In a September 8, 2022 report titled “Climate and Energy Implications of Crypto-Assets in the United States,” the White House Office of Science and Technology Policy (OSTP) called for more research into the energy-related implications of the crypto-mining process , which generates cryptocurrency. The report is a 46-page response to President Biden’s Executive Order 14067 of March 9, 2022, calling for the responsible development of digital assets, including cryptocurrency.
The OSTP report points to the high energy consumption of cryptocurrency production and its impact on the environment, including the magnitude of the impact and the differential use of electricity by different mining methods. Recommendations include reducing greenhouse gas emissions, operations that increase electricity costs, operations that reduce the reliability of power grids, and the negative impacts of crypto mining on justice, communities, and the environment.
The central theses
- A September 8, 2022 Office of Science and Technology Policy (OSTP) report addresses the issue of energy consumption by the cryptocurrency sector.
- The report comes in response to President Biden’s executive order calling for the responsible development of digital assets.
- The report calls for legislation that limits or eliminates Proof of Work (PoW) consensus when the desired results are not achieved.
- Recommendations include reducing emissions, keeping electricity costs down, maintaining power grid reliability and avoiding negative impacts on communities and the environment.
The Energy Cost of Crypto
According to the OSTP report, estimates of the total global electricity consumption for crypto assets range from 120 to 240 billion kilowatt hours per year, which is more than the total annual electricity consumption of many countries. Almost all usage comes from what is known as the consensus mechanism, which is the infrastructure of the blockchain network that allows cryptocurrencies to function.
The estimated amount of electricity consumed by the crypto industry per year is 120 to 240 billion kilowatt hours.
The popular consensus mechanism is Proof of Work (PoW) used by Bitcoin. PoW requires massive amounts of computing power to validate transactions. Bitcoin, for example, accounts for an estimated 60% to 77% of the total global electricity consumption by crypto assets (up to 185 billion kWh), and Ethereum is estimated to account for 20% to 39%.
Another consensus mechanism, Proof of Stake (PoS), uses a fraction of the amount of electricity used by PoW. Experts estimate that moving to PoS would reduce electricity consumption from cryptocurrencies to less than 1% of today’s levels.
The Impact of Crypto on the Environment
The massive amounts of electricity used to generate crypto assets result in the generation of about 0.3% (140 million tons) of greenhouse gas emissions per year, according to the OSTP report. The United States produces about 25 to 50 million tons of this total. According to OSTP, this is equivalent to the amount of emissions from diesel fuel used on railroads in the United States.
Other factors affecting the environment include noise and air pollution, impacts on water sources and waste generation as a direct result of using fossil fuel electricity. All of this could hamper the US’ ability to meet the Paris Agreement goals, let alone avoid some of climate change’s most severe impacts.
How crypto mining can help achieve climate goals
There are ways through which distributed ledger technology (DLT) could not only reduce the environmental impact of crypto mining, but actually help the US meet climate goals, the report states. Replacing PoS with PoW is a direct way to relieve pressure on the grid, but getting there requires addressing the downsides of both technologies.
As already mentioned, PoW requires enormous amounts of electricity. PoS uses a fraction of the electricity but requires a massive initial investment to be a validator. This in itself creates a potential problem since the population of validators is wealth biased. Using clean energy that produces less CO2 emissions is one of several possible solutions put forward by the OSTP.
The final result
The report attempts to answer four questions asked in Executive Order 14067. How does crypto affect energy consumption? how much does it affect energy consumption; how it could contribute to combating climate change; and what must the government do to ensure this happens?
The answers to these questions are not easy and require continuous communication between the crypto industry and the government. Developing policies that reduce emissions, keep electricity costs down while ensuring grid reliability and avoiding negative impacts on communities and the local environment is critical.