Crypto mining is the backbone of Proof-of-Work cryptocurrencies since miners handle all the transactions and the inclusion of new crypto coins in the network. If a network does not have a diverse mining network, it is prone to both malicious attacks and network halts.
Since Bitcoin is highly correlated with the whole market, Bitcoin mining is the backbone of all cryptocurrencies. Many companies and mining rigs worldwide handle Bitcoin mining, and even individuals like you and I can perform mining with proper equipment.
Bitcoin mining is a lucrative responsibility with high returns, but the mining community is recently facing a severe backlash because mining is hazardous to the environment.
Bitcoin mining is actually a bunch of codes trying to solve complex mathematical problems with the help of a machine's computation power. The complexity of these problems has been algorithmically set in a way that it would take around ten minutes to solve each problem, and hence every transaction takes around ten minutes to complete.
The problem's complexity is increased if the time taken is less than 10 minutes and vice versa. Since its inception, when Bitcoin mining was as easy as mining on a 16-bit laptop, the field is getting cut-throat day by day, with millions of miners using high-tech ASIC mining machines costing around INR 1.5 lakhs a piece.
Since there are a lot of miners, the program, which is set to release every transaction at around 10 minutes, has to exponentially increase its complexity which means high power-consuming machines with exceedingly high carbon emissions.
An estimate by Digicomist, a crypto analyst website, said that Bitcoin mining consumes around 130 Terrawatt-hours of energy based on the estimates measured on July 9, 2022. These figures point out that a Bitcoin transaction takes 1455 Kilowatts of electricity, the amount of energy an average American household consumes in 49.5 days.
Data by Cambridge Bitcoin Electric Consumption Index (CBECI) estimates that Bitcoin takes 0.36% of global electricity consumption. This data means that if Bitcoin were a country, it would be the 36th biggest country in terms of electricity consumption, ahead of Finland and Belgium. The above comparison is in accordance with the latest country energy data by the US.
The second largest cryptocurrency, Ethereum, consumes 62.77 Terrawatt-hours of electricity per year which is comparable to Switzerland's yearly electric consumption.
If the above data might not sound alarming, due to the inconsistencies of mining rigs, a massive chunk of electricity consumed is concentrated in countries with low electricity costs like Kazakhstan.
The local flora and fauna of the region are duly hurting due to crypto mining, which will consume more electricity with the advancement of mining hardware. Bitcoin mining in the US alone is creating an estimated 40 Billion pounds of carbon emissions.
There are several incidents of Bitcoin mining damaging the environment; one of the examples is Greenidge generation, a former coal power plant that then switched to natural gas. When Greenidge started mining Bitcoin, it used to draw water from a nearby lake in Dresden, New York, which increased the lake's temperature by around 50°F, endangering the fauna of the lake and its nearby region.
After China's recent crackdown on cryptocurrency and mining, many rigs moved to Kazakhstan, a cost-effective alternative but the implications on Kazakhstan were higher. Many reports have come out of the country regarding constant blackouts due to the high power consumption of crypto miners. Kazakhstan, a country that mainly relies on fossil for its energy, does not have enough electricity to cater to the needs of both miners and its civilians.
Climate change is one of the most significant issues the world is facing right now, and many countries have recently committed to the cause and are working hard to fight it. Hence, Bitcoin mining is under heavy screening and is facing objections by many governments and pro-eco groups.
China, where more than 60% of miners were concentrated, enjoyed cheap resources generated from both conventional and non-conventional means and had to displace themselves overnight after the crackdown and blanket ban it imposed. It is unhealthy for miners, the network's backbone, for a decentralized network to be concentrated in a single region.
The Indian crypto mining scene is still highly unregulated; there are no regulations to impose a ban or tax the miners differently. In the US, many states have banned cryptocurrencies totally, let alone mining, except in New York, which made it illegal for mining rigs to operate on Carbon-based energy.
Over the years, cryptocurrencies have evolved, and many more environmentally friendly versions have come out. Some of them are:
The second largest cryptocurrency network and one of the busiest networks, Ethereum, has decided to shift to Proof of Stake. In PoS, validators lock their tokens to create a validator network that can verify the transactions.
Proof of Burn or PoB was specifically made as a PoW consensus without the energy waste. In PoB, miners buy virtual mining rigs that mine cryptocurrencies proportional to the number of coins they burn. For now, this mechanism has not caught mainstream attention, and there are very few cryptocurrencies that are adopting this mechanism.
Instead of using computational power, here, miners use free space in their hard drives to validate transactions and decide mining rights. The more space you have, the more the chance of getting the correct solution to the problem.
Cloud mining is not exactly the solution but a better alternative than the current mining scene. Cloud mining is when users buy a share of computation power from a mining rig without actually owning any kind of machine or using code. Think of it as buying ASICs virtually and mining Bitcoins remotely. The problem here is that a part of the world where these mining rigs are located will still suffer.
The damage of crypto mining could be minimized by using renewable sources of energy since fewer fossils will be burnt. Green energy is the future, and more and more corporations and individuals are switching on to it. According to a report by the Bitcoin mining council, 58.5% of the network has already switched toward clean energy due to both environmental consequences and political pressure.
Due to its environmental consequences, crypto's high energy problem came to attention after Tesla halted payments in Bitcoin. Tesla's CEO Elon Musk's continuous efforts to solve this problem are helping the crypto world to be greener.
The industry is looking to reduce carbon emissions to net zero by 100% and completely decarbonize itself by 2040. Bitcoin, a Proof of Work network, has been a pillar for the whole crypto market; changes in it mean significant shifts in the market, but a change has to be made, or Bitcoin may face worrisome consequences along with the entire industry.