The cryptocurrency rush is on. Morgan Stanley and Goldman Sachs now offer Bitcoin as an investment option to preferred clients, and electronic payments giant NCR will soon be offering cryptocurrency services to customers of some 650 smaller banks and credit unions.
As they open cryptocurrency to clients, these and many other stakeholders seem utterly unconcerned about the mammoth energy waste associated with this emerging industry. Cryptocurrency leader Bitcoin consumes nearly three times Switzerland’s total electricity and about a quarter of Germany’s total power use—roughly 0.4 percent of the world’s electricity. This is especially appalling when one considers that all data centers worldwide, excluding those used for Bitcoin, account for about 1 percent of global electricity.
A twisted variant of pay-to-play is responsible for Bitcoin’s energy gluttony. Would-be buyers must expend enormous amounts of computer power—and money—solving hugely complex mathematical riddles that serve as the gateway to earning, or “mining,” Bitcoin. These computational gymnastics and the energy they consume make it prohibitively expensive for attackers to undermine the integrity of the Bitcoin ledger.
Chris Larsen is executive chairman of Ripple Inc., which markets another leading cryptocurrency asset called XRP. He makes a point of distinguishing his own company’s modest energy demand from other cryptocurrencies that rely on Proof of Work, the energy-devouring validation method used by Bitcoin. Instead of setting costly computational hurdles, XRP operates through a network of peer-to-peer servers that secure their transactions with collateral. According to Ripple’s estimate, XRP uses an average of 0.0079 kilowatt hours per transaction, in striking contrast to the 952 kilowatt hours of electricity needed to transact in Bitcoin. Over the course of a year, Larsen claims that “low-energy” cryptocurrency providers like Ripple consume about as much electricity as fifty average US homes.
Not all cryptocurrency proponents are ready to take on Bitcoin’s outsized energy appetite, preferring to focus instead on the type, rather than the amount, of energy consumed. Elon Musk’s erratic messaging of recent months is emblematic. In February, he purchased $1.5 billion of Bitcoin; in May, he signaled that Bitcoin could not be used as payment for Tesla vehicles because of its outsized carbon footprint; in June, he put cryptocurrency back on the Tesla table so long as the electricity used to “mine” it comes from renewable energy.
According to a recent survey across 59 nations, 39 percent of the power fueling cryptocurrency comes from renewable sources, but that still leaves a huge share of the industry’s energy coming from conventional sources that pollute the environment and endanger our global climate. To meet this exploding demand, fossil fuel dinosaurs like the idled coal-fired Hardin Generating Station in Montana and the Greenidge coal plant in Dresden, New York, are being retooled to serve the industry. Greenidge, which has been converted to natural gas, is already powering nearly 7,000 Bitcoin data servers, or “mining rigs” as the industry calls them, and that number is expected to quadruple in the years ahead.
In an attempt to mitigate the industry’s environmental downsides, an alliance of cryptocurrency purveyors, financial technology firms, and the nonprofit Rocky Mountain Institute are now working to advance a Cryptocurrency Climate Accord. This voluntary agreement seeks to shift all “blockchains,” or cryptocurrency ledgers, to 100 percent renewable energy by 2025. It also targets net zero carbon emissions for the industry as a whole by 2040.
These may sound like laudable goals, but they fail to address head on the cryptocurrency sector’s stratospheric energy use. We already face a colossal challenge in converting our power sector to renewable energy—a transition whose magnitude will certainly grow as we shift to electric vehicles and all-electric buildings. Every increment of electricity wastefully consumed will only make the switch away from fossil fuels harder to achieve.
Another summer of extreme heat, wildfires, drought, and habitat destruction reminds us that the ravages of climate change are already upon us. In our eagerness to hop onto the cryptocurrency bandwagon, let’s not add fuel to the fires of global warming.
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