There’s no getting away from the fact that the cryptocurrency industry consumes significant amounts of energy.
It powers machinery that validates transactions and so enables the secure transfer of billions of dollars of assets in a trust-less, peer-to-peer manner. While the industry is not unique in its energy use, it is something that is becoming increasingly important for individuals and businesses who are steadily choosing to make more sustainable investments.
A 2021 survey of the Australian ETF Market as an example, found that 28% of younger investors had requested more ethical investments. This reflects global trends too. Further back, a 2020 report conducted by European-based ethical bank Triodos found that six out of ten young people want their investments to be aligned with UN Sustainable Development Goals, while 39% said ethical investments are the key to addressing climate issues.
While it’s hard to pinpoint the exact amount of energy consumption of a cryptocurrency like Bitcoin, a recent study with open-source methodology from Galaxy Digital (2021) found Bitcoin’s annual electricity consumption to be 113.89 terawatts per hour globally. For some perspective on this, the same report found that the banking system globally was estimated to be using twice as much power hourly, at 263.72 TWh.
While this energy use is only set to grow as the hype around crypto and NFTs continues, what’s promising is that a sizable and growing portion of energy behind it comes from renewables. Looking at Bitcoin specifically, a study from Cambridge University in 2020 estimated 76% of miners relied on some form of renewable energy – which accounted for 39% of total bitcoin energy consumption.
Renewables have some of the lowest incremental costs of power generation, and cryptocurrency, along with other adjacent industries, can actually help to make new renewable initiatives economically viable by becoming a source of consistent and stable demand. As Kraken CEO Jesse Powell has pointed out (in 2021) “[Bitcoin is] a way to capture a lot of discarded and lost energy. It’s a way to bootstrap renewables. I think it’s doing a lot for the renewable energy sector.”
In Australia, we already have a number of innovative local mining companies tackling this issue head-on by building business models based on renewable energy. This includes NASDAQ listed Mawson Infrastructure Group who develop modular mining solutions to co-locate with renewable generation sites, and Iris Energy, an ESG hydro and renewables mining company deploying mining capacity globally.
Additionally, we are seeing climate focused projects emerging in the space that are raising support for environmental issues. For example, projects like KlimaDAO, SolarCoin and PowerLedger, offer individuals a way to directly support sustainability causes, and add to the larger climate conversation.
As for Kraken, our marketplace provides access to cryptocurrencies that are widely accepted as running more sustainably including several assets that make use of proof of stake (PoS) protocols which House Energy and Commerce Committee Chairman Frank Pallone told a January US Congressional Hearing could use 99.99% less energy.
Many of the modern digital assets such as Cardano, Solana, Avalanche, MakerDAO and Tezos are already using PoS, while the world’s second most popular ecosystem Ethereum plans to transition from PoW to PoS. These are just some of the options out there for individuals to make more sustainable choices in the sector.
It’s important to remember that the cryptocurrency industry is still in its infancy, and while we can’t predict what exactly the future holds, we can be confident that the market will continue to innovate and potentially adopt even more sustainable systems.
Ultimately, the question of whether or not crypto’s energy consumption is worthwhile depends on if you believe a digital currency and store of value that can be used by any individual – regardless of their geo-political, economic, or social status – is valuable to humankind or not.
