Controversy over the harmful effects of crypto mining on the environment
Constant statements by well-known market participants about the ecological harm originating from the process of mining cryptocurrencies often become a reason for value adjustments. While this situation persists, we herein consider the objectivity of these statements and the alternatives for crypto mining.
According to research by scientists, approximately 121.36 terawatt-hours of electricity are consumed through Bitcoin mining during the year. This is a huge amount that is unlikely to diminish soon. Elon Musk was one of the first to identify the problem of environmental pollution from mining and resultantly announced that Tesla won’t sell electric vehicles for Bitcoins until other ways of mining cryptocurrencies are found.
There were different opinions about how the mining of cryptocurrencies affects the environment. Nature Communication — a scientific journal — has released a forecast that by 2024, the so-called greenhouse effect from Chinese mining farms will exceed that of the Philippines. The Chinese news agency, Xinhua, announced a possible ban on mining due to increased energy consumption, a situation that does not comply with the plans to reduce carbon dioxide emissions.
According to expert Daniel Frumkin, the ban on mining in Iran and regulation in China will increase the use of renewable energy sources and improve the environmental friendliness of Bitcoin mining. Frumkin noted that discussions about the benefits and harms of different types of energy consumption do not make sense without a connection with the context and conditions of use. For example, the use of processed gas in the United States alone is sufficient for the operation of the Bitcoin network.
Proponents of solar panel systems as renewable energy for crypto mining have failed to consider the environmental impact of their production. While one of these large enterprises is located in Xinjiang, there are many crypto mining farms that pollute the environment. Recently, the provincial and other regions of China have banned their activities.
In a study on the use of panels, Square (a technology company) and ARK Invest (an investment company) concluded that even if the price of Bitcoin remains unchanged for two years, the difficulty of mining will increase exactly until the price of the process equals the price of Bitcoin. At the same time, mining will remain profitable, but the mining speed will decrease for about two years, and the investment will pay off only at the end of the third year. Therefore, the exploitation of solar energy is beneficial in the event of a significant increase in the value of the cryptocurrency in the next four years.
According to some reports, a couple of years ago, more than seventy percent of the energy consumed was carbon neutral. But according to the neutrality criteria at the end of 2020, this corresponds to only 39 percent. Daniel Flumkin believes that many crypto mining farms rely on hydroelectric power as well as natural gas. But the price of renewable energy has dropped to the level of coal-fired power plants. In line with this, speculations about the environmental harm of cryptocurrency are often exaggerated, the expert noted.
In the cryptocurrency industry, claims about the dangers of mining are becoming a compelling reason to switch to another blockchain. Lin Dai, a co-founder of OneOf, noted that they are uncomfortable using the Ethereum platform due to its harmful effects on the environment. Despite platform updates to solve this problem, Lin Dai announced the choice of a different blockchain that uses an efficient PoS algorithm that does not consume a lot of energy.