In recent years, cryptocurrencies have become a new and creative way to conduct financial transactions. However, concerns have been raised about the potential impact on the environment since cryptocurrencies require a significant amount of energy, which puts a strain on the energy system and leads to increased carbon emissions which unfortunately partake to the overall adverse effects of climate change. Nevertheless, the rising carbon emissions are only the loudly mentioned issues among all other shadowed ones scarcely discussed.
The emergence of blockchain technology has significantly impacted the digital computing world and is often regarded as the next-generation technology base. Trust is the fundamental aspect of blockchain technology, which has paved the way for developing multidisciplinary digital services across various aspects of life, such as the economy, industry, finance, smart cities, public services, society, and organizations.1 Furthermore, blockchain technology is accepted as a crucial enabler for sustainable development due to its distinct characteristics, such as trust, automation, decentralization, transparency, provenance, and resilience.2
The hype of cryptocurrencies sparked substantial interest in blockchain technology. Cryptocurrencies represent a novel type of digital currency that disrupts the traditional financial system and changes the way of thinking about money. The generic definition of cryptocurrencies is "digital assets that are decentralized and rely on cryptography for the secure transfer of funds between parties, without the intervention of any monetary authority.3" Although the given definition is specifically relevant to Bitcoin4, which is the most popular dominant one, particularly the features of decentralized and based on consensus are still debatable for the overall market.
The global cryptocurrency market capitalization is U.S. $1.12 Trillion on 2 March 2023.5 The global cryptocurrency market value at U.S. $ is expected to expand at a compound annual growth rate (CAGR) of 12.5% from 2023 to 2030.6 The market capitalization of Bitcoin and Ethereum together makes up more than 60% of the total value of all crypto assets.7 The value of cryptocurrencies has significantly decreased from May to June 2021 due to the declining popularity of digital coins as an investment option. The decrease was mainly caused by China's attempt to limit cryptocurrency mining and usage within the country. 8
As the financial market product of cryptocurrencies continues to evolve, it is becoming increasingly evident that innovative solutions will be necessary to address significant upcoming challenges related to energy consumption and technological capabilities. On 2 March 2023, the energy usage of Bitcoin networks was 121.64 TWh9, and the entire network now consumes more energy than in Finland. Each Bitcoin transaction is estimated to have an energy footprint of over 600 Kwt, equivalent to over 300,000 contactless payment transactions or the power consumption of an average household for over 22 days.10 As it stands, Bitcoin is an extremely expensive transmission mechanism. In addition, coal-fired power plants of predominantly Chinese origin produce a substantial carbon footprint, primary fuel the networks. Consequently, concerns about the environmental sustainability of cryptocurrencies have been rising equivalently.11 Furthermore, participation in the validation and mining process requires specialized hardware and significant energy, resulting in ongoing carbon production.12 In fact, Bitcoin miners have increased the baseload demand on an electrical grid and the necessity for alternative (fossil fuel-based) energy sources to meet the demand when renewable energy production is insufficient.13 Moreover, power plants consume large amounts of water for cooling down. Hence, the increasing average temperature of water sources endangers ecology.14
Additionally, most studies have overlooked that Bitcoin miners frequently use an increasing quantity of short-lived hardware, which could intensify the growth of global electronic waste. E-waste poses a mounting environmental hazard, ranging from the leaching of toxic chemicals and heavy metals into the soil to the contamination of air and water caused by improper recycling.15 It is estimated that when Bitcoin price levels reach their peak, as seen in early 2021, the annual amount of e-waste may increase to over 64.4 metric kilotons in the near future.16
In the context of climate change, energy consumption is not inherently problematic. Green energy sources like wind and solar power generate energy without emitting greenhouse gases. On the contrary, fossil fuel-based energy sources, particularly coal, and gas, are responsible for such greenhouse gas emissions. Thus, the carbon footprint of electricity is determined by the composition of the energy mix, which also varies among regions and countries.17 In short, the combination of long-lived hardware with zero-carbon green energy sources seems to be a promising solution.
Ali Shoker, "Blockchain technology as a means of sustainable development," One Earth 4, no. 6 (2021): doi:10.1016/j.oneear.2021.05.014.
Ibid.
Shaen Corbet, Andrew Urquhart, and Larisa Yarovaya, Cryptocurrency and Blockchain Technology (Berlin: Walter de Gruyter GmbH & Co KG, 2020).
Ibid.
"Cryptocurrencies by Market Cap," CoinGecko, last modified March 3, 2023, https://www.coingecko.com/.
Grand View Research, Cryptocurrency Market Size, Share & Growth Report, 2030, (San Francisco, CA, 2022), https://www.grandviewresearch.com/industry-analysis/cryptocurrency-market-report.
The White House, "Climate and Energy Implications of Crypto-Assets in the United States," last modified September 8, 2022, https://www.whitehouse.gov/ostp/news-updates/2022/09/08/fact-sheet-climate-and-energy-implications-of-crypto-assets-in-the-united-states/.
"Crypto Market Cap 2010-2022," Statista, last modified September 29, 2022, https://www.statista.com/statistics/730876/cryptocurrency-maket-value/.
"Cambridge Bitcoin Electricity Consumption Index (CBECI)," CCAF Digital Tools - Cambridge Centre for Alternative Finance, accessed March 3, 2023, https://ccaf.io/cbeci/index.
Corbet, Urquhart, and Yarovaya, Cryptocurrency and Blockchain Technology.
Ibid.
Ibid.
Ibid.
Renee Cho, "Bitcoin's Impacts on Climate and the Environment," State of the Planet, last modified July 28, 2022, https://news.climate.columbia.edu/2021/09/20/bitcoins-impacts-on-climate-and-the-environment/
Alex De Vries and Christian Stoll, "Bitcoin's growing e-waste problem," Resources, Conservation and Recycling 175 (2021): doi:10.1016/j.resconrec.2021.105901.
Ibid.
Ulrich Gallersdörfer, Lena Klaaßen, and Christian Stoll, "Energy Consumption of Cryptocurrencies Beyond Bitcoin," Joule 4, no. 9 (2020): doi:10.1016/j.joule.2020.07.013.
