With all the excitement over the booming crypto economy of the last couple of years, you could be forgiven for having missed the questions raised over its environmental sustainability. With so much frenzied discussion between business advisors, financial institutions, and even governments on issues like whether cryptocurrencies will eventually replace fiat currencies, these questions have often been drowned out.

However, as responsible businesses and individuals, these are not questions you can afford to ignore forever. There are real concerns about how cryptocurrencies – in particular, the practice of crypto mining – are affecting our natural environment. In this blog, we break down how exactly that is happening and what you can do to minimise its negative impact.

How Do Cryptocurrencies Impact the Environment?

It might strike you as something of a paradox that currencies existing only in the virtual world are having a real-world environmental impact, but that is exactly what is happening. And it’s happening on a mind-boggling scale.

The world’s most widely mined cryptocurrency, Bitcoin, uses 122.87 terawatt-hours of energy per year. How much is that, exactly? Well, it’s more than the Netherlands or the United Arab Emirates, for example. And it’s not just mining that’s the problem. A single Bitcoin transaction uses enough energy to power your average US household for almost 80 days.

Why Does It Use So Much Energy?

Crypto mining and trading may all take place online, but those processes still need to be powered by actual hardware here in the real world. The price of cryptocurrencies, just like the price of gold or other valuable resources, is based heavily on scarcity. If you tripped over nuggets of gold every time you walked out your front door, gold wouldn’t be worth anything. Cryptocurrencies like Bitcoin work on a similar premise. They are concealed by complex codes, and the miner has to solve difficult equations in order to get to them. This is called a Proof of Work (PoW) system, and it demands massive amounts of computing power.

How Do We Make It More Sustainable?

There are several ways we can limit the negative environmental impact of cryptocurrencies. For one thing, not all types of energy use have the same impact on the environment; energy from renewable sources will be far less harmful than energy from fossil fuels, so investing in companies that use renewable sources is already a big improvement.

There are also systems emerging that do not rely on Proof of Work at all; the Proof of Stake system is a model in which value is based on how much of that currency a user has agreed to ‘stake’ – or hold rather than sell. Ethereum, the most widely used blockchain, is moving to a Proof of Stake system in 2022.

Explore Sustainable Crypto Investing with Think10

At Think10 Capital, we’re committed to providing ambitious entrepreneurs with forward-thinking investment opportunities, and we’re serious about finding the most sustainable ways to do that. Get in touch today to find out how sustainable crypto investing can work for you.

Chris Cutout

Chris Dixon

Fund manager

cd@think10capital.com

Chris Dixon is a Think10 Capital’s Digital Fund Manager with specific responsibilities of managing digital funds and driving strategic growth. Dixon brings his experiences in capital and investment management through prior involvement in private equity and institutional investment in the United States. Over the past decade Dixon has lived and worked in Melbourne, Australia where he now resides.