Bitcoin Mining's Carbon Footprint: A Challenge for the Cryptocurrency Sector and Beyond

Bitcoin has the potential to revolutionise financial markets and enjoys substantial global influence. However, the energy demands of bitcoin mining contribute to rising carbon emissions.

Bitcoin, a decentralised digital currency, has garnered immense attention for its potential to revolutionise financial markets. However, a lesser-known aspect of bitcoin is its substantial carbon footprint, embodied in its complex global supply chains. A recent study by Nuri C Onat, Murat Kucukvar and colleagues delves into this critical topic, highlighting the urgent need to factor in the environmental consequences of digital currencies.

Each bitcoin transaction carries a hefty carbon footprint, roughly equivalent to driving a gasoline-powered car between 1,600 and 2,600 kilometres. This staggering statistic underscores the high environmental cost of each transaction on the network, underscoring the pressing need for solutions to reduce this impact.

Bitcoin mining relies on the proof of work (PoW) system, where high-performance computers work to verify transactions and secure the blockchain network. This energy-intensive process generates an estimated 63 terawatt-hours (TWh) annually, comparable to the energy consumption of Poland. Given that fossil fuels remain a primary electricity source in many mining regions, this energy use translates directly into greenhouse gas emissions, contributing to global climate change. Notably, these emissions are on par with the annual output of entire nations.

The study's findings reveal that the United States is responsible for nearly 46 per cent of global bitcoin mining emissions, producing an estimated 15.1 million metric tons of CO₂ annually. Despite regulatory efforts, China remains a major player, both as a significant emitter of bitcoin mining and as a top producer and supplier of bitcoin mining equipment. Kazakhstan and China also contribute substantially, accounting for 20 per cent and 13 per cent of total mining emissions, respectively.

Due to emissions embodied in the global supply chains of bitcoin mining, regional emission reduction efforts alone may not be sufficient. For example, despite its clean energy grid, Norway faces indirect emissions from bitcoin mining. Around 74 per cent of Norway’s mining-related emissions stem from imported equipment manufactured in regions like China, where carbon-intensive energy sources are prevalent. This highlights the need for mitigation strategies that extend beyond national borders, considering emissions embedded in global trade and supply chains. Additionally, the findings underscore the urgency of shifting away from coal-powered electricity generation, a primary source of greenhouse gases.

Bitcoin's energy demands exemplify a broader trend among emerging technologies. Advanced artificial intelligence models, for instance, also require vast computational resources during development and operation. As these technologies expand, so too will their carbon footprint, necessitating sustainable approaches across digital sectors. If left unchecked, the energy requirements of these innovations could pose further challenges to global climate mitigation efforts.

To mitigate these impacts, mining operations could be powered by renewable energy sources, such as solar or wind, to drastically reduce emissions. Policymakers could incentivise or require mining hubs to rely on clean energy, especially in regions with abundant renewable resources.

Furthermore, exploring methods for implementing a carbon tax could help reduce the growing emissions from bitcoin mining. While the decentralised and largely unregulated nature of cryptocurrencies poses challenges to the regulation of carbon taxes, innovative solutions within the crypto space are possible. For example, blockchain technology could be utilised to help lower mining-related carbon emissions.

Tackling emissions associated with bitcoin's entire supply chain is essential. This includes considering the carbon footprint of manufacturing and transporting mining equipment. Transparency in carbon accounting, especially for indirect, so-called Scope 3, emissions could help hold mining operations accountable for both direct and indirect emissions.

To reduce the reliance on energy-intensive proof of work systems, the industry could consider adopting alternative consensus mechanisms like proof of stake (PoS), which has a significantly lower energy requirement, offering a viable path toward sustainable digital currency models. However, this is not a simple solution, as various consensus mechanisms can impact bitcoin’s value as a decentralised and trustless financial asset, presenting a challenge often referred to as the blockchain trilemma.

Although bitcoin's carbon emissions are concerning, the global financial system's energy demands in hubs like New York, London and Tokyo are also substantial, relying on energy-intensive servers and supercomputers for transaction processing. Therefore, strategies such as improving data centre efficiency, using renewable energy and advancing cloud computing can help reduce emissions from emerging digital technologies. Yet, as financial transactions grow, finding sustainable ways to reduce the sector's environmental impact remains a pressing challenge.

There is an urgent need to address bitcoin mining's carbon footprint, not only for cryptocurrency but as a blueprint for managing the environmental impact of digital technologies, including AI as well as the financial sector at large. With coordinated action, the cryptocurrency sector can become a model of sustainability, striking a balance between innovation and environmental responsibility. Addressing bitcoin's emissions, along with those of other emerging technologies, will be critical as we strive to meet global climate targets and mitigate the risks of climate change.