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Is Bitcoin Bad for the Environment? Exploring Eco-Friendly Cryptocurrency

Eco-Friendly Crypto

As energy usage and CO2 emissions climb higher, the climate crisis has become a pressing concern. Surveys suggest over 40% of Americans worry “a great deal” about the health of the environment, and 69% want to achieve carbon neutrality by 2050.

Cryptocurrency adoption has spread almost as fast as the global eco-consciousness movement, so it’s no surprise environmental activists have turned their attention to crypto’s carbon footprint. Institutions such as Greenpeace and the European Union believe cryptocurrencies—particularly Bitcoin (BTC)—are stumbling blocks toward a carbon-neutral future.

While it’s true the cryptocurrency industry affects energy usage and global carbon emissions, more blockchain developers are working on eco-friendly cryptocurrency projects attempting to mitigate potential harm. Learn how digital assets impact the global environment and what some programmers are doing to bring sustainability into the cryptocurrency sector. 

The Facts: Is Cryptocurrency Bad for the Environment? 

When Greenpeace and the White House critique cryptocurrency’s carbon footprint, they’re most concerned about coins using an algorithm called “Proof-of-Work” (PoW).

First introduced in 2018’s Bitcoin Whitepaper, PoW is officially known as a “consensus mechanism” because it helps computers (called “nodes”) on decentralized blockchain networks agree on the latest payment data. The “work” in this method refers to the difficult algorithmic problems computers compete to solve every few minutes. Whichever node decodes one of these puzzles first can post a new transaction to a cryptocurrency’s public payment ledger and receive a reward. For example, on the Bitcoin blockchain, nodes compete to solve an equation every 10 minutes to earn BTC “block rewards” and transaction fees.

Because the PoW model is inherently competitive and energy-intensive, cryptocurrencies using this system typically consume the most electricity, for which the generation of such electricity used tends to produce more  CO2. According to data compiled from the White House Office of Science and Technology Policy, Bitcoin accounts for roughly 60–77% of energy consumption in the cryptocurrency sector. Analysts at the University of Cambridge estimate Bitcoin consumes approximately 130.86 Terawatt hours of energy per year (similar to the annual rates of countries like Argentina and Norway). Cambridge researchers also suggest Bitcoin is linked to the pollution of 66.65 million tons of CO2 per year, and some researchers believe Bitcoin has already contributed 200 million tons of CO2 to the atmosphere.

On top of energy consumption and pollution, some environmentalists are also concerned about the buildup of e-waste as Bitcoin node operators throw away old or malfunctioning computers. A Massachusetts Institute of Technology study suggests Bitcoin produces at least 30.7 metric kilotons of e-waste each year, which could rise to over 60 metric kilotons if Bitcoin adoption continues to increase.

While there is a consensus that PoW cryptocurrencies like Bitcoin contribute to greenhouse gas emissions and global energy consumption, there’s fierce debate over just how “bad” crypto is for the environment. For instance, a Tufts University study suggests BTC has a three times greater cost per transaction in CO2 emissions compared to physical cash, but paper currency currently has a more significant impact on CO2 emissions due to its wide diffusion. According to the Tufts study, the annual cost in CO2 for cash transactions is $12.9 billion versus $1.3 billion for Bitcoin, factoring in how much cash and BTC are in circulation. Cryptocurrency proponents also argue Bitcoin consumes the same amount of electricity annually as drying machines and Christmas lights in the U.S., yet environmentalists don’t criticize laundromats or holiday décor stores as much as crypto mining pools. Some statistics even suggest digital assets consume 56 times less energy than the global banking system.

Ultimately, whether people believe cryptocurrency harms the environment depends on their perception of digital assets. For instance, suppose people feel the security and decentralization of Bitcoin’s PoW design is a positive force for economic empowerment and opportunity. In this case, they might argue BTC’s energy impact is negligible, considering the net good it provides to the global economy. However, those who don’t see value in decentralized digital currencies believe BTC’s supposed value proposition doesn’t match its high energy usage. Still, most activists and crypto developers agree the blockchain industry needs to focus on sustainable solutions. 

Making Crypto Green: Two Main Strategies 

Blockchain developers are split on how to tackle the environmental problems PoW poses. Some believe the cryptocurrency industry needs to do away with the PoW model, while others support cleaning up crypto mining with new energy sources and green coin mining devices. 

Shifting Toward Proof-of-Stake

Because PoW has the most significant environmental impact, some eco-conscious programmers suggest switching to software-based consensus algorithms like Proof-of-Stake (PoS) rather than trying to “improve” the energy-intensive mining process.

In the PoS system, nodes lock cryptocurrency on a blockchain to verify transaction data and receive crypto rewards. PoS validators don’t need to run expensive computers to constantly solve complex algorithms, dramatically reducing their energy consumption. Although there are other software-based alternatives to PoW mining, PoS is one of the most popular algorithms in cryptocurrency and environmentalist communities. For example, Greenpeace recently praised Ethereum’s move to PoS and suggested the Bitcoin blockchain also change to a PoS model to make the cryptocurrency industry more sustainable.

When Ethereum switched from PoW to PoS in 2022—an event called “The Merge”—its yearly CO2 output fell 99.9% to 0.1 million tons of CO2. In addition to Ethereum, PoS blockchains, including Solana, Tezos, and Cardano, often appear on lists of the most environmentally friendly cryptocurrencies. 

Renewable Energy and Better Hardware for BTC Mining 

Bitcoin’s core developers haven’t expressed any interest in shifting BTC from a PoW to a PoS model, but more Bitcoin mining operators are incorporating renewable energies into their operations. In 2022, the Bitcoin Mining Council reported 59% of Bitcoin miners use renewable energy to power their computers.

El Salvador made headlines in 2022 when it announced using geothermal power from volcanoes to run BTC mining rigs. Meanwhile, BTC mining pools in Sweden are tapping into wind and hydropower. Some Texan Bitcoin miners also use a natural byproduct of oil extraction called “flare gas” to power their BTC mining rigs rather than burning additional fossil fuels. While there’s more work to be done to reduce BTC’s CO2 emissions, the growth in innovative renewable sources is encouraging for many Bitcoin believers.

In addition to renewable energy sources, the Bitcoin Mining Council discovered mining efficiency increased 46% year-over-year in 2022 thanks to improvements in semiconductor technology. Companies such as Block (formerly Square) and Shell Global introduced new mining hardware and cooling technologies to streamline PoW operations and reduce e-waste. Cryptocurrency supporters hope combining more renewable sources with improved mining devices will gradually decrease BTC’s energy usage and CO2 levels. 

What Are the More Eco-Friendly Crypto Projects? 

The list of eco-friendly cryptocurrencies continues to grow each year as more coins and tokens adopt green standards. Typically, the cleanest cryptocurrencies use software-based systems like PoS as their foundational layer and have a well-defined game plan to achieve carbon-negative status.

Here are four examples of environmentally-conscious projects: 

  • Solana (SOL): The Solana network is well-known for its ultra-fast transaction speeds, but this PoS blockchain is also committed to being one of the greenest cryptocurrencies. Estimates suggest one crypto transaction on Solana uses the same amount of energy as two Google searches and the blockchain’s annual CO2 output hovers around 10,600 tons. In 2023, the Solana Foundation released a real-time carbon footprint tracker to provide full transparency on the blockchain’s environmental impact. 

  • Polygon (MATIC): Built on top of the Ethereum blockchain, Polygon is a layer 2 crypto project offering a suite of scalability software solutions. To highlight their commitment to conservation, Polygon’s lead developers published a “Green Manifesto” in 2022 detailing their goal to become a carbon-negative chain and purchase $20 million in carbon credits. Polygon also works with crypto projects like KlimaDAO to provide up-to-date information on the network’s energy usage and carbon emissions. 

  • Algorand (ALGO): Founded in 2017, Algorand is another PoS blockchain with a strong track record for sustainability. According to the Algorand Foundation, each ALGO transaction uses approximately 0.0000004 kg of CO2, and developers work closely with the fintech project ClimateTrade to track their carbon emissions. Fun fact: the late conservationist Steve Irwin’s Australia Zoo chose to mint its unique digital collectibles called non-fungible tokens (NFTs) on Algorand due to its commitment to environmentalism.

  • Avalanche (AVAX): Two years after its 2020 launch, the PoS blockchain Avalanche earned the top spot on the Crypto Carbon Ratings Institute’s official list of the most energy-efficient cryptocurrencies. According to researchers, each transaction on the Avalanche blockchain uses 0.0005% of the electricity on the Bitcoin blockchain, and it has the lowest energy consumption relative to its electrical output. To promote environmental justice, Avalanche is also working with the Lemonade Crypto Climate Coalition to provide African farmers with actionable weather data via blockchain technology.   

Discover More About Digital Assets with dYdX Academy 

The cryptocurrency industry is still far from achieving carbon neutrality, but many projects are making great strides toward sustainability. For the latest updates on trailblazing tokens and Web3 technologies, check out the dYdX Academy. We offer dozens of beginner-friendly guides to help traders of all skill levels make sense of the cryptocurrency market.

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