Based on its market share, the world's most notorious cryptocurrency, Bitcoin, results in more climate damage than the production of beef and nearly as much damage as crude oil, researchers in the United States have calculated.
The findings of the new three-pronged analysis suggest Bitcoin is potentially unsustainable and could have disastrous social and environmental repercussions in the future.
From 2016 to 2021, CO2-equivalent greenhouse gas emissions for Bitcoin went from less than a tonne (metric ton) per coin to 113 tonnes per coin.
Each Bitcoin mined in 2021 likely resulted in US$11,315 in climate damages in total, altogether amounting to about US$3.7 billion for that year alone.
To put that in perspective, researchers compared digital currency mining to other energy-guzzling activities.
Bitcoin is a multi-billion dollar industry, and over the five-year study period, researchers found that its climate damages averaged at 35 percent of its market value. So that means if you take one US dollar of Bitcoin, about 35 cents of that dollar is climate damages.
Bitcoin's per-dollar climate damages were only slightly less than natural gas (at 46 cents per dollar of value) and gasoline from crude oil (at 41 cents per dollar of value).
But they were slightly more than beef production (33 cents) and far more than gold mining (at 4 cents). None of these activities are currently considered sustainable.
"Taken together, the results represent a set of red flags for any consideration as a sustainable sector (investment or otherwise)," write University of New Mexico environmental economist Benjamin Jones and colleagues in their published paper.
"While proponents regularly offer [Bitcoin] as representing a kind of 'digital gold' from a climate damages perspective [Bitcoin] operates more like 'digital crude'."
To consider Bitcoin truly sustainable, its climate damages should decrease over time as the technology matures and becomes more efficient. But these new calculations show that clearly isn't happening.
Bitcoin mining itself is based on an exponential growth in computing power, which, in turn, requires exponentially more electricity.
In 2020, for instance, Bitcoin mining demanded more energy than either Austria or Portugal used in the same year.
Bitcoin, like many other cryptocurrencies, is based on 'proof-of-work' mining (PoW), which is a highly energy-intensive way to provide encrypted validation of money in a decentralized public ledger.
The verification process is inherently competitive, with 'miners' competing to solve cryptographic puzzles to validate transactions on the blockchain and create new coins.
Special computers could, theoretically, keep generating new blocks forever, but each one adds enormous amounts of energy to the verification process.
In other words, each new blockchain that is mined is harder to find than the last.
If the computational effort required to mine blockchains was powered by renewable energy, the system might be more sustainable. But today, estimates show more than 60 percent is powered by fossil fuels like coal and natural gas.
Even in a scenario where Bitcoin mining uses a much higher proportion of renewable energy than it does today, the authors of the new study estimate there will still be large and growing climate damages from this industry.
"Absent such change, it may be time to forgo a 'business-as-usual' approach and consider collective action", such as increased regulation, Jones and colleagues write.
Tesla, for instance, recently announced it would stop taking Bitcoin as payment due to energy concerns.
The current estimates on Bitcoin's climate damages are based on the global electricity usage required for PoW-based cryptocurrencies, but there are other, greener alternatives out there.
Cryptocurrencies based on a proof-of-stake (PoS) system have recently been put forward as a solution to the high-energy nature of PoW processes.
PoS is another way to validate cryptocurrencies that gives away the next block on the blockchain at random, instead of to the winner. While it requires less investment of hardware to be in the game, individuals still need to pay a substantial 'stake', which requires having the capital to start with.
But switching from a PoW to a PoS system would require Bitcoin miners to swap all of that hardware for cash, a cost of time and effort few would be willing to do.
Ethereum, another popular cryptocurrency, recently announced it will make the switch to PoS sometime in 2022, and the change will reportedly reduce the platform's energy requirements by more than 99 percent.
If Bitcoin were to do the same, the authors say "its energy use, and, by extension, its climate damages estimated in this work, would likely become negligible."
However, it's unlikely Bitcoin will make the switch. Experts say that the Bitcoin community is already too invested in its PoW system to want to change.
Bitcoin currently makes up about 41 percent of the global market share among cryptocurrencies.
"PoW-based cryptocurrencies are on an unsustainable path," the authors of the new paper conclude.
"If the industry doesn't shift its production path away from PoW, or move towards PoS, then this class of digitally scarce goods may need to be regulated, and delay will likely lead to increasing global climate damages."
The study was published in Scientific Reports.