Crypto mining’s harmful environmental impacts are driving consumers away and hindering the adoption of the technology Deutsche Bank researchers said in a report published Thursday.
The environmental impact of crypto is well-documented and came under stricter scrutiny in recent months as Bitcoin’s energy consumption has grown to more than 200 terawatt-hours (TWh) annually as of December 2021, according to the Deutsche report provided to Capital.com.
This energy output can be illustrated by several useful anecdotes such as mining just one bitcoin consumes a larger carbon footprint than nearly 2 billion Visa transactions. Or Bitcoin’s annual energy consumption could power 50% of UK households.
These concerning numbers drove over 53% of crypto users to stop buying from a company after hearing or seeing bad press in relation to harmful environmental behaviour, according to a survey conducted by the bank. Additionally, almost twice the number of crypto users would be prepared to pay for various goods and services if the company addresses climate change, Deutsche found.
For public entities to meet their net-zero carbon emissions pledges crypto emissions will have to be cut, Deutsche research analyst Marion Labourne said in the report.
A 2019 study from Nature Climate Change estimates that Bitcoin alone could increase global temperatures above the Paris Agreement’s 2 degrees Celsius threshold within three decades.
Governments and regulators are therefore stepping in. Most drastically, China banned cryptocurrency mining in September officially zeroing out a country that once powered 75% of global Bitcoin mining activity. However, using virtual private networks (VPNs) that disguise a user’s location, mining is still going on in China.
The European Parliament is also taking action through a proposed green amendment to its Markets in Crypto-Assets (MiCA) regulation, which would require companies to disclose energy consumption related to crypto activities, such as mining.
Efforts to make crypto mining more sustainable in the private sector are rare, Deutsche said.
One exception is the Crypto Climate Accord (CCA), which aims to decarbonise by using greener blockchain technology, carbon accounting, and carbon offset procurement, Labourne noted. The accord hopes to achieve net-zero emissions from electricity consumption for its signatories by 2030, according to CCA’s website.
Crypto miners are also buying carbon offsets to limit their impact. In November BitMEX bought $100,000 worth of carbon credits to offset 7,110 tonnes of CO2 emissions to cover the crypto miner’s environmental footprint and the servers that power it for the next year, according to a blog post. The carbon credits are the equivalent of planting 4,019 trees, according to carbon offset company Pachama.
Argo Blockchain is another crypto miner that is offsetting its emissions and was one of the first signatories of the CCA. The company plans to open its West Texas mining facility in March of next year drawing largely from renewable wind power and using immersion liquid tech to cool the machines.
“West Texas is our future and where we’re building out our flagship location,” Argo Blockchain CEO Peter Wall said at a recent online event hosted by US investment bank Ladenburg Thalmann & Co. “It’s a huge generator of wind with very low electricity rate and importantly there is also an incentive-based grid where through ancillary programs miners can give electricity back to the grid … during certain times of the year and in exchange, we get discounts on power.”
Deutsche Bank offers up four possible solutions to the problem.
For one, governments can continue to invest in renewable energy sources to power these crypto mining operations, especially in the US where much of the mining occurs.
A carbon tax would also disincentivise miners from using fossil fuels, but the bank warns that unless renewable energy supplies are able to replace fossil fuels, a carbon tax would lead to increased prices for consumers.
Digital currencies could switch to the more energy-friendly proof-of-stake (PoS) protocol like Ethereum did earlier this year. Proof-of-stake verifies transactions based on how much cryptocurrency users have stored, which is less energy intensive than standard proof-of-work (PoW) protocols, which have to identify every link in the blockchain.
“Proof-of-stake consumes less energy than proof-of-work, but it is less secure and it centralises mining power among users who have already mined the most cryptocurrency,” Labourne wrote. “Nonetheless, many believe that switching to the more energy-efficient PoS method is necessary to scale up the use of cryptocurrencies.”
Finally, cryptocurrencies could pre-mine all the tokens such that they would all be issued at once, unlike Bitcoin, which is still issuing new tokens as they are mined.
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