The Energy Costs of Cryptocurrency

Cryptocurrency mining requires enormous amounts of electricity. An oversight group estimates that Bitcoin—the original and most popular cryptocurrency—has a global annualized energy that matches Poland’s annual power consumption. One Bitcoin transaction uses as much energy as hundreds of thousands of credit card transactions.

Cryptocurrency, a digital and encrypted medium of exchange, has become popular partly because it offers a decentralized alternative to traditional currency. Although cryptocurrency can be used to buy goods and services, it is primarily treated as an investment asset.

The cryptocurrency mining process typically involves using specialized computer hardware to solve complex mathematical problems. Once these puzzles are solved, the “miner” is rewarded with a particular cryptocurrency. In addition, all cryptocurrency transactions require validation through algorithmic methods. These processes require substantial computer power, exacerbating climate issues, primarily when energy comes from fossil fuels.

In a recent article, Steven Ferrey of Suffolk University Law School evaluates this “legal dark side” of cryptocurrency: the framework that incentivizes vast energy consumption contributing to climate change. He observes that cryptocurrency mining requires an “unprecedented and massive use of electric power,” which destabilizes the planet and accelerates the United States’ travel down the “highway to climate hell.” Ferrey argues that government officials and regulators can leverage existing laws and alternative legal approaches to empower appropriate regulations and prevent the cryptocurrency industry from exacerbating the climate crisis.

A few proponents of cryptocurrency mining, such as the Crypto Climate Accord, claim that cryptocurrency can drive renewable energy developments. One study found that Bitcoin mining developers could recoup millions of dollars in costs by investing in renewable energy projects. Another study noted that adopting renewable solar energy for Bitcoin mining could reduce costs for developers and prevent tens of thousands of tons of carbon dioxide emissions annually.

A guidebook published by Earthjustice and Sierra Club, however, found that the currency mining industry largely relies on the existing power grid and does not help decarbonize it. Since most existing grids are powered by coal and gas, cryptocurrency mining contributes to global warming and the climate crisis. The guidebook warns that without strict mining regulations, the United States will fail to meet the climate goals set by the Paris Agreement and the Intergovernmental Panel on Climate Change.

Ferrey agrees that using the power grid for cryptocurrency mining is problematic. He notes that in the United States, cryptocurrency mining operations often occur in areas where energy is cheap. But in most of these areas, Ferrey explains that the grid relies on fossil fuels for power. Although regions such as the Pacific Northwest may attract cryptocurrency operations due to cheap hydroelectric power, Ferrey states that less than half of the mining in this region uses renewable energy.

The rise of cryptocurrency mining has had an “astronomical” impact on the energy industry, Ferrey highlights. In some towns in New York, residents have seen their electricity bills significantly increase—over 30 percent in some cases.

In response, some states have implemented discriminatory rates or moratoriums on mining operations, Ferrey observes. In addition, the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, both enacted during the Biden Administration, aim to shift the United States toward renewable energy.

Ferrey, however, explains that cryptocurrency mining facilities have failed to redirect their power consumption to renewables due to three primary impediments.

First, Ferrey argues that there is an asymmetry between a sustainable renewable power supply and the high power demands of mining operations. This asymmetry results in reliance on fossil fuels to support the increased demand.

Second, state and local governments have implemented policies restricting the development of renewable energy projects. Ferrey describes how states retain exclusive power over electric siting decisions, allowing local zoning rules to block the installation of renewable electric power.

Finally, Ferrey explains that the demand for rare earth minerals, such as cobalt or nickel, creates a supply chain bottleneck in renewable power generation, delaying the transition to renewable energy.

To address these challenges, Ferrey proposes several legal avenues to better regulate cryptocurrency mining’s energy consumption and encourage the use of renewable energy. For instance, Ferrey explains that states could prevent cryptocurrency mining operations from receiving renewable energy tax credits if they burden the power grid or do not follow preset energy efficiency requirements. Ferrey argues that strategically limiting these credits could spur the cryptocurrency industry to adopt renewable power and reduce reliance on traditional power grids.

Ferrey also advocates increasing the use of local or state moratoria to limit cryptocurrency mining operations and establishing customer assurance mechanisms to protect consumers from energy price hikes.

Ferrey concludes by stressing the need for more effective regulation of cryptocurrency mining operations to help meet climate targets and prevent the United States from accelerating down the “highway to climate hell.” Electric power, Ferrey observes, cannot be treated as an ordinary commodity in applications such as cryptocurrency mining. Addressing the climate crisis requires a fundamental shift in how the federal government and states regulate electricity—cryptocurrency regulation must be a key part of that shift.