Cryptocurrency is a virtual currency touted as a way to remove all of the costs incurred between money users and suppliers and put its control into the hands of the people. But cryptocurrency requires energy, equipment, internet, and a global networking infrastructure to be useful. Thus, it has a large environmental impact, with some using as much energy as small countries to maintain a blockchain. There are even concerns about cryptocurrency's water footprint. Keep reading to learn more about cryptocurrency's impact on the environment.

Cryptocurrency Energy Consumption

There is no direct way to calculate how much energy is used for Bitcoin and cryptocurrency mining, but the figure can be estimated from the network's hashrate and the consumption by commercially-available mining rigs. For example, the Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin, the most widely-mined cryptocurrency network, uses an estimated 140 Terawatt-hours (TWh) of electricity annually (0.63% of global electricity use) and about 352 TWh of energy (0.22% of global energy production) at the point of production—more than Pakistan and Ukraine, using the latest country energy estimates from 2019.

Another estimate by Digiconomist, a cryptocurrency analytics site, placed the figure at 138 Terawatt-hours based on energy consumption through Dec. 11, 2023. This computed to around 773.61 kilowatt-hours of electricity per transaction, the same amount of power consumed by the average American household over 26 days.

Ethereum, the second-largest cryptocurrency network, was estimated to use 0.01 Terawatt-hours of electricity per year, based on energy consumption through Dec. 11, 2023. The average Ethereum transaction required 0.02 kilowatt-hours of electricity.

The amount of energy consumed by cryptocurrency mining will likely vary over time, assuming that prices and user adoption continue to change. Cryptocurrency mining is a competitive process: as the value of the block reward increases, the incentives to start mining also increase. Higher cryptocurrency prices mean more energy consumed by crypto networks because more people join the mining networks trying to profit from the increases.

Why Cryptocurrency Mining Requires Energy

The energy intensity of crypto mining is a feature, not a bug. Bitcoin mining is the automated process of validating Bitcoin transactions without the intervention of trusted third parties like banks.

The way the transaction validation process is designed uses large amounts of energy—the network depends on the computational power of thousands of computers. This dependency maintains the security of cryptocurrency blockchains that use proof-of-work consensus.

Not All Cryptocurrencies Use Mining

It's important to point out that not all cryptocurrencies use a system that depends on large amounts of energy to run. Ethereum, Solana, and many others use a system that requires very little energy—their environmental impact adds little to the impact already created by the global networking infrastructure and its daily use.

Environmental Impacts of Cryptocurrency Mining

Calculating the carbon footprint of cryptocurrency is more complicated. Although fossil fuels are the predominant energy source in most countries where cryptocurrency is mined, miners must seek out the most inexpensive energy sources to remain profitable.

Digiconomist estimates that the Bitcoin network is responsible for about 73 million tons of carbon dioxide per year—equal to the amounts generated by Oman. Based on data through December 2022, Ethereum produced an estimated 35.4 million tons of carbon dioxide emissions before dropping to 0.01 million tons following its transition to proof of work.

Driving Factors

Greed and a fear of missing the next gold rush drive Bitcoin and similar cryptocurrencies to use so much energy—these blockchains automatically adjust the mining difficulty according to how powerful the networks are. In other words, the less computing power the network has, the lower the mining difficulty is and the less energy it uses per transaction. But because there is a reward for the most and fastest computing power, those who can afford to have flooded the network with energy-hungry machines networked in a way that gives them the upper hand in receiving rewards. This attracts other participants, and the group grows in size and energy use—all because the financial returns can exceed the initial costs. The environmental impacts are always an afterthought when profits and return on investment are involved.

Countries With the Largest Impact

Researchers at the University of Cambridge report that most Bitcoin mining occurs in the U.S. (38%), China (21%), and Kazakhstan (12%). According to the Center for Strategic and International Studies, about 76% of the energy consumed in China is generated from coal and crude oil. The U.S. gets most of its electricity by burning fossil fuels, per 2019 data from the EIA. Kazakhstan mainly uses fossil fuels.

As a result, three countries heavily dependent on fossil fuels are responsible for around 72% of the world's Bitcoin mining.

Electronic Waste

Cryptocurrency mining also generates significant electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generates approximately 72,500 tons of electronic waste annually.

Water Footprint

Due to the heat generated by mining machines, miners, manufacturers, and maintainers have turned to water cooling to reduce the costs of keeping equipment cool. In some cases, large mining farms have discharged hot or warm water into lakes or other water bodies, raising concerns about raising the average temperature of or contaminating these bodies with a continuous discharge.

The results of these practices are unknown, as not enough research has yet been completed to learn how much water is consumed (made unusable) or contaminated.

Could Cryptocurrency Mining Use Less Energy?

Large-scale cryptocurrency miners are often located where energy is abundant, reliable, and cheap. But, processing cryptocurrency transactions and minting new coins does not need to be energy-intensive.

The proof-of-stake (PoS) consensus mechanism is an alternative to cryptocurrency mining that does not use extensive computing power. The authority to validate transactions and operate the crypto network is instead granted based on the amount of cryptocurrency a validator has "staked" or put up as collateral for honest behavior and the privilege of earning fees.

Other methods of validation, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also being developed. While Ethereum's developers have retired the blockchain's proof-of-work mechanism—with estimates of a 99.9% reduction in carbon emissions—there is no such objective in the Bitcoin community. Since Bitcoin is the most popular crypto, it means that mining, along with its enormous energy costs, is likely here to stay.

The Bottom Line

The Bitcoin network and similar cryptocurrencies use large amounts of energy. Proponents say it is justified because these virtual currencies bring financial systems to millions of people who do not have access to loans, banking, or other services. Some opponents say it is a waste of energy because cryptocurrency has no value. Others argue that crypto only fills the pockets of those who can afford expensive mining equipment, notably businesses and the already wealthy.

Regardless of the opinions of fans and skeptics, cryptocurrency has an environmental impact. It consumes energy primarily generated by fossil fuels. At a time when the world is in dire need of reducing its carbon footprint, the last thing anyone needs is another source of money-making at the expense of the planet and its inhabitants.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our for more info. As of the date this article was written, the author does not own cryptocurrency.