The approval of spot Bitcoin ETFs by the US SEC was a significant step in the adoption of virtual assets. However, in a global context defined by the ecological transition, many of crypto’s potential investors are taken aback by the sector’s carbon emissions.
The Bitcoin business alone is estimated to have an annual electricity consumption of 198 terawatt-hours, according to Digiconomist’s Bitcoin Energy Consumption Index. Producing that energy emits some 65 megatons of carbon dioxide annually—comparable to the emissions of Greece.
To attract investments in an increasingly climate-conscious investment environment, cryptocurrencies can—and should—join the green transition.
“The crypto industry must balance its growth and potential with the pressing need to address its environmental impact”
Inki Cho of Exness
“The crypto industry is at a critical juncture where it must balance its growth and potential with the pressing need to address its environmental impact,” Inki Cho, Financial Markets Strategist at crypto broker Exness, told Finance Middle East. “As public scrutiny intensifies and the demand for sustainable practices grows, the industry is being forced to innovate and adapt.”
A green revolution
The main cause of crypto emissions is Proof-of-Work (PoW) mining processes. Cryptocurrencies like Bitcoin require computers dedicated to solving complex mathematical problems. Many miners compete simultaneously to see who can certify a transaction first and, as a reward, get paid in crypto.
However, the process of running the computers and cooling the servers uses large amounts of electricity, often generated from fossil fuels.
Can these processes be greener? “Absolutely!” said Anna Zeitlin, Partner at law firm Addleshaw Goddard. “A simple solution would be to host the servers in cooler countries whereby less air-conditioning is required,” she explained. “Another emerging practice is immersion cooling, which sees the rig submerged in a thermally conductive, non-conductive liquid, which is more environmentally friendly.”
There are many ways for the industry to address environmental concerns. The energy used in PoW processes can originate from renewable sources such as wind and sunlight, or even nuclear power. Moreover, there are currencies that rely on less energy-intensive mining mechanisms like Proof of Stake (PoS). Innovations like carbon offsetting can also contribute to reducing the environmental footprint of cryptocurrencies.
Some cryptocurrencies are already making changes. Ethereum—the world’s second-largest cryptocurrency by market value— is transitioning from PoW to PoS, with a target to reduce its energy consumption by 99.95%. Currencies such as Cardano, Tezos and Algorand were designed with a focus on energy efficiency. Moreover, the Crypto Climate Accord is working toward having all blockchains powered by renewable energy by 2025.
“Cryptocurrencies can be made greener by adopting sustainable mining practices, such as using renewable energy sources like solar or hydroelectric power,” said Solaiman Al Rifai, Board Member at Mining Grid, a UAE-based digital assets startup. “The combination of technological innovation, community engagement, awareness and regulations can significantly help reduce the negative impact on the environment.”
New perspectives
Some researchers think crypto might already be an ESG asset, stressing that their emissions have been misconstrued. A 2023 KPMG report argued Bitcoin miners help stabilise power grids, monetising stranded energy and capturing methane. This is because the Bitcoin network is decentralised and can adapt to run during times of excess supply or slow demand, increasing revenue for green power providers and driving growth in the renewable energy market.
The Bitcoin Mining Council has gone a step further. In a recently released report, the global forum of crypto companies claimed the global Bitcoin mining industry sustainable electricity mix rose to 59.9% in the first half of 2023 and “remains one of the most sustainable industries globally”.
The presence of conflicting views could be caused by a difference in the amount of information available. In the view of Vivien Lin, Chief Product Officer at BingX, comparing the energy consumption of cryptocurrencies to that of physical fiat currencies is misleading, as the complete footprint of fully digital systems is much easier to track and thus, criticise.
“Far more energy-intensive industries, like AI, can learn from crypto’s more sustainable methods”
Vivien Lin of BingX
“Many claim physical fiat currencies are much better for the environment when this is simply not true,” Lin said. “While crypto runs on fully digital rails and technology like PoW blockchains requires large amounts of electricity, many things can be learned from how the crypto industry has become more energy efficient.
The Middle East promise
When it comes to the public sector, the Sultanate of Oman is leading crypto’s green transition. The GCC nation has developed Green Data City, which operates under the country’s first sustainable crypto mining license. The city’s first phase of development consists of 200 megawatts (MW) of mining capacity. Moreover, Green Data City has joined forces with Abu Dhabi’s Phoenix Group to develop a $300 million crypto-mining farm in Oman, with a capacity of 150MW.
“As the global crypto industry faces pressure to reduce its environmental impact, Middle Eastern countries with abundant solar and wind resources might find sustainable crypto-mining an attractive sector for development,” Exness’ Cho added. “Oman’s move may inspire other countries to explore similar pathways, as the region seeks to diversify its economy beyond oil.”
The UAE has already shown interest in blockchain technology and could be a potential follower in sustainable crypto-mining practices, according to experts. Saudi Arabia is also investing in digital transformation, which could include sustainable crypto initiatives. However, adoption will depend on each country’s energy policies, investment in renewable energy infrastructure, and regulatory environment.
In Cho’s view, the next few years “will be crucial in determining whether the crypto industry can successfully navigate this transition and emerge as a more environmentally responsible and future-proof sector.”
Cryptocurrencies are not inherently bad for the environment—the energy used to power them is. Nonetheless, the industry is in the process of transitioning to less-intensive mining methods that increasingly rely on renewable energy sources. Sustainability is no longer a choice, but a commitment many crypto players have made, in order to power a more eco-friendly future.
