Cryptocurrencies had a rough year last year, with the leading coins finishing at less than half the value they had at the start of 2022.
Perhaps more significantly, the collapse of the FTX exchange and the subsequent arrest of Sam Bankman-Fried, have revealed the true level of risk and, well, "dodginess" in the sector. That's significant because previously cryptocurrencies had built up a bizarre level of trust in the public. A survey by branding consultancy MBLM ranked crypto 8th out of 19 industries for "emotional intimacy". Whatever MBLM means by "emotional intimacy", crypto had more of it than conventional banking: MBLM placed the financial services industry 14th.
Despite the dawning awareness, true believers are still pushing the idea of crypto coins. some argue it just needs proper regulation. For instance: "Systemic change now seems unavoidable, and the industry can either take the bull by the horns or be forced to by the red-tape mafia waiting in the wings," wrote commentator Oliver Gordon in Energy Monitor.
Despite the sector's egregious environmental footprint, some are even claiming that cryptocurrency can actually curb its footprint and become "green". We have our doubts about that.
Cryptocurrencies have a colossal energy and emissions footprint, for the amount of value they produce. Bitcoin is by far the largest currency, and consumes an estimated 13GW of power, which is roughly 0.5 percent of the world's electricity capacity, Gordon calculates. Gordon reckons Bitcoin uses about half the energy of all data centers in the world (the other currencies together add up to another 7GW or so). A recent US Federal report put crypto's energy use as high as 0.9 percent of world capacity and found that crypto mining uses about as much energy as all the world's conventional data centers.
More pointedly, the carbon footprint of Bitcoin - which will depend on what energy sources are used - came out at 65 million tonnes of CO2 in 2021, which is bigger than all the emissions saved by all the electric vehicles in the world. In other words Bitcoin, on its own, undid all the good climate work of vehicle electrification.
Focusing on crypto's carbon sins, we can overlook other problems: crypto mining uses hardware with a short lifetime which quickly becomes obsolete, so the sector produces large amounts of electronic waste. Gordon quotes researcher Carmine Russo, of the University of Naples Federico II, Italy, who believes Bitcoin generates as much e-waste as entire countries the size of the Netherlands.
Concern about crypto mining's environmental footprint has led to restrictions, for instance in China, which banned it in 2021. A ban in Europe is also possible: in December, European Central Bank (ECB) senior executive Fabio Panetta proposed a ban on cryptocurrencies with an "excessive ecological footprint".
The state of New York has passed a bill banning crypto miners from using fossil fuel power plants - though miners who got their applications in before the bill passed can go ahead.
In response to this, around 200 crypto companies have set up the Crypto Climate Accord, which proposes that cryptocurrencies can reduce their emissions from electricity consumption to net-zero by 2030. That sounds good, but the plan is to use controversial carbon offsets, and also switch blockchain systems to renewable energy sources. It's all very well for a sector to buy green electricity, but if that electricity is wasted, it is wasted. There's a finite amount of green electricity to go around, and if crypto uses it, there won't be enough to allow the decarbonization of transport or heating, which are actual, necessary jobs.
The Ethereum merge
In amongst all this, there's one actual example of a cryptocurrency that has made a significant change and reduced its energy use massively in the process. In September 2022, Ethereum, which supports the ether coin (trailing massively, but technically the world’s second-largest cryptocurrency) moved from a "proof of work" (PoW) algorithm, to a "proof of stake" (PoS) algorithm and reduced its electricity consumption by 99.84 percent, which was apparently the equivalent of taking a small country off the electricity grid.
The so-called "Merge" reduced energy use because PoS does not require miners to perform hard calculations to be awarded tokens. Instead, the system requires them to prove they have invested in the system, by buying a "stake" of a minimum of 32 existing existing coins. The system chooses the next recipient of an ether coin at random, and the bigger your stake, the more likely you are to get the next coin.
Miners no longer need to run energy-hungry mining rigs, so the energy requirements of Ethereum went virtually to zero overnight.
Some, such as researcher Alex de Vries, see this as the solution to cryptocurrencies' problems, virtually eliminating its environmental footprint. Gordon points out that this also deals with the e-waste issue, as miners no longer need rigs.
Greenpeace has launched Change the Code, a campaign to urge cryptocurrencies to shift from PoW to PoS, but there is a lot of reluctance among Bitcoin players.
Bitcoin's structure duplicates the work done so that all players can trust it. It is decentralized, and many see its inherently-wasteful nature as an essential way to guarantee that it can be trusted, and is free from centralized control. PoS is somewhat more centralized. It also makes more nakedly obvious the fact that this is a game where only the wealthy can invest enough to gain new coins. In Bitcoin, they have to buy rigs and power. In, post-merge PoS-based Ethereum, they just have to buy Ether.
Many Bitcoin enthusiasts are also climate change deniers and conspiracy theorists, says Gordon, so it's unlikely that they will listen to Greenpeace or advocates like de Vries.
Ethereum is hedging its bets, maintaining PoW options including Ethereum Classic and EthereumPoW, and these have taken on a substantial proportion of Ethereum's activity. And Gordon points out that people who have invested in mining rigs and data centers for Ethereum are likely to want a return on that investment, so they will likely repurpose them to mine Bitcoin, or sell them to others to do the same.
On balance, I'd say I can't see crypto ever reaching net-zero, or becoming green (two different things, as I don't think it's green to waste valuable renewable electricity).
There are, of course, only a limited number of Bitcoin left to mine, because of built-in limitations. So far around 19 million have been minted, and there are only two million more to create.
However, waiting for the last coin to be minted is like leaving it till the last oil has been used before we transition from fossil fuels.
As the computational cost increases, coins are issued more slowly, and the last one is not due to be created till around 2040.
By that time, greening crypto will be too late.