Intensive Bitcoin mining, the computational process through which new coins are created and evaluated, has become a global concern. China in 2010 After it completes the process in mid-2021, miners will look to other parts of the world where energy is cheap, but not always clean. In places like Kazakhstan, mining has put pressure on the power grid, which relies on carbon-intensive coal-fired power stations, which has contributed to local blackouts and civil unrest. In upstate New York, where miners have taken over shuttered factories and empty warehouses, locals have complained about rising power bills and high-frequency noise from data center patrons — and local mining is taking over. The US currently hosts 38% of bitcoin mining operations.
One Bitcoin transaction uses the same amount of energy as a single American household does in a month. But should it be so? The Bitcoin community has historically been staunchly resistant to change, but pressure from regulators and environmentalists gripped by bitcoin’s massive carbon footprint could force them to rethink that stance.
Various countries including Kazakhstan, Iran and Singapore have imposed restrictions on crypto mining. In April 2023, the European Parliament is set to approve a landmark crypto bill called the Markets in Crypto Assets (MCA) that would require the disclosure of location information from crypto companies. The law is expected to take effect in 2024.
This could be just the beginning for the EU: The European Central Bank has stated that it cannot imagine a world where governments ban gasoline-powered cars in favor of electric vehicles but do not act on Bitcoin’s carbon emissions. “Some members of the European Parliament are wondering why Bitcoin doesn’t follow Ethereum,” Alex de Vries, a data scientist at Digiconomist, a website that tracks sensitive energy usage, told MIT Technology Review.
Efforts to crack down on bitcoin dumping are also gaining momentum in the US. In November, New York became the first state to issue a temporary ban on new cryptocurrency mining permits at fossil fuel plants. The new law requires New York to study the impact of crypto mining on efforts to reduce greenhouse gas emissions.
So what does it take to change?
Proof of work and proof of stock
Cryptocurrencies do not have a central custodian like a bank that oversees their public ledgers – a shared digital record of every transaction on the blockchain. Instead, they rely on consensus mechanisms to agree on updates. For proof-of-work, Bitcoin’s approach relies on a global network of computers known as “miners” that waste electricity trying to win various kinds of lotteries. Whoever wins gets to attach the next block, collecting new coins in the process. The probability of winning is directly proportional to the number of calculations the miner performs. As a result, huge server farms have sprung up all over the world, dedicated solely to winning this lottery.
Proof-of-stake, the approach Ethereum currently uses, avoids this high energy consumption. Instead of miners, stake verification systems use a large number of “verifiers”. To become a validator, you must deposit or “incorporate” a coin amount of -32 Ether in the case of Ethereum. Staking allows validators to verify new blocks of transactions and add them to the blockchain to earn rewards beyond the staked coins. The more coins you unlock, the better your chances of being selected to add the next block of transactions to the chain.