The environmental effects of cryptocurrencies

The environmental effects of cryptocurrencies
30 Nov 2021

Not only are enormous amounts of energy needed to produce and trade with cryptocurrencies. Bitcoins and the rest are also responsible for growing mountains of electronic waste. So we took a closer look at the environmental impact of cryptocurrencies.

Here in Germany, we’ve not (yet) gone as far with Bitcoins as the Chinese have. In September this year, the Chinese government introduced comprehensive steps to stop the manufacture of and trading with digital currencies within its national borders. This is due to the economic and political consequences of the new currencies, but also because of their effect on the environment. In the West, discussions about the harmful environmental impact of cryptocurrencies are also becoming more vocal.

Criticism from Elon Musk

For example, in May, Elon Musk tweeted that the energy consumption for creating Bitcoins was “insanely” high. The Tesla boss was referring to the assessment made by the Cambridge Centre of Alternative Finance, at the University of Cambridge. In the months before Musk’s tweet, the energy consumption did actually grow rapidly, as shown in the following chart. Although it sank shortly afterwards, it has been increasing steeply again since the end of July.

After a tweet from Tesla boss Elon Musk, the energy consumption for producing Bitcoins temporarily collapsed. Since then, it has been growing again.
Source: University of Cambridge

According to the Cambridge researchers, the current estimated annual consumption for Bitcoins is almost 114 terawatt hours. According to Business Insider, it has already been 140 terawatt hours. The Digiconomist platform, run by fintech specialist Alex de Vries, even calculates an annual requirement of more than 180 terawatt hours. These are enormous figures when compared with the overall electricity consumption in Germany. According to the German Federal Environmental Agency, in 2020 this was between 550 and 560 terawatt hours. According to the data used for the calculation, Bitcoins consume between 20 and 30 per cent of the energy requirement of a highly developed country such as Germany.

This also produces a significant quantity of environmentally damaging carbon dioxide (CO2). According to Alex de Vries, in 2020 this was around 56 million tonnes of carbon dioxide. This is more than the emissions for electronic vehicles, which were almost 52 million tonnes in 2020. The German Federal Environmental Agency has calculated total CO2 emissions in Germany to be 644 million tonnes.

Growing mountains of electronic waste

Another negative environmental effect of the Bitcoin boom has recently attracted attention: the growth of mountains of electronic waste – which is partly being accelerated by the cryptocurrencies. According to a study by Alex de Vries and Christian Stoll, electronic waste caused by Bitcoins is currently running at 31,000 tonnes per year. This is around the same as the amount of electronic waste generated by the Netherlands. On average, the scientists calculated that every transaction in the Bitcoin blockchain is responsible for 272 grams of new electronic waste.

The further the Bitcoin price climbs, the higher the mountain of electronic waste grows. Vries and Stoll predict that it could even reach 64,000 tonnes in 2021. This electronic waste represents an increasing threat to the environment. The effects range from toxic chemicals and heavy metals entering the soil due to a lack of proper recycling, through to an increase in air and water pollution.

But why do Bitcoins create so much electronic waste? Because a constant supply of new high-performance hardware is needed to compute them, that’s why. The first cryptocurrencies could often be calculated using cheaper standard hardware. But those days are long gone. One reason for this is that the more already-calculated Bitcoins there are, the greater is the technical effort for calculating new Bitcoins. That is part of the underlying concept. Another reason is that the “mining” industry has turned professional. “Mining” Bitcoin in people’s garages is no longer profitable. Instead, production has shifted to special data centres and even into the cloud.

The rise of the ASIC rigs

Today, mining farms in particular use ASIC (Application-Specific Integrated Circuit) chips, which have limited durability and shelf life. These special custom chips have an extremely high performance when carrying out a particular task, for example, mining Bitcoins. But they are hardly suitable at all for anything else. Because ASICs can be produced cheaply and in large quantities, since around 2013 they have become the most important underlying hardware for mining cryptocoins.

Specialist companies – such as Riot – can manufacture Bitcoins using ASIC hardware in large quantities, and much more cheaply. The American company has a data centre in Whinstone which requires around 400 megawatts. This is the equivalent electricity consumption of around 445,000 households.

Around half of this demand is due to newly developed immersion cooling, which is being run at an industrial scale for the first time. The plant, which is currently under construction, will incorporate around 46,000 S19 Antminers from Bitmain. These are housed in a special liquid which is better able to conduct away the heat generated by the Antminers. Riot announced that this technology should result in a 25% higher hash rate and improve the performance of the mining hardware by around 50%.

Current S19-Pro Antminers from Bitmain need around 3,500 watts. They are capable of 110 TH/s (1 TH/s is 1,000,000,000,000 hashes per second). Antminers like this cost around EUR 11,000 – each. According to the calculations by de Vries and Stoll, despite the high cost of mining hardware, after 1.3 years they must be disposed of or sold on as used hardware via various trading platforms – as their performance is no longer good enough for efficient operation.

Every tonne of additional electronic waste is a tonne too many. But it’s important to see things in perspective. The International Telecommunication Union (ITU) reckons that in 2020, around 53.6 million tonnes of e-waste was generated worldwide. The almost 31,000 tonnes calculated by de Vries und Stoll is a relatively small proportion of this. However, this does not alter the enormously high electricity consumption and carbon dioxide emissions of the Bitcoin sector.

Andreas Th. Fischer