The surging use of non-fungible tokens (NFTs) and cryptocurrencies calls for increased efforts to make the crypto world more environmentally friendly.
Cesc Maymo/Getty Images
Over the last several years, non-fungible tokens (NFTs) and cryptocurrencies have exploded in popularity. While the mining of digital currencies such as Bitcoin started in 2009, trading activity on platforms like Coinbase and mainstream sales of NFTs have risen significantly during the pandemic. However, as NFTs and cryptocurrencies grow in daily use, trade, and adoption, so do their significant energy usage, environmental impact, and overall sustainability.
At its peak this year, the value of Bitcoin skyrocketed by 640% compared to last March. An NFT of artist Beeple's digital collage "Everydays: The First 5000 Days" also sold at the Christie's auction house for a record $69 million.
Both Bitcoin and NFTs rely on blockchain technology - decentralized public digital ledgers - that is constantly recorded and updated on millions of specially built computers that maintain the network. New Bitcoins and other cryptocurrencies are also minted after the purpose-built computers solve increasingly complex math puzzles known as "hashing algorithms."
In addition to fluctuations for Bitcoin, ether, and other digital currencies, cryptocurrency miners are constantly monitoring how much energy is needed to constantly power, cool, and store all of this specialized computer equipment. Most of this energy comes from fossil fuel sources in places offering cheap prices. And while digital currencies only make up a fraction of global transactions, their energy consumption has already become a serious concern of financial regulators, energy providers, and government agencies.
A new report from Bloomberg estimates the machines that mine Bitcoin located around the world consume about as much power as all of Bangladesh, a country of more than 160 million people. The Cambridge Bitcoin Electricity Consumption Index estimates cryptocurrency uses more energy than entire nations like Sweden and Malaysia.
The location of mining facilities is also a huge consideration. A majority of this cryptocurrency mining activity (65% to 75%) has been estimated to take place in China, primarily in the provinces of Xinjiang, Inner Mongolia, Sichuan, and Yunnan. Xinjiang and Inner Mongolia are home to many of the country's coal plants, which are the source of 57% of its energy use. In response to China's pledge to be carbon neutral by 2060, many of those coal plants have been shut down recently, and high-energy businesses - like Bitcoin miners - in the provinces have been told to stop operating.
As a result, the Financial Stability and Development Committee of China's State Council officially called for an eradication of crypto mining and trading on May 21.
Concerns over energy consumption and demand for electricity also halted cryptocurrency mining in Iran in late May. For years, the country offered cheap power and required miners to sell their bitcoins to the central bank. But the government instituted a four-month ban after officials blamed cryptocurrency mining for power outages.
There are sustainability-focused uses of blockchain. The nonprofit group Blockchain for Climate is advocating for the technology to help connect the world's national carbon accounts to trade carbon-emissions reductions. There are also more environmentally friendly cryptocurrency alternatives, including SolarCoin (SLR), Cardano (ADA), BitGreen (BITG), Nano, and Hedera Hashgraph.
