The cryptocurrency markets began to fall after Elon Musk's tweet that mining is, in fact, environmentally unfriendly. Other adverse Bitcoin and other digital assets-related developments followed, causing the current long decline. But is mining really that environmentally harmful?
This claim was the underlying reason for Elon Musk's refusal to accept the major digital currency as a means of payment for Tesla electric cars. Many crypto users wondered what exactly the billionaire meant by environmentally unfriendly.
Electricity consumption and greenhouse gas emissions
Expert calculations have routinely demonstrated a steady rise in electricity consumption needed for Bitcoin mining. Today it is already over 120 terawatt hours per year - more than Argentina's energy consumption. But the main cryptocurrency's algorithm is designed in a way that will drive this figure up.
The environmental organization Greenpeace also takes Elon Musk's side. The greenhouse gas emissions from Bitcoin mining are already comparable to those of such a large country as the Philippines. But the most important point is, however, that the Chinese government has turned its attention to the major digital currency and its environmental impact
Environmental damage and benefits of mining
China's state-run news agency reports that Bitcoin has nothing to do with "carbon neutrality". Along with the bans in China, a crackdown on mining is emerging in Iran. The reason is the same - the consumption of resources burned to ensure the mathematical calculations' integrity.
According to expert Daniel Frumkin of Czechia, the environmental performance of mining is a "two-edged sword”. For example, when mining uses associated gas emitted in gas and oil production, new bitcoin blocks calculation is only beneficial to the environment. Therefore, it does not make much sense to discuss whether mining is in general environmentally friendly or not. What matters are only specific conditions of each individual mining farm.
Solar panels used in mining
Both solar panel production and disposal cause heavy environmental damage. However, solar power is considered environmentally friendly and receives government support in many countries, including China where solar panel factories are located next to mining farms.
So what would happen if all miners switched to solar power? The analyst company Square jointly with ARK Invest calculated whether it is rational to switch mining to solar power.
To this end, building and maintenance costs of an electrical power generating facility were divided by the average profitability of Bitcoin mining taking into account the process's projected complexity.
The calculations suggest that if the main cryptocurrency's value remains the same over the next two years, solar panels will just pay back. After that mining will become so complicated that the enterprise will no longer be profitable. Although if Bitcoin price rises noticeably, the solar power-mining plant will continue to be profitable for a while.
Using renewable energy for mining
The share of sources using renewable energy for mining has grown steadily. In 2019, only 27% of mining energy sources could be described as carbon-neutral, while in 2020 the figure went up to 61%.
The rise is driven by a wider use of hydroelectric power and the energy released in associated natural gas combustion in oil fields. The share of coal-fired power plants in mining is steadily declining. All this suggests that mining's environmental damage is extremely exaggerated.
Cryptocurrencies transition to other blockchains
Discussion of mining's environmental damage encouraged some blockchain developers to make a case for themselves. Vitalik Buterin has reminded us that Ethereum 2.0 will eliminate the need for mining, as transactions will be confirmed via the Proof-of-Stake (PoS) algorithm. In practice, this means that transaction fees will not go to miners, but to holders of special ETH cryptocurrency accounts.
Tezos and many other cryptocurrencies already use the PoS algorithm. This puts them in a better position compared to cryptocurrencies based on traditional PoW (Proof-of-Work) mining, such as Bitcoin and its followers.
Staking has already established itself as a recognized alternative to mining in new cryptocurrency units production.
It is enough to keep money in a special wallet to contribute to the network security and get a reward for it. It is environmentally friendly, energy efficient, and does not require complex technical skills.