rises, so does the amount of carbon and waste, adding to the growing climate crisis.
Here's what you need to know about crypto mining and its energy uses.
What is crypto mining?
When bitcoins are traded, computers across the globe race to complete a computation that creates a 64-digit hexadecimal number, or hash, for that bitcoin. This hash goes into a public ledger so anyone can confirm that the transaction for that particular bitcoin happened. The computer that solves the computation first gets a reward of 6.2 bitcoins, or about $120,000 at current prices.
Other cryptocurrencies and NFTs use similar mining technologies, contributing to the overall energy usage.
What is a crypto mining rig?
It's a barebones computer with multiple graphics cards, or GPUs, instead of the single-card standard, and it does the work to complete a computation. Rigs usually use powerful GPUs from Nvidia and AMD to handle calculations and require high-wattage power supplies. The popularity of mining led to a shortage of graphics cards, which in turn caused their values to rise.
A crypto mining farm in Nadvoitsy, Russia.
Getty ImagesWhy is crypto mining so energy-intensive?
For starters, graphics cards on mining rigs work 24 hours a day. That takes up a lot more power than browsing the internet. A rig with three GPUs can consume 1,000 watts of power or more when it's running, the equivalent of having a medium-size window AC unit turned on.
Crypto mining businesses can have hundreds or even thousands of rigs in one location. A mining center in Kazakhstan is equipped to run 50,000 mining rigs, and another mining farm in China has a monthly electricity bill of more than $1 million as it mines 750 bitcoins a month.
Not only do rigs take up power, they also generate heat. The more rigs you have, the hotter it gets. If you don't want your rigs to melt, you need some cooling. Many mining rigs have multiple built-in computer fans. But if you have multiple rigs, the room quickly gets hot, requiring external cooling. Small operations, like those run by individuals, can get by with a typical standing fan. Mining centers, however, need a lot more cooling, which in turn requires even more electricity.
Watch this: What is Bitcoin's true environmental impact?
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How much energy does mining take?
The Digiconomist's Bitcoin Energy Consumption Index estimated that one bitcoin transaction takes 1,449 kWh to complete, or the equivalent of approximately 50 days of power for the average US household.
To put that into money terms, the average cost per kWh in the US is close to 12 cents. That means a bitcoin transaction would generate approximately an energy bill of $173.
Bitcoin mining uses around as much energy as Argentina, according to the Bitcoin Energy Consumption Index, and at that annualized level of 131.26 terawatt-hours, crypto mining would be in the top 30 of countries based on energy consumption.
Energy consumption for bitcoin mining was at its highest at the end of 2021 and the early months of 2022, consuming more than 200 terawatt-hours.
A wall of mining rigs in Quebec, Canada.
Getty ImagesWhy is using so much energy bad for the environment?
Fossil fuels account for more than 60% of the energy sources in the US. A majority of that percentage is natural gas and a minority is coal. The carbon dioxide produced by fossil fuels is released into the atmosphere, where it absorbs heat from the sun and causes the greenhouse effect.
As mining rigs consume more energy, nearby power plants must produce more electricity to compensate, which raises the likelihood that more fossil fuels will be used. States that have struggling coal power plants, such as Montana, New York and Kentucky, are trying to cash in by wooing crypto mining companies.
There's also the issue of electronic waste. This can include broken computers, wires and other equipment no longer needed by the mining facility. Bitcoin mining's electronic waste is 34 kilotons, or comparable to the amount produced by the Netherlands.
What's being done about this energy problem?
Not much. The 3rd Global Cryptoasset Benchmarking Study from the University of Cambridge found that 70% of miners based their decision on what coin to mine on the daily reward amount. Energy consumption made up only 30% of their choice.
Access to renewable energy at a low price, however, attracts crypto miners. China's Sichuan Province has the country's second-largest number of miners due to its abundance of cheap hydroelectric power. Its rainy season helps to generate so much energy that cities are looking for blockchain firms to relocate in order to avoid wasting power. Due to worries about energy shortages, China cracked down on bitcoin mining facilities in late 2021, but the farms went underground and rebounded.
The operators of ethereum, the second-most-popular blockchain behind bitcoin, are doing something to change the amount of energy its miners consume. Ethereum 2.0 is an upgrade being tested and set to go live in August. Instead of computers trying to solve computations -- referred to as proof of work -- computers will be randomly selected to create blocks for the blockchain, while computers that weren't selected will validate those blocks created.
To ensure miners do their job, each miner has to stake 32 ethereum coins, also called ether, which is equivalent to $32,000, hence the term for this protocol is called proof-of-stake. This change reduces the amount of energy needed for Ethereum mining by 99.95%.
What other cryptos are more energy-efficient than bitcoin?
A growing number of coins -- there are more than 19,000 of them -- use the proof-of-stake protocol that ethereum 2.0 will transition to, resulting in a drop in power consumption.
Cardano, for example, uses its own proof-of-stake protocol and consumed 6 gigawatt-hours in 2021. Chia is another coin with a low-energy approach called the proof-of-space protocol. Instead of requiring intensive computation, Chia requires farmers to allocate space on a computer's hard drive, called "plots," that will be called upon by the blockchain based on certain factors.
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