Understanding your energy usage
In a little over a decade, cryptocurrencies like Bitcoin have gone from being the currency of the internet to volatile digital assets that investors buy and sell in search of profit. And with the recent NFT phenomenon, it’s a market that’s showing no signs of slowing down.
However, the crypto gold rush comes with a catch, and it’s one that made headlines earlier this year when Elon Musk announced that Tesla would no longer accept purchases in Bitcoin due to environmental concerns.
The process of mining and using cryptocurrency can be particularly energy-intensive due to the algorithms used to power them, and with millions of people using, trading and mining every day, it’s easy to see why crypto’s carbon footprint is such a hot topic.
So, just how much energy do popular cryptocurrencies and NFTs use and how much CO2 do they produce?
The energy consumption of popular cryptocurrencies
The growing interest in digital currencies and assets means that more energy is needed to power the networks behind them, but some are less demanding than others.
We looked at the amount of energy needed to power a single transaction for some of the most popular cryptocurrencies.
*It’s estimated that Ethereum 2.0 will use 90% less energy
By far the most power-hungry crypto in our study, we found that a single Bitcoin transaction uses an average of 1,173 Kilowatt Hours (kWh). If we consider that the average monthly electricity usage for a UK household is 350 kWh, that’s enough to power the typical UK home for more than three months at a cost of roughly £125 ($173), based on a fixed cost of £0.11 ($0.148) per kWh
In the U.S, it would equate to roughly 6 weeks of electricity based on an average household electricity usage of 877 kWh per month (U.S Energy Information Administration).
To put this issue into perspective, we also looked at the number of transactions that have taken place over the last 12 months to see just how much energy was used.
Based on the number of Bitcoin transactions that took place over a 12 month period, we estimate that the total energy usage to be roughly 123 Terawatt Hours (TWh) or 123 billion kWh.
This means that Bitcoin alone uses more energy than 185 countries and is comparable to the annual energy consumption of Norway.
This map shows which countries consume more or less electricity than Bitcoin
The crypto carbon footprint
As countries around the world strive to reduce their carbon emissions by moving to more renewable energy sources, it stands to reason that the energy used to power cryptocurrencies and NFTs would also be increasingly clean.
However, some country’s are making faster progress than others.
It’s believed that a significant proportion of crypto mining takes place in China, and with roughly 57% of China’s electricity production coming from coal-fired power stations, the crypto carbon footprint poses a significant problem.
We used the annual energy consumption for popular cryptocurrencies to find the size of their carbon footprint, as well as the total cost of the energy used.
Single transaction footprint
Annualised total footprint
Assuming a fixed rate of $0.148 per kWh, Bitcoins annual energy bill stands at a whopping $11.03 Billion - that’s roughly the same as the GDP of The Bahamas.
NFTs, or non-fungible tokens, have seen a boom in popularity recently, with some trading hands for millions of dollars - but what are they?
Non-fungible essentially means that something is unique and cant be interchanged for something else. For example, money is a fungible asset as a £10 note can be exchanged for two £5 notes. Although they may be different, they have equal value.
In short, NFTs are one-of-a-kind, and just like other valuable assets such as works of art, baseball cards and even comic books, it’s their scarcity that makes them valuable.
NFTs are digital files, and just like any other image or video on the internet, they can be copied or downloaded with a simple right-click.
So why are NFTs selling for millions at auction?
Well, when you buy an NFT you’re not buying the image itself but a unique certificate of ownership, although artists generally retain the copyright. Just like cryptocurrency, a record of who owns what is stored on a digital ledger (or blockchain) that’s maintained by thousands of computers around the world, meaning that records cant be forged.
To put it in physical terms, anyone can buy a print of the Mona Lisa, but there’s only one original.
The majority of NFT transactions take place on the Ethereum blockchain, so logic dictates that an NFT transaction would use the same amount of energy as an Ethereum transaction, right?
Unfortunately, it’s not quite so simple.
Every step of the NFT cycle requires energy, from adding (or minting) a token on the blockchain, bidding on an NFT at auction, the transaction between the buyer and seller, and even future transactions on the resale market.
While it varies on a case-by-case basis, it’s estimated that the average NFT uses 340 kWh and has a carbon footprint of 241 KgCO2.
We can combine this data with the total number of initial and secondary NFT sales over the last 12 months to find the annual energy bill and carbon footprint of the NFT market.
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Annualised total NFT footprints
Despite a huge rise in popularity over the last year, the NFT market still uses significantly less energy than some of its cryptocurrency counterparts, however, at 0.3 TWh it still uses more electricity than 28 countries, sitting just behind Antigua and Barbuda.
While we might expect this figure to increase as the market matures, it’s worth remembering that when Ethereum 2.0 goes live, energy consumption for NFTs that use the Ethereum blockchain is expected to drop by around 90%.
Why do cryptocurrencies use so much energy?
Some of the best-known cryptocurrencies use a proof-of-work (PoW) system to verify transactions on the network (or blockchain), which typically requires significant processing power to complete.
The proof-of-work system asks people (or miners) to use their hardware, and electricity, to help the network process and verify a transaction by solving what is effectively a complex puzzle.
As compensation, miners are awarded with a set amount of cryptocurrency for solving the puzzle and thereby verifying the transaction.
It’s this energy-intensive process being carried out by thousands or even millions of miners around the world that contributes to crypto’s ever-growing energy bill, and it’s one that will continue to increase as more demand is placed in the network.
Environmentally friendly crypto
The answer to the energy-guzzling proof-of-work model is proof-of-stake (PoS).
Instead of using miners to verify transactions, proof-of-stake asks people to contribute, or “stake” their own crypto for a chance to be chosen to verify a new transaction and earn a reward as a result.
The network selects a winner based on factors like the amount of crypto they’ve contributed and the length of time their stake has been there, thereby rewarding the people that are the most invested in the network.
Since powerful mining rigs aren’t needed to solve an equation, proof-of-stake networks use significantly less energy and also open up opportunities for people who can’t afford to buy and run powerful computers to participate and benefit.
The majority of newer blockchain projects use a PoS system and Ethereum is also planning a move to proof-of-stake in the near future - reportedly reducing its energy usage by up to 90%.
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