## Cleaning Up Crypto

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**Canonical URL:** [Cleaning Up Crypto](https://www.imf.org/-/media/files/publications/fandd/article/2021/september/how-to-make-cryptocurrencies-cleaner-and-greener.pdf)

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### Energy consumption and climate impact
- Bitcoin mining consumes about 73 terawatt-hours of electricity a year, according to Cambridge University’s Bitcoin Electricity Consumption Index.
- Bitcoin mining spews more than 64 million tons of carbon dioxide into the atmosphere annually, a carbon footprint comparable to that of Montenegro (Alex de Vries, Netherlands’ central bank).
- A single bitcoin transaction may emit as much carbon as more than 1.8 million Visa purchases.
- Cambridge’s index shows Bitcoin’s electricity use exceeds that of several countries (chart compares Bitcoin with France, Saudi Arabia, Thailand, Mexico, Ukraine, New Zealand, Denmark).
- The Bitcoin Mining Council reports that as much as two-thirds of miners’ energy use already comes from sustainable sources; the figure is based on a survey with 32 percent participation.

### How mining works and why it’s energy intensive
- Bitcoin mining uses a “proof of work” system: miners solve increasingly difficult puzzles; faster and more efficient miners earn more bitcoins, which drives increasing energy use.
- The difficulty of mining supports Bitcoin’s store-of-value status: “the fact that it is so hard to mine,” says Fahad Khan, Asian Development Bank.

### Proof of stake as a low-energy alternative
- “Proof of stake” replaces miners with “validators” who put down a “stake” in the form of their own cryptocurrency and are randomly selected to create or verify new transactions.
- Validators are rewarded in proportion to their stake and lose their stake if they attest to false data.
- De Vries estimates energy consumption could be reduced “by around 99.95 percent” with a shift from proof of work to proof of stake.
- Several blockchains use proof of stake: Cardano, EOS, Polkadot, and Tezos.
- Ethereum plans to move from proof of work to proof of stake; if successful, the move could encourage others to follow and reduce crypto’s carbon footprint.

### Technical and institutional challenges
- Designing a proof-of-stake blockchain that is scalable and preserves security and decentralization is constrained by the “scalability trilemma” (Vitalik Buterin).
- Tradeoffs exist: “You can’t have the most perfect outcomes for all three characteristics,” says Fahad Khan. “At best you can have two.”
- Bitcoin’s use case differs from Ethereum’s: Bitcoin aspires to be a unit of account or money; Ethereum aims to replace internet third parties with decentralized applications and contracts (John Kiff, former IMF financial sector expert).
- A Bitcoin shift to proof of stake is considered improbable; however, because the total supply of bitcoins is finite—only 21 million can ever be in circulation—mining will eventually stop, which could make the future “a little greener.”

### Geography and miner behavior
- In October (year not specified), more than 65 percent of bitcoin miners were based in China, where seasonal hydroelectricity was available but miners mostly drew on coal-fired power stations or ran their own diesel or heavy fuel oil generators.
- Following a government clampdown in China, many miners are relocating to countries like Iran and Kazakhstan, where electricity comes almost entirely from fossil fuels.
- Miners tend to relocate to wherever electricity is cheapest and supply is stable; they “have no incentive to care about clean energy” (de Vries).

### Key statistics and comparisons
- 73 terawatt-hours: annual electricity consumption by Bitcoin (Cambridge Index).
- 64 million tons: annual CO2 emissions from bitcoin mining (Alex de Vries).
- 1.8 million: number of Visa purchases whose carbon emissions a single bitcoin transaction may exceed.
- Two-thirds: share of miners’ energy use claimed to come from sustainable sources by the Bitcoin Mining Council (based on 32 percent survey participation).
- 21 million: maximum number of bitcoins that can ever be in circulation.
- 99.95 percent: estimated potential reduction in energy consumption from switching to proof of stake (de Vries).

*Source: Finance & Development, September 2021.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/september/how-to-make-cryptocurrencies-cleaner-and-greener.pdf_