Anvesha Aggarwal and Tanya Pandey
1st year Law students at Dharmashastra National Law University
According to the Cambridge Bitcoin Electricity Consumption Index, bitcoin’s energy needs as compared to other activities require as much energy as powering all the lights and TVs in the U.S.[1] [2]Cryptocurrency mining is an extremely energy-intensive process that uses as much power as an entire country’s power consumption. Cryptocurrency has taken the world by storm, from Bitcoin to Ethereum, and beyond these digital currencies have become household names. Cryptocurrency has transcended beyond the traditional financial systems by promising a future of decentralized finance, digital ownership, and borderless transactions. However, with its growing popularity and appeal, it is also important to confront environmental concerns associated with it. Some argue that each Bitcoin transaction leaves behind a carbon footprint as heavy as running a household for several weeks. An important question thus arises, is the future of money worth the environmental toll it takes today?
Cryptocurrency is a virtual payment method that is not dependent on banks to validate its transactions. Using peer-to-peer technology makes it possible for anyone, anywhere to give and receive money. Cryptocurrency works on a distributed public ledger called blockchain technology which keeps a record of all the transactions updated and held by currency holders. If you own cryptocurrency, you do not own anything tangible. For possession, in return, you own a crucial key that can transmit the movement of a record or unit of measure from one person to another.
New coins are created and transactions are verified in cryptocurrency through a process called cryptocurrency mining in which miners use special software to solve complex math problems and are issued a newly minted cryptocurrency ( for example-bitcoins) in exchange. This provides a smart way to issue the currency and creates an incentive for more people to mine. Since miners are required to approve transactions, more miners mean a more secure network. The difficulty of the math problems automatically changes depending on how fast they are being solved.
The most common and widely used type of mining is the Proof of Work (PoW) system where the network participants who want to add new blocks of transactions to the chain must necessarily solve a cryptographic puzzle. The puzzle carries in itself all the information related to the transactions and as the transactions multiply over time the puzzle gets harder to solve for which a lot of computing power is required and hence the PoW system uses a lot of energy. If a participant also referred to as the node can successfully solve a problem then they are rewarded with a virtual currency like the newly minted coins, this encourages the network participants to maintain and uphold the network.
Crypto Mining and its Ecological Impact
Bitcoins global electricity consumption of 173.42 TWh from 2020 to 2021 exceeds that of some countries, according to a study published by the journal Earth's Future. For example, that amount of power exceeds the combined electricity consumption of Argentina and the Philippines. According to the Oak Ridge Institute of Science and Education, $1 of Bitcoin takes 17 megajoules of energy to mine which is more than double what it takes to mine $1 worth of Copper, Gold, and Platinum.[3]
The process of crypto mining is an inherently energy-intensive process. This energy intensiveness comes from the need to solve complex mathematical problems for which you need to expand a certain amount of power against it to be the fastest one to solve the puzzle and claim the reward. With an increase in energy, the ability to win increases. These machines then require more capacity and higher voltage. Those who can afford to have complex, energy-hungry machines have an upper hand in receiving the rewards. This encourages more people to join and hence the energy use increases as a result. When profits and return on investment are involved, environmental impacts become an afterthought. Another reason why the CO2 emissions per Bitcoin transaction are extremely high is that the transaction processing capacity of the same is limited. Even after the high energy expenditure, bitcoin’s design is such that there is a restriction on the number of transactions per second. This means that even for small transactions, the entire network consumes energy. Unlike the transactions, the consumption of power by Bitcoin isn’t capped. As a consequence, each transaction has a disproportionately high carbon footprint which makes it inefficient in comparison to the payment systems already in use that can process a huge amount of transactions more energy efficiently.
Cryptocurrency’s substantial energy usage is illustrated by the Bitcoin ASIC miners. These ASIC miners (Application Specific Integrated Circuits) are specialized hardware devices that are built specifically for mining cryptocurrencies. They are designed to run continuously to make sure maximum profits are attained. Once these miners are turned on they keep on working till they either become unprofitable or break down. This nature of the miners makes them demand energy at all times. The most significant issue with Bitcoin mining is perhaps not even its massive energy consumption, but that the mining facilities in its network heavily rely on fossil fuels as the available renewable energy resources are often inconsistent and inefficient for example during night or periods of low wind. This shows how even if the mining operators attempt to go green or use sustainable resources of energy, they still are heavily dependent on carbon-intensive energy sources. As many of the mining facilities are located in regions where the electricity is generated from coal and natural gas, it makes them heavily reliant on non-renewable energy sources. Renewable sources of energy are limited and might not be sufficient for the high energy requirements of crypto mining which makes it difficult for the miners to switch over to sustainable sources of energy.
One of the major reasons behind the high carbon emissions generated by Bitcoin mining is the implementation of Proof of Work consensus which needs huge amounts of energy to work and sustain the network. In fact, in 2022, Bitcoin mining produced around 86.3 million tons of CO2. Forex Suggest also said that to reduce the impact of harmful emissions, the world needs to plant around 431.6 million new trees[4]
Maintenance of these mining facilities poses another challenge. Due to the amounts of energy used and the continuous working of the miners, these often get extremely heated and necessitate temperature regulation. Maintainers and manufacturers have hence turned to water cooling to keep their equipment cool at low costs. In some instances, mining farms have discharged hot water into lakes and other water bodies raising concerns about their contamination and increasing temperatures.
On average Bitcoin generates 272 g of e-waste per transaction processed on the blockchain.[5] It has been estimated that the computers used for mining have an average lifespan of only 1.29 years. When these devices become obsolete, they generate huge amounts of e-waste[6]. Initially, the miners used central processing units (CPUs), However, they realized that graphic processing units (GPUs) were better suited for the task. Later, ASICs were introduced and quickly replaced the GPUs. These had specific tasks of finding the required proofs at optimal efficiency. These Bitcoin ASICs are so specialized that they can’t be used for mining any alternative digital currency. The miners rapidly cycle through vast amounts of increasingly powerful devices. E-waste has a very complex composition and its treatment is equally complex which has specific infrastructural requirements. Investment in E-waste management is expensive, especially for developing countries like India. This E-waste if not managed properly, can lead to health problems and other environmental hazards.
REGULATION OF CRYPTO MINING
It is undeniable that cryptocurrency brings along technological advancements but we must also consider its environmental impacts. The effects of environmental damage do not respect national borders. It is imperative to find a way to enjoy the advantages of cryptocurrencies without the devastating environmental costs.
Over the past few years, America has paid attention to the development of cryptocurrency and its regulation. Its regulation, however, is more focused on consumer protection and the prevention of money laundering. It pays little attention to deal with environmental problems. Considering the great potential of the industry in the USA, the government seeks to minimize consumer losses rather than the environmental impact.
China had also taken strict steps in regulating and dealing with environmental problems that result from crypto-mining activities. China had previously blocked all sites involved in cryptocurrency transactions for almost two years. This was also done to protect the country from any kind of frauds and social unrest rather than environmental considerations.
Iran has, on the other hand, strictly regulated crypto mining. In 2019, the electricity network in Iran experienced instability due to crypto mining and the government cut off all flow to this activity. Due to crypto mining, electricity consumption in Iran spiked by 7% during one month,ending on June 21, 2019 making the government take regulatory steps.[7]
India finds itself in a regulatory gray area with its stance on cryptocurrency causing uncertainty for a lot of people. Cryptocurrencies such as Bitcoin, Ethereum and others do not hold the position of legal tender in India. The trading and transfer of digital assets, however, is not illegal in India. The Indian government has implemented a 30% tax on income and 1% TDS on transactions exceeding INR 50,000 annually. [8]The Indian government currently does not hold a clear legal stance on cryptocurrency. People in India can buy, sell, and trade currencies however they cannot be used for everyday transactions or purchases.
In 2021, The Cryptocurrency and Regulation of Official Digital Currency Bill was introduced to regulate and give a foundation to digital currencies. It is however still in progress and hasn't been passed by the Indian Parliament.
The Regulatory Blindspot: How to ensure Environmental Accountability
A common pattern that can be observed in most countries is that they have certain regulations to protect the economic consequences and impacts of cryptocurrency in place. However, most of them lack a regulatory framework to address the environmental consequences of the same.
Countries must be able to frame policies that regulate and protect the environment from the harmful consequences of crypto-mining. Policymakers must wisely determine the role of cryptocurrency mining shares in the country’s financial system. Governments must consider and implement regulations to mitigate these environmental effects with immediate effect to negate the adverse effects of crypto mining on the environment.
MINIMIZING EMISSIONS: To ensure a reduction in the hazardous crypto-mining impacts, it is necessary for different agencies from environmental, energy, and legislative bodies to provide assistance and initiate collaborative efforts to address the environmental issues. This collaborative approach should include standards for energy usage and low-intensity machines. To ensure low emissions of greenhouse gases, the policymakers need to focus on shifting to renewable sources of energy. To deal with the issue of non continuous supply of energy from renewable sources, Energy Storage Systems can be used. These store excess energy during periods of high renewable generation and can be used when renewables aren’t available. A shift from fossil fuels to renewable energy would significantly reduce the carbon footprint of crypto mining and reduce emissions.
PROMOTING TRANSPARENCY: It is essential for governments around the world to make laws promoting transparency in cryptocurrency mining to ensure accountability, environmental monitoring and regulatory compliance. It must be mandatory for mining operators to report their energy consumption, emissions and the type of energy source that they used (renewable or non-renewable source) for the purpose of mining. Certain benefits could be given by the government to those who switch over to clean energy, in the form of subsidies or tax relaxations to promote renewable sources of energy.
APPLICATION OF CARBON TAX: The Paris Agreement (UNFCCC 2015) relies on voluntarily decided Nationally Determined Contributions (NDCs) which are regularly reviewed and updated every 5 years[9]. Countries are responsible for making sure that these goals are met and to ensure the same, there has to be regulation of the emissions. Carbon taxes could be levied in such cases. This is levied on firms that produce (CO2) through their operations. It is used as an incentive to protect the environment from the harmful effects of excess emissions. Implementing such a tax would reinforce the Polluter Pays Principle and hold those liable who are mainly responsible for damage. This would act as a deterring force for the miners to reduce their emissions.
CONCLUSION
Cryptocurrency is a revolutionary area in the field of finance that promises decentralized transactions and digital ownership but its environmental impacts cannot be ignored. The energy intensive nature of crypto mining specifically through the Proof of Work consensus mechanism has led to huge emissions and high resource consumption that sometimes are comparable with that of entire nations. As cryptocurrencies continue to grow and prosper it is imperative that governments and policymakers focus on the environmental challenges and frame policies that prevent the harmful consequences of crypto mining on the environment.
The present regulatory framework focuses mainly on the economic factors that are associated with the cryptocurrency. Around the world, It has been observed that there is a lack of regulatory rules around the ecological aspect of crypto mining. This critical gap over the ecological concerns must be addressed through the implementation of comprehensive policies that promote transparency, incentivizing the use of renewable energy and by the imposition of carbon taxes on the mining operators. Governments need to make sure that the industry moves towards more eco-friendly practices through collaborative efforts which not only safeguard their financial interest but also protect the environment.
Ultimately, The evolution of cryptocurrency should not come at the cost of the environment and hence it is crucial that it finds a balance between innovation and ecological responsibility. The road ahead requires commitment, collaboration and a shared vision for a greener and a better future of digital finance.
[1]Cambridge Blockchain Network Sustainability Index: CBECI: Comparisons, CCAF Digital Tools - Cambridge Centre for Alternative Finance, https://ccaf.io/cbnsi/cbeci/comparisons (last visited Oct. 15, 2024).
[2] Mary K. Pratt, The environmental impact of bitcoin mining explained | TechTarget, Sustainability and ESG (Nov. 30, 2023), https://www.techtarget.com/sustainability/feature/The-environmental-impact-of-bitcoin-mining-explained.
[3] Lauren Aratani, Electricity needed to mine bitcoin is more than used by 'entire countries', the Guardian (Feb. 27, 2021), https://www.theguardian.com/technology/2021/feb/27/bitcoin-mining-electricity-use-environmental-impact.
[4] Wiwoho, J., Trinugroho, I., Kharisma, D.B. and Suwadi, P., 2024. Cryptocurrency mining policy to protect the environment. Cogent Social Sciences, 10(1), p.2323755
[5] De Vries, A. and Stoll, C., 2021. Bitcoin's growing e-waste problem. Resources, conservation and recycling, 175, p.105901.
[6] BBC News, Bitcoin mining producing tonnes of waste, BBC Home - Breaking News, World News, US News, Sports, Business, Innovation, Climate, Culture, Travel, Video & Audio (Sept. 20, 2021), https://www.bbc.com/news/technology-58572385.
[7] Wiwoho, J., Trinugroho, I., Kharisma, D.B. and Suwadi, P., 2024. Cryptocurrency mining policy to protect the environment. Cogent Social Sciences, 10(1), p.2323755.
[8] Omkar. (2024, October 11). A guide for cryptocurrency regulations in India in 2024. KYC Hub. https://www.kychub.com/blog/cryptocurrency-regulations-in-india/
[9] King, L.C. and Van Den Bergh, J.C., 2019. Normalisation of Paris agreement NDCs to enhance transparency and ambition. Environmental Research Letters, 14(8), p.084008.
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