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Crypto’s Carbon Footprint


Cryptocurrency assets are now mainstream, with multiple banks and businesses globally investing in crypto software and financial architecture. Seven million individuals have accounts with Coinbase, the US’ largest, though only one of multiple, exchanges.

As prices of bitcoin and Ethereum reach new highs (recent gains being attributed to endorsement from celebrity businesspeople such as Tim Cook of Apple), we wonder whether the popularity of bitcoin might wane on energy grounds.


Whilst readers are doubtless aware of the much-publicised energy consumed by the vast array of computers that have since 2008 ‘mined’ bitcoin, some will be surprised to observe the startling increase in energy consumption this calendar year, after almost three years of relative stability. The main reason is that the rising price of digital currencies has boosted the economic incentive to mine them.

Recent research estimates the following three annualized bitcoin footprints:
• Carbon – emissions of 90 megatonnes of CO2, similar to that of Chile;
• Electricity – consumption of 189 terawatt hours, comparable to that of Thailand, and equal to 0.6% of global electricity consumption;
• Waste – creation of 27 kilotonnes of electronic waste, equivalent to the telephone and small device waste of the Netherlands

The third category is new. As the authors say:

“most studies have thus far ignored that Bitcoin miners cycle through a growing amount of short-lived hardware that could exacerbate the growth in global electronic waste. E-waste represents a growing threat to our environment, from toxic chemicals and heavy metals leaching into soils, to air and water pollution caused by improper recycling”.

Whilst the annualised units quoted above help us to make country-sized comparisons, the transaction-specific numbers highlight, even more clearly for the common man, a disturbing level of energy and waste. Each operation to ‘spend’ bitcoin, even if it is for a small fraction of one – e.g., a €3 cup of coffee in Starbucks –, generates the same amount of electronic waste: it equates to throwing into one’s non-recyclying dustbin and sending either to landfill or to be dumped in our oceans, either half an i-Pad, or 1.5 i-Phones.


Bitcoin’s rival for crypto supremacy, Ethereum, has now caught up; Coinbase recently reported that they enjoyed crypto market shares of 21% and 22% respectively for 2021Q3. Ethereum’s carbon and electricity footprints are roughly half those of bitcoin: 41 megatonnes of CO2 and 87 terawatt hours of electricity. The main difference between the two is that they run on different algorithms. Bitcoin’s algorithm runs on Application Specific Integrated Circuits, requiring industrial-scale computing for miners to succeed; Ethereum’s is different and is designed for home computers.

Primarily because of energy usage concerns, Ethereum has announced plans to make fundamental changes to its core algorithm, moving from proof of work (all miners required to run computers validating every transaction) to a less energy consuming proof of stake algorithm, where tasks are allocated to specific sets of miners. But this transition, announced in April, still has not happened, and there are fears that the switch could go wrong, or could open side doors to fraudulent attacks. It is a common misconception that the technology behind these major cryptocurrencies is bombproof. Bitcoin has been embarrassingly exposed several times, and in 2017 Ethereum’s viability was seriously called into question by a major hack.

Even if Ethereum’s transition goes smoothly, bitcoin cannot make such a switch since its algorithm is hardwired. Assuming that currency exchange activity is a proxy for transaction volumes, it is notable that Coinbase’ Q3 report mentions a significant decline in cryptocurrency activity. Against this backdrop of declining volumes, for bitcoin’s energy consumption to rise as strongly as indicated in the chart shows the irreversibility of this unsustainable trend.

Central Bank Digital Currencies (CBDCs)

Central banks are doing little to discourage crypto activity. On the contrary, they continue to legitimise it. In October the Bank for International Settlements published a major framework for a model of regulatory architecture which national central banks are encouraged to adopt specifically addressing the legitimisation of stablecoins.

Furthermore, central banks appear to be leveraging public acceptance of cryptocurrencies so as to pave the way for CBDCs. We reported in February the ECB’s then thoughts regarding a digital euro. Having published a cautious paper in October 2020, earlier this year the ECB’s tone became more confident and enthusiastic. Executive Board Member Fabio Panetta spoke again about a CBDC only last month, again optimistically, even evangelically. He focussed on the digitisation of the economy and the importance of the emergence of a digital euro to maintain public access to central bank money, as physical cash use continues to decline.

The Bank of England in early November hired a currency architect from FIS/Worldpay, ostensibly to work on the detailed design and payment characteristics of its Britcoin project. Further, the BofE has formally asked the UK Government to think about a key, political, design characteristic; whether the digital currency should be ‘programmable’ – i.e. whether the state should have oversight as to what it will be spent on. BofE Director Tom Mutton brazenly discussed the trade-off between unprecedented control of people’s spending with the social benefits of such restrictions:

“There could be some socially beneficial outcomes from that, preventing activity which is seen to be socially harmful in some way. But at the same time it could be a restriction on people’s freedoms.”

A cynic might argue that a primary motive of central banks is to be able to take interest rates deep into negative territory. However, it is also credible that the combination of government zeal for all things digital, and the post-pandemic trend for governments to claim greater power over their citizens’ private lives, is increasing central banks’ ideological commitments to their CBDC initiatives.

Conclusion – How can Central Bank Digital Currencies be squared with COP26 pledges?

A paper by Global Standard CEO Doug Jackson highlights several design flaws of blockchain, distributed ledger technology in general, and bitcoin in particular. Of these flaws, perhaps the most glaring is the accretive nature of the ledger: the need to add certain details relating to every transaction to a constantly lengthening record. This has resulted in the bitcoin blockchain now sized at 373 gigabytes, approximately double its size three years ago. Of course, the energy consumption data cited above would be much smaller were bitcoin centrally controlled, rather than requiring transaction affirmation by multiple computer networks. However, with bitcoin payments comprising still only an infinitesimally small percentage of fiat volumes, even a centrally managed CBDC would quickly consume staggering amounts of energy, and even more if (as is surely likely) an accretive payment ledger technology were employed.

How can CBDC’s be squared with the mighty emission and energy reduction targets negotiated in Glasgow at COP26? Surely there is a strong case for pause and reflection with the base case being for the cessation of public CBDC projects.

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