Blog 5 min read 16 August 2022

Crypto’s Climate Challenge

For big miners or resource companies ignoring the environmental implications of the giant projects they fund and operate, often in remote and sensitive corners of the globe, would be unthinkable.

In fact, grappling with the complex challenges thrown up by their operations – from deforestation and water use to climate change and the displacement of communities - is often at the top of the agenda for corporate executives.

However, in the fast-growing, but still murky world of crypto mining, nothing could be further from the truth.

The rapid growth of the sector – which despite a recent plunge in valuations is currently worth over $1.2 trillion - is well understood. Its huge and growing carbon footprint on the other hand, is far less clear cut and a topic many of the most ardent blockchain evangelists prefer to skate over.

That’s a problem – and not just for those directly involved in the industry, including a growing army of employees who might understandably question whether they are comfortable working in a business with such a big climate burden.

As distributed ledger technologies move further into the mainstream – with bluechip investors piling billions into the sector - the growing carbon emissions linked to crypto mining, NFTs and other applications needs to be brought to light – and carefully considered.

Companies which are actively developing blockchain technology need to think very carefully about how they can contribute to building a net zero economy – and how to explain and convey this to a wider audience.

It’s an issue for governments too – not least the UK, which recently set out plans to make the country a ‘global hub’ for crypto businesses – an ambition which must surely have implications for their own  net zero emissions by 2050 goals.

Measuring the growing role crypto plays in contributing to the world’s share of carbon emissions isn’t easy. The University of Cambridge attempts to shed some light on the issue by providing a Bitcoin Electricity Consumption Index.

Recently it showed Bitcoin alone was guzzling over 13 Gigawatts of power – or the equivalent of 114 Terrawatt hours per year. That is slightly higher than the annual electricity consumption of the Netherlands – or of Pakistan, a country of over 220 million people.

To put it another way, it is nearly three times as much as the 5.1 Gigawatts being generated by Britain’s entire fleet of operational nuclear reactors. For comparison, total UK electricity consumption in 2021 was 285 Terrawatt hours.

Gaining a full picture of all of the carbon emissions generated globally by all blockchain-based technologies used is a tall order.

After all, not all cryptocurrencies are designed in quite such an energy intensive way as Bitcoin, where miners are incentivised to add more and more computational power to solve the complex mathematical equations required to verify transactions.

Nor are fossil fuels the primary energy source for all cryptominers. Some are strategically located near big hydropower plants while others make use of solar or wind power.

But there is no doubt that the sector’s emissions are growing – at a time when we are all desperately seeking ways to radically reduce them.

That’s why any drive by the industry to cut emissions needs to begin with a simple step – setting a mandate to provide proper transparency on the carbon intensity of all crypto assets. 

With companies increasingly expected to disclose their carbon impact in virtually every other field, there seems no reason not to do this.

It should in fact be a fundamental starting point for global regulators seeking to place guardrails around the sector and bring it into the fold of mainstream finance. After all, as blockchain applications become embedded in more and more activities – from payments to supply chain management and insurance to collectible art, this is an issue that will only grow in importance.