The Environmental Impacts of Cryptomining
The guidebook — "The Energy Bomb: How Proof-of-Work Cryptocurrency Mining Worsens the Climate Crisis and Harms Communities Now" — is the first to comprehensively document the explosive growth of cryptocurrency mining in the United States and examine how this industry is impacting utilities, energy systems, emissions, communities and ratepayers.
Cryptocurrency Mining’s Explosive Growth in the United States
After cryptocurrency mining was banned in China in 2021, the amount of mining operations exploded in the United States.
In the year prior to July 2022, Bitcoin consumed an estimated 36 billion kilowatt-hours (kWh) of electricity, as much as all of the electricity consumed in Maine, New Hampshire, Vermont, and Rhode Island put together in that same time period.
The past two years have demonstrated that the industry preferentially seeks readily-available energy and minimal regulation, re-starting defunct coal and gas plants, flooding the restructured electricity market in Texas, and tapping into power grids where regulators have little oversight.
This explosive growth strains energy grids, raises retail electricity rates, and increases total carbon emissions and local air pollution.
The design of proof-of-work cryptocurrency mining incentivizes miners to ramp up operations as quickly as possible, often irrespective of the source of energy.
Indeed, big mining operations have shown a willingness to invest in otherwise uneconomic power sources, like defunct coal plants or low-capacity gas plants, as long as that electricity can be made available quickly. Unlike other large electricity users, cryptocurrency mining operations have a short time horizon, and most have shown little interest in investing in new clean energy.
What is Cryptocurrency Mining, and How Does It Work?
Proof-of-work cryptocurrency mining is designed to consume enormous quantities of energy. The process effectively entails millions of computing machines racing to solve a complex, but meaningless, problem.
- In Bitcoin’s algorithm, for example, the computer or mining machine that successfully solves the problem is rewarded with Bitcoin (and functionally verifies the blockchain).
- As long as the reward is high enough (i.e., the price of Bitcoin is high enough), miners will attempt to use more — and faster — mining machines to increase their chances of winning that reward.
- As more mining machines enter the race, the difficulty of the computational problem gets harder, and the electricity required to win increases.
Over time, the electricity used by miners in these races increases exponentially.
Proof-of-Work Cryptocurrency Mining Increases Emissions in the United States
Top-down estimates of the electricity consumption of cryptocurrency mining in the United States imply that the industry was responsible for an excess 27.4 million tons of carbon dioxide (CO2) between mid-2021 and 2022 — or three times as much as emitted by the largest coal plant in the U.S. in 2021.
But these estimates are simply based on the likely energy consumption to solve cryptocurrency’s puzzles.
A ground-up approach, looking at how the industry has actually been deployed, suggests that proof-of-work cryptocurrency might be yet more impactful.
Cryptocurrency miners procure their electricity in four different ways:
- Outright purchase of power plants that supply mining rigs “behind-the-meter;”
- Power purchase agreements with power generators or utilities;
- Electricity purchases from a local utility; and
- By burning gas at oil and gas wells. Each type of mining produces excess emissions, and impacts electricity and energy consumers.