The mining process for cryptocurrencies is responsible for 0.6% of global energy consumption. The renewable example set by Trentino.
The production of digital currencies, commonly known as cryptocurrencies, requires too much electricity. For this reason, the European Union wants to step in to regulate mining activities, that is, the "extraction" (creation) of this type of currency. The announcement was made by the vice-chair of the European Securities and Markets Authority (Esma), Erik Thedéen, in an interview given to the Financial Times.
He called for a change in the activities through which digital currencies are mined. This is a problem that is becoming increasingly significant, to the point of becoming a "matter of national importance" in various parts of the world — for example in Sweden, the country from which Thedéen himself comes.
The technology underlying cryptocurrencies is known as blockchain. The literal translation is "chain of blocks": it is the ledger (register) in which all transactions made with a digital currency are recorded. This register is shared among all those who contribute to generating cryptocurrencies (the so-called miners) through digital extraction. Miners must comply with a protocol of rules. At the heart of that protocol is a "consensus algorithm": the first to be created and used, particularly by Bitcoin, was the so-called proof of work.
This is a system based on the resolution of highly complex mathematical problems by the network of miners. In practice, very powerful computers attempt to solve the problem in order to modify or add a block to the blockchain and receive a reward (in cryptocurrency, naturally) for the work done. Therefore, the greater the computing power, the greater the chances of being the first to solve the problem and thus earn the reward.
Over the years, miners have sought to continuously increase their computing power in order to claim ever more cryptocurrencies, with the consequence that the difficulty of the problems set has grown exponentially. As has the computational power required. This gave rise to the emergence of mining farms (or mining pools): genuine "factories" dedicated to cryptocurrency extraction, made up of thousands of networked computers. This has caused the energy requirements of such operations to increase enormously.
The annual consumption of Bitcoin alone may have been 129 terawatt-hours in 2021, according to estimates from the Cambridge bitcoin electricity consumption index (Cbeci). We are talking about 0.6 per cent of global electricity production, equivalent to the consumption of a country like Norway. To put this in perspective, in 2019 a digital giant such as Google had consumed "only" 12.2 terawatt-hours.
"Bitcoin mining is now a national issue for Sweden because of the amount of renewable energy dedicated to its extraction," said Thedéen. "It would be absurd if the wind energy generated along Sweden's long coastline were used to generate cryptocurrency," he added.
For these reasons, bitcoin mining is considered an environmentally unfriendly operation. Not least because the second largest mining centre in the world (after China) is Kazakhstan, which bases its electricity production largely on coal — the single most climate-damaging fossil fuel of all.
Nevertheless, examples of bitcoin "factories" powered by renewable energy do exist. In Trentino-Alto Adige, for instance, an increasing number of cryptocurrency mining plants are springing up that are breathing new life into old hydroelectric power stations. In Borgo d'Anaunia, a municipality of 2,500 inhabitants in the Val di Non, a hydroelectric power station dating from 1925 will be used to supply clean energy to a new bitcoin mining facility.
Regardless of how it is produced — whether from fossil fuels or renewable energy — cryptocurrency production represents a supply problem: does it make sense to use so much energy for this purpose? The Esma vice-chair's proposal is to move from a proof-of-work mechanism to a more sustainable system, known as proof of stake, already adopted by other cryptocurrencies alternative to Bitcoin, such as Ethereum, Nxt and Peercoin. In this case, the process by which computers compete with one another to solve complex mathematical problems — i.e. mining — is replaced by a system in which so-called validators guarantee the validity of operations carried out on the blockchain by committing a share of their own cryptocurrencies (the "stakes" themselves).
Anyone wishing to put themselves forward as a validator must, in short, deposit a share of their own cryptocurrencies within the network, committing them as a form of guarantee or security deposit. Once a node is selected as the validator (the selection takes place randomly) for the next block, it will have to check whether the transactions contained within it are valid, sign the block and add it to the blockchain.
Since proof of stake requires no extra energy to demonstrate reliability, it is far more energy-efficient. Unlike proof of work, which requires supercomputers, proof of stake can be run on a single laptop. The network nodes — the validators — are virtual spaces, not physical equipment, which could reduce the impact by 99.9 per cent, according to Ethereum. Several experts do, however, criticise proof of stake, regarding it as a less secure method. The fact that becoming a validator costs almost nothing can also attract impostors and cybercriminals. For this reason, several cryptocurrencies are working on more sophisticated algorithms for assigning the validator role, demonstrating that proof of stake is becoming a subject of interest for numerous developers. A promising outlook for the future of cryptocurrencies and for their impact on the environment.