By: Hayden McGuire
A single transaction with bitcoin has a power cost that is equivalent to the average U.S. household’s 50-day consumption. Since the cryptocurrency’s popularization in 2016, the high-electricity-consuming coin has had detrimental effects to the environment. If the power consumption that bitcoin uses was measured as its own country, it would be in the top 30. Directly addressing this extreme toll on the environment, President Biden issued Executive Order 14067 “Ensuring Responsible Development of Digital Assets”. This order identified a variety of interests the United States government has in regulating digital assets, including bitcoin and all other cryptocurrencies. One interest in particular stated that the U.S. is responsible for the mitigation of disparate climate effects caused by cryptocurrency mining. However, this Executive Order focused more on regulating trading platforms and protecting market freedom. By using the environment as a token and an excuse for the expansion of economic power, this Administration has fallen short in recognizing and addressing the scale of the climate impact caused by digital assets, particularly cryptocurrency.
The emissions from mining one bitcoin in 2016 was roughly 0.9 tons of CO2e (carbon dioxide equivalent), but by 2022 it has risen to 113 tons. Bitcoin accounts for about two-thirds of greenhouse gas emissions from all crypto-asset mining operations – the method of creating bitcoin and other proof-of-work cryptocurrencies. While bitcoin’s emissions rates for mining one coin rose over 100 times, its price soared from $400 in January 2016 to nearly $20,000 in October 2022 – with an all-time-high hitting nearly $70,000. This type of high emission, high profit operation needs to be regulated because the profit attracts miners, and the miners in turn expand their operations and further damage the environment.
Although bitcoin is the largest in market-cap, it is not the only cryptocurrency; Ethereum comes in second for market cap at $165 billion dollars. Acknowledging Ethereum’s very own high emission levels and the following negative climate impacts, the creator of this cryptocurrency made fundamental changes to reduce carbon footprints. These changes were implemented in “The Merge,” which also transitioned Ethereum to Ethereum 2.0. Based on the new proof of stake model instead of the old proof of work model, Ethereum 2.0 was transformed into a non-mined cryptocurrency. This algorithm change should lower the energy consumption of generating one Ethereum from 23 million mega-watt hours per year to just 2,600. In terms of emission figures, that is a change from 11 million tons of CO2 annually to 870. This stands to be a clear example and reason for other cryptocurrencies continuing to operate on the more power-intensive algorithms, like bitcoin, to switch to the less power-hungry form Ethereum has adopted.
A response from the Executive branch to all this information came within Executive Order 14067, which is in essence a call-to-action for agencies from their branch to work collaboratively to propose regulatory guidance for digital assets. Through this Order, President Biden sought to ensure financial stability of digital assets and minimize their use in criminal activity. Though under Section 5(b)(vii) there is a requirement for an environmental evaluation to be submitted within 180 days of the order, this came in the form of the “Climate and Energy Implications of Crypto-Assets in the United States,” published by the White House Office of Science and Technology Policy (OSTP). This report pushes for the Environmental Protection Agency (EPA) and the Department of Energy (DOE) to work with the industry to create environmentally conscious regulations and innovations.
When government works with industry leaders to create regulations on that industry, there is always the concern that those within the industry cannot act in unbiased ways due to their profit being at risk if regulations end up impacting the bottom line. Since some within the cryptocurrency world describe Ethereum’s switch to proof of stake as their “biggest mistake,” bitcoin and others may be reluctant to make the same choice.
Although studies on the environmental impact of these technologies are critical to creating new standards with effective impacts, this report is toothless during a moment when we need something with bite. Coercive or forceful action by the government is not a comfortable thing for most. However, reducing carbon footprints and rapidly mitigating negative impacts on the environment is critical for preservation of the planet and its ecosystems. With the enormous profit incentive that people see in bitcoin, its raising power consumption rates, and its unstable price, there is no indication that their negative climate impacts will slow down in the aggregate. The industry’s significant backlash towards Ethereum’s algorithm change also leaves doubt that future miners would cooperate and conform with environmentally friendly regulations. Reducing carbon emissions to prevent global warming is not a myth but a fact and necessity. In this time of urgency, even decentralized cryptocurrencies must be subject to regulations for the common good.
My question is, why does the OSTP report not at least propose a requirement for any cryptocurrency wishing to be used in the U.S., to use verifiably less destructive methods of creation – like proof of stake. The effect that reports about financial concerns and illicit use have on crypto assets seems unlikely to mitigate the damages they cause to the climate unless the inability to effectually regulate these financial instruments leads to the banning of their use and creation.
Concerns about the financial and criminal impacts that cryptocurrencies have are obviously important and must be addressed. Nevertheless, regulators must be critical about the impact these technologies have on the climate. If the concerns that many scientists have about the earth’s health and stability become our reality, the issues of crime and financial instability from cryptocurrencies and digital assets may be eclipsed by the effects of climate change.
Student Bio: Hayden McGuire is a 2L at Suffolk University Law School and a staffer on the Journal of High Technology Law. He received a Bachelor of Arts Degree in Politics, Philosophy and Economics, from Suffolk University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
