The trading and mining of cryptocurrencies impact the environment by causing electronic waste, emitting carbon, and using energy. Cryptocurrency mining accounts for 0,29% of the world’s energy production and 0,59% of the world’s electricity production. The Cambridge Centre for Alternative Finance estimates these numbers for 2022. A cryptocurrency investment firm called Galaxy Digital claims that cryptocurrency mining uses less energy than traditional banking systems.
Most of the energy used for cryptocurrency mining comes from coal power in Xinjiang, China during winter and spring. During summer Chinese crypto miners use hydropower. According to the Bitcoin Mining Council, 56% of all Bitcoin mining comes from renewable sources as of Q2 2021.
Bitcoin’s environmental impact relates Bitcoin’s energy consumption to carbon emissions. It is difficult to estimate the exact environmental impact of cryptocurrency mining because of its decentralized nature. Miners use different sources of energy and mine cryptocurrencies in different ways. A study published in Finance Research Letters forecasts Bitcoin’s global carbon footprint to be anywhere between 5,2 Mt CO2 to 130,50 Mt CO2 per year.
Cryptocurrency mining generates 30,7 metric kilotons of electronic waste yearly, according to researchers. The average lifespan of mining equipment is 1,29 years. Miners need to replace their mining equipment because of the ever-increasing hash rates of cryptocurrencies. This makes it harder to mine and equipment unprofitable. ASIC miners have no other purpose than Bitcoin mining and become electronic waste as soon as they become unprofitable.
Attempts to reduce the environmental impact of cryptocurrencies
Bitcoin developers attempt to reduce the environmental impact of cryptocurrencies by developing the Lightning Network. This network moves transactions off-chain, saving energy because not all users have to update the full blockchain every time they access it.
Ethereum developers plan to switch from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism. Mining Ethereum will become unnecessary and those that stake the most Ethereum become the new validators. This will reduce Ethereum’s energy demand by over 99%.
Some cryptocurrencies like Sia, Chia, and Filecoin use a Proof-of-space algorithm. Although this uses less energy because it uses hard drives instead of GPUs, it still produces lots of e-waste.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 minutes to learn more.