Cleaning Up Crypto
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Bibliographic details
- Authors: ANALISA R BALA
- Published: September 2, 2021
Overview and context
- Author: ANALISA R. BALA, senior communications officer in the IMF’s Communications Department.
- Publication: F&D Magazine, September 2021.
- Key framing: Bitcoin’s carbon footprint is again making headlines; there is a feasible technological change that could dramatically reduce cryptocurrencies’ energy use.
Environmental footprint of Bitcoin and mining geography
- In October, more than 65 percent of bitcoin miners were based in China.
- Cambridge University’s Bitcoin Electricity Consumption Index estimates miners burn about 73 terawatt-hours of electricity a year—double Denmark’s usage.
- Bitcoin mining emits more than 64 million tons of carbon dioxide into the atmosphere annually—a carbon footprint comparable to that of Montenegro (estimate by Alex de Vries).
- A single bitcoin transaction may emit as much carbon as more than 1.8 million Visa purchases.
- After China’s government clampdown, many miners are relocating to countries like Iran and Kazakhstan, where electricity comes almost entirely from fossil fuels.
- Tesla CEO Elon Musk set a condition for Tesla to accept Bitcoin payments: “when there’s confirmation of reasonable (~50 percent) clean energy usage by miners with positive future trend.”
Claims and controversies about miners’ energy mix
- The Bitcoin Mining Council maintains that as much as two-thirds of miners’ energy use already comes from sustainable sources; this figure is attributed to a survey in which just 32 percent of the network participated.
- Alex de Vries questions the survey’s scope: “It’s not clear at all what’s included in their survey,” and argues that “Countries just don’t have the capacity to supply renewable energy for mining.”
- De Vries: miners “have no incentive to care about clean energy” and will flock to wherever electricity is cheapest and supply is stable.
Consensus mechanism alternatives and potential energy savings
- Bitcoin uses “proof of work”: miners solve complex puzzles; faster and more efficient miners earn more bitcoins, driving high computing and electricity demand.
- “Proof of stake” is an alternative: validators put down a “stake” of cryptocurrency, are selected at random, and are rewarded proportionally; false attestation can result in losing the stake.
- De Vries: moving from proof of work to proof of stake can “reduce the energy consumption by around 99.95 percent.”
- Several blockchains use forms of proof of stake: Cardano, EOS, Polkadot, and Tezos.
- Ethereum (the second-largest cryptocurrency by market capitalization) plans to move to proof of stake; if successful, the move could encourage others and reduce crypto’s carbon footprint.
Technical and economic constraints on shifting consensus mechanisms
- Designing a proof-of-stake blockchain that is scalable and preserves security and decentralization is characterized as nearly impossible—referred to as the “scalability trilemma” by Vitalik Buterin.
- Fahad Khan (Asian Development Bank): “You can’t have the most perfect outcomes for all three characteristics. At best you can have two.”
- Khan: “I don’t think proof of work is going away” in the case of Bitcoin.
- John Kiff (former IMF financial sector expert): Bitcoin’s use case differs from Ethereum’s—Bitcoin aspires toward a unit of account or money, whereas Ethereum aims to replace internet third parties with decentralized applications and contracts using ether.
F&D Magazine article “Cleaning Up Crypto,” ANALISA R. BALA, September 2021.
Content in this bundle
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