Crypto mining needs to be less energy-intensive to limit the effect on the climate, based on a new report from the Business School.
Despite the financial benefits of cryptos, such as their possibility to offer a financial system that is safe from bankruptcy or crisis, continuous investment in more energy-intensive crypto might increase the probability of a global climate crisis, based on the report, Damage Limitation: Cryptocurrencies and Climate Change.
This report is authored by Carmine Russo, who is a visiting researcher at the Centre for Climate Finance & Investment at Imperial College Business School, and a Ph.D. researcher at the University of Naples Federico II.
In that report, Russo insists that the main pollution arising from crypto is generated by its mining processes. Most of the cryptos are mined using the Proof of Work approach, an energy-intensive process that makes crypto mining environmentally unsustainable.
Carmine Russo Visiting Researcher, at the Centre for Climate Finance & Investment, said:
“The question becomes a dubious trade-off: are we more scared of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis?”
The mining procedure is a ‘race’ among the miners in solving complex algorithms via high-performance machines to track the source of the money that was spent, check for double-spending, and unlock the new coins.
Based on the statement by Russo, it is only the fastest miner who can solve the puzzle who gets the rewards, whilst the others are only polluters. The more powerful these machines are, the more energy they require, and that increases the environmental cost.
In 2021, the energy used to mine the most popular PoW cryptos, Bitcoin (BTC) and Ethereum (ETH), was higher than the cumulative energy usage of the UK and Italy in 2020. Cryptos are mostly used as a have asset – a type of investment expected to retain or increase in value during times of market turbulence.
But, Russo warns that ignoring the environmental damage arising from the mining process would be ‘a grave mistake’. Russo explained:
“The question becomes a dubious trade-off: are we more scared of the predictable consequences of a financial crisis or the unpredictable ones of a climate crisis? Cryptocurrency has become a popular trend, with an ever-increasing number of users. However, the picture of digital currency is far from uniformly positive. Behind the decentralized cryptocurrency system, there are significant concerns, especially concerning environmental damage.”
A Greener (Cleaner) Alternative
The reports indicate that a move to more climate-friendly strategies for crypto trading would be beneficial and necessary. This report highlights how the Proof of Stake (PoS) mechanism for crypto mining is a “greener alternative” because of its design.
Russo insists that in a PoS world, since the whole coin supply is instantly available, no complex algorithms are available to solve since there is no need to unlock any new coins. Thus, powerful computer machines are not needed, making the process less energy-intensive.
Moreover, the stakers (miners of the PoS) involved are selected randomly by the system and just the chosen ones can stake, and that takes away the ‘race’ element, which mitigates energy waste and makes the entire process more energy efficient.
Buy Crypto NowRecognizing efforts made by several nations to regulate the crypto market, Russo makes multiple recommendations, including compelling crypto miners to reveal the climate-related effects of their activities, and advertising highly environmentally-friendly practices to enhance awareness.
That might enable the investors in their decision-making process by mitigating the asymmetric information between them and the entire market. Russo explained:
“In doing this, legislators may be able to maximize the positive financial role that cryptocurrencies can play in the economic system, while also addressing the environmental damage caused by their creation and usage.”
