Greening the Crypto Revolution
The explosive growth of Bitcoin and other cryptocurrencies has opened up a new front in the broader climate crisis by threatening to offset the progress made in recent years toward decarbonization. For the technology to gain wider adoption over the long term, its proponents will have to get serious about reducing its energy usage.
LONDON – In May 2021, Tesla founder Elon Musk announced that his company would no longer accept Bitcoin, owing to its massive energy consumption and heavy reliance on fossil fuels. Musk had a point. The mining process to validate a single Bitcoin transaction leaves a larger carbon footprint than nearly 1.8 billion Visa transactions, and the evidence suggests that more than 70% of Bitcoin’s global energy consumption is generated from non-renewable sources such as coal. As Bitcoin’s market capitalization grew from $70 billion to over $1 trillion between November 2018 and November 2021, its annual global energy consumption increased fourfold, to more than 200 terawatt-hours (TWh).
Although Bitcoin’s adverse environmental impact was barely mentioned at the United Nations Climate Change Conference (COP26) in Glasgow last November, it remains a key issue for crypto users and policymakers. Regulators are working on new environmental, social, and governance (ESG) frameworks and rules for financial services, including those involving digital assets like cryptocurrencies. European policymakers, for example, will focus on the environmental impact of crypto-assets during the ongoing negotiations over the proposed EU Markets in Crypto-Assets (MiCA) regulation, the aim being to integrate the new rule into the wider regulatory framework for sustainable finance.
In the private sector, however, initiatives to set industry standards and best practices for sustainable crypto activities have been rare. While coalitions like the Crypto Climate Accord aim to decarbonize the industry by using greener blockchain technology, carbon accounting, and carbon offset procurement, such initiatives are the exception that proves the rule.