Bitcoin has the potential to revolutionise financial markets and enjoys substantial global influence. However, the energy demands of bitcoin mining contribute to rising carbon emissions. In a study, Nuri C Onat, Murat Kucukvar and colleagues found that bitcoin mining has a significant carbon footprint embodied in its complex global supply chains. They write that the environmental consequences of digital currencies must be taken into account.
Each bitcoin transaction generates carbon emissions roughly equivalent to driving a gasoline-powered car between 1,600 and 2,600 kilometres. This highlights the high environmental cost of each transaction on the network and underscores the need for solutions to reduce this impact.
Bitcoin mining relies on the proof of work (PoW) system, in which high-performance computers work to verify transactions and secure the blockchain network. This process demands enormous amounts of electricity, estimated to reach around 63 terawatt-hours (TWh) annually, roughly the same as the annual energy consumption of Poland. As fossil fuels remain a primary source of electricity in many mining regions, this energy use translates directly into greenhouse gas emissions, which drive global climate change. The energy consumption of bitcoin mining adds a considerable amount to global carbon emissions and are comparable to the annual emissions of entire nations.
Where are the emissions?
The findings reveal that approximately 46 per cent of global Bitcoin mining emissions originate within the United States, producing around 15.1 million metric tons of CO₂ annually. Despite regulatory restrictions, China remains a major player, both as a significant emitter of bitcoin mining and as a top producer and supplier of bitcoin mining equipment. Kazakhstan and China also contribute significantly, with 20 per cent and 13 per cent of total mining emissions, respectively.
Due to emissions embodied in the global supply chains of bitcoin mining, regional emission reduction efforts alone may not be enough. For example, Norway, despite its clean energy grid, also faces indirect emissions due to bitcoin mining. Around 74 per cent of Norway’s mining-related emissions stem from imported equipment manufactured in regions like China, where carbon-intensive energy sources are prevalent. This underscores the need for mitigation strategies that go beyond national borders, accounting for emissions embedded in global trade and supply chains. Additionally, the findings highlight that coal-powered electricity generation remains a primary source of greenhouse gases, calling for a strategic shift toward cleaner energy alternatives.
Broader implications: beyond bitcoin
Bitcoin’s energy demand is indicative of a broader trend among emerging technologies. Advanced artificial intelligence models, for instance, also require significant computational resources for development and operation. As these technologies expand, so too will their carbon footprint, highlighting the need for sustainable approaches across digital sectors. If left unchecked, the energy requirements of these innovations could pose further challenges to global climate mitigation efforts.
Building a sustainable digital future
Mining operations powered by renewable energy, such as solar or wind, could drastically reduce emissions. Policymakers could incentivise or require mining hubs to rely on clean energy sources, particularly in regions with abundant renewable resources.
Additionally, exploring methods for implementing a carbon tax could help reduce the growing emissions from bitcoin mining. Although the decentralised and largely unregulated nature of cryptocurrencies poses challenges to the regulation of carbon taxes, innovative solutions within the crypto space are possible. For example, blockchain technology could be leveraged to help lower mining-related carbon emissions.
Tackling emissions associated with bitcoin’s entire supply chain is essential. This includes considering the carbon footprint of manufacturing and transporting mining equipment. Transparency in carbon accounting, especially for indirect, so-called Scope 3, emissions could help hold mining operations accountable for both direct and indirect emissions.
To reduce the reliance on energy-intensive proof of work systems, the industry could consider adopting alternative consensus mechanisms like proof of stake (PoS), which has a significantly lower energy requirement, offering a viable path toward sustainable digital currency models. However, this is not a simple solution, as various consensus mechanisms can impact bitcoin’s value as a decentralised and trustless financial asset, presenting a challenge often referred to as the blockchain trilemma.
Although bitcoin’s carbon emissions are concerning, the global financial system’s energy demands in hubs like New York, London and Tokyo are also significant, relying on energy-intensive servers and supercomputers for transaction processing. Therefore, strategies such as improving data centre efficiency, using renewable energy and advancing cloud computing can help reduce emissions from emerging digital technologies. Yet, as financial transactions grow, finding sustainable ways to reduce the sector’s environmental impact remains challenging.
There is an urgent need to address bitcoin mining’s carbon footprint, not only for cryptocurrency but as a blueprint for managing the environmental impact of digital technologies, including AI as well as the financial sector at large. With coordinated action, the cryptocurrency sector can become a model of sustainability, balancing innovation with environmental responsibility. Addressing bitcoin’s emissions, along with those of other emerging technologies, will be crucial as we strive to meet global climate targets and mitigate the risks of climate change.
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- This blog post is based on Carbon footprint of global Bitcoin mining: emissions beyond borders, by Nuri C Onat, Rateb Jabbar, Murat Kucukvar, Tadesse Wakjira, Adeeb A Kutty and Noora Fetais, in Sustainability Science.
- The post represents the views of the author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
- Featured image provided by Shutterstock
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