In the letter, Swedish officials argue that the actual benefits of cryptocurrency are questionable and the “enormous” energy consumption of mining and transferring these currencies outweighs the benefits. They specifically question the so-called “proof of work” verification protocols in which crypto users are asked to solve very complex computer problems.
Image credit: Flickr / Stock Catalog.
The proof of work is a form of cryptographic proof in which one party (the miner) proves to others that a specific computational effort has been expended to solve a puzzle. The higher the price of cryptocurrency, the more people are interested in participating in the competition. This automatically increases the level of difficulty of the puzzle required, which means more computational effort (and subsequently, more electricity) will be required to solve it — accelerating greenhouse gas emissions (GEI) in the countries where crypto mining takes place. Most crypto production takes place in countries with low energy prices and an energy matrix largely based in fossil fuels. This was especially the case of China, which used to account for two-thirds of Bitcoin mining worldwide. But this has now changed, as the government started a crackdown on the cryptocurrency industry, driving companies overseas.
“Anyone who wants to mine assets competes to solve an encryption puzzle, and the winner receives new crypto-assets as a reward. The only way to solve the puzzle is by repeatedly running computer programs that guess the right answer. When a large number of crypto-producers’ computers work simultaneously, the demand for electricity soars,” they wrote.
The renewable drive
The scale of the problem should not be underestimated. In one year, the Bitcoin network, one of the most used crypto currencies, consumes 120 terawatt hours (TWh) of energy — which is the equivalent to the entire energy use of the Netherlands, based on estimates from Cambridge University’s Bitcoin Electricity Consumption Index (CBECI). If it were a country, Bitcoin would rank 32nd in the world by energy consumption, and it’s not the only cryptocurrency.
In the letter, Swedish government directors said crypto-producers are now turning their attention to Nordic countries, as taxes for mining-related activities are favorable and there’s good access to cheaper renewable energy. In Sweden, electricity consumption for Bitcoin mining now accounts to 1 TWh annually, which equals to electricity 200,000 Swedish households.
While it’s much better for companies to mine crypto using renewables instead of fossil fuels, the directors said this risks that there won’t be sufficient renewables to cover the climate transition countries have to make. Clean energy is “urgently required” to develop fossil-free steel, to manufacture batteries on a large scale and to electrify the transport sector, the argue.
In their letter, the directors said EU countries could also introduce a tax on energy-intensive production of bitcoin and communicate more widely the climate problems related to crypto-assets. Nevertheless, these options won’t likely address the “environmental harm we see” from crypto mining today – calling instead for a larger ban. Earlier this year, the EU adopted new and more ambitious climate targets to tackle climate change, with a pledge to make then legally binding soon. The legislation, agreed between member states and the EU Parliament, says the bloc will cut its emissions by at least 55% by 2030. Still, the Parliament had initially asked for a 60% reduction.