2022 was the year of crypto’s climate reckoning

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While much of 2022 has been a hellscape for the crypto industry, this year somehow managed to mark a turning point for one of its most infamous problems: pollution.

Lawmakers are cracking down on cryptominers burning massive amounts of energy. And even without regulation, crashing crypto prices limited mining and its pollution. Most importantly, Ethereum showed that it is possible for a cryptocurrency to drastically reduce its carbon footprint during “The Merge”.

Ethereum managed to write a storybook success story this year with a software upgrade called “The Merge”. Ahead of the highly anticipated event, Ethereum developers promised that The Merge would dramatically reduce the blockchain’s massive appetite for electricity. But after years of delays, crypto critics and environmentalists dismissed The Merge as the white whale of the industry.

It turned out to be worth the risk

After all, hundreds of thousands of individual nodes on Ethereum’s decentralized network would have to run the update for it to work. That was a hard sell for a number of reasons, including the fact that the upgrade would make the expensive graphics cards cryptominers used to “mine” new Ether tokens obsolete. If enough miners defected, the blockchain could shatter. The reward, if The Merge were successful, would be to reduce nearly all of the network’s greenhouse gas emissions overnight. It turned out to be worth the risk.

An attempt to keep a proof-of-work version of Ethereum alive has largely failed. Overall, The Merge went off pretty much without a hitch in September. And just like that: Ethereum’s carbon dioxide emissions fell by 99.992 percent.

“It was actually a very boring event in itself. It just worked,” says Alex de Vries, founder of the website Digiconomist, which tracks the energy consumption of Bitcoin and Ethereum. Given the melee of this year’s brutal crypto winter, capped off by the spectacular collapse of FTX, a dull Merge was a triumph. “It is nothing less than a huge success,” says de Vries The edge.

With The Merge, Ethereum scrapped a particularly polluting method of validating transactions called Proof of Work (PoW). As proof of work, cryptominers are racing to solve puzzles for a chance to add blocks of verified transactions to the blockchain. They get new tokens in return, at the cost of exorbitant energy needed to solve all those puzzles.

While Ethereum has solved those puzzles, Bitcoin is sticking to the proof of work. In the wake of The Merge, Bitcoin miners reportedly collapsed on data center space that had become vacant towards the end of Ethereum mining. “We know Bitcoin stakeholders are incentivized not to change,” a Greenpeace-led campaign to get Bitcoin to “change the code, not the planet,” says on its website. The campaign was launched in March with the aim of recruiting big tech and finance leaders to pressure Bitcoin to drop proof of work.

Bitcoin miners, compared to Ethereum miners, have had to invest more in specialized puzzle-solving hardware. So they have even more trouble letting go of that. But they’re also finding fewer places willing to host them and their energy-intensive technology.

Cracking crypto

Efforts to regulate greenhouse gas emissions from crypto mining escalated this year in the US and Europe, where many miners moved following China’s ban on the practice in 2021. Lawmakers and environmentalists in those areas began pushing for more transparency in the activities of crypto miners. Bitcoin is the primary target of those efforts now that Ethereum has voluntarily curbed its own greenhouse gas emissions.

Early in the year, Democratic lawmakers — led by Sen. Elizabeth Warren (D-MA) — scrutinized crypto mining companies to disclose their energy use and greenhouse gas emissions. They asked federal regulators to require miners to share that data in July. And after concerns that an explosion of crypto mining in Texas would put too much strain on the already fragile grid, they sent a letter to the state’s grid operator demanding more details about the crypto industry’s energy consumption.

While lawmakers in Texas have nevertheless continued to welcome a growing crypto industry, New York became ground zero for efforts to regulate crypto mining pollution. A gas-fired power plant turned crypto mine in the state’s Finger Lakes region became a national focal point for Bitcoin’s environmental impact. In June, state regulators denied an air permit for the controversial Greenidge power plant.

New York became ground zero for attempts to regulate crypto mining pollution

The power plant continues to cause a stir, leading to a statewide moratorium on new permits for other fossil fuel power plants that could attempt to mine Bitcoin. The moratorium, which gives the state time to conduct an environmental impact study, specifically targets proof-of-work cryptocurrencies. Basically, it sets Bitcoin apart in a roundabout way.

“[The legislation] is the first of its kind in the country and an important step for New York as we work to address the global climate crisis,” New York Governor Kathy Hochul wrote in a memorandum accompanying the bill’s signing.

And here at least one of the other crypto crises intersects with the industry’s pollution problem. Hochul signed the bill in November, shortly after the ugly implosion of crypto exchange FTX. The short version of the dramatic FTX saga is this; within weeks, FTX went from being an industry darling trying to save other struggling exchanges to filing for bankruptcy itself amid a whirlwind of scandals described by U.S. attorney Damian Williams as “one of the biggest financial frauds in history.” American history”. FTX co-founder Sam Bankman-Fried was arrested this month in the Bahamas on a slew of criminal and civil charges.

The fall of FTX shook the entire industry, driving already low crypto prices even lower and reinforcing the case for more regulation. That drama may have made it more politically appealing for lawmakers like Hochul to place restrictions on the crypto industry. Previously, they seemed reluctant to shoo away the business and the jobs crypto enthusiasts promised to bring — not to mention the donations crypto poured into election campaigns, including Hochul’s.

Meanwhile, the EU parliament in Europe also proposed a rule targeting proof-of-work cryptocurrencies – with somewhat less success. Early versions of the proposed framework for regulating virtual currencies included language that may have restricted PoW crypto mining and amounted to a de facto Bitcoin ban. That provision was rejected in a vote in the parliamentary committee in March. But the war in Ukraine has exacerbated Europe’s energy crisis, and the European Commission warned in October that EU member states may need to curtail crypto mining to deal with potential energy shortages over the winter.

While some attempts to regulate crypto energy consumption and emissions have failed, the research has led to greater transparency and has given us some truly wild analogies. According to a report released in September by the White House Office of Science and Technology Policy, the crypto industry in the US uses about as much electricity as every home computer in the country combined. That report came with policy recommendations — including possible measures to “limit or eliminate” energy-intensive operations, such as proof of work. Globally, Bitcoin’s climate damage is comparable to that of the notoriously polluting crude oil and beef industries, a September Scientific Reports research paper found.

Some of those numbers may be a bit outdated now that Bitcoin prices have taken a hit. Estimates of the blockchain’s energy consumption have dropped globally this year, along with its value. The price of a single Bitcoin fell from a high of $69,000 in November 2021 to well below $20,000 this year. After a particularly dramatic price drop in June, the blockchain’s annual energy consumption dropped from about 204 terawatt-hours per year to about 132 TWh per year within a few weeks. The lower price only makes it less profitable to run so many energy-guzzling mining rigs.

Proof of commitment is key

Come on, say experts The edge, it is much more likely that more cryptocurrencies behave like Ethereum than Bitcoin.

Ethereum is far from the only crypto network to turn its back on proof of work. Many other alt-coins use the same alternative transaction validation mechanism as Ethereum, called proof of stake. “I feel like it’s almost inevitable that 99 percent of chains will implement some sort of proof of stake or alternative validation mechanism,” said Leonardo Bautista Gomez, founder of the blockchain research group Miga Labs, who was also involved in research that led to The Merge.

There is still plenty of junk for crypto to clean up heading into the new year

Still, proof of stake is not necessarily a panacea for crypto pollution. There are still inefficiencies within these blockchains. You can see differences between different proof-of-stake cryptocurrencies using an online tool called “sustainability indices” that debuted in October. The tool was developed by research firm Crypto Carbon Ratings Institute (CCRI) and maps the annual electricity consumption and CO2 emissions of each crypto network. For example, Solana uses more electricity and pumps out more emissions than Ethereum, despite being a smaller network. Because Solana prioritizes a high number of transactions per second, nodes on its network typically require more sophisticated hardware than other cryptocurrencies. And those differences in hardware can determine their impact on the environment, said Uli Gallersdörfer, co-founder and CEO of CCRI.

There is still plenty of junk for crypto to clean up heading into the new year. Ethereum is struggling with all the pollution it has caused in the past. Ethereum software developers have made an effort to “counteract” the greenhouse gas emissions the cryptocurrency produced while the network was still using proof of work. That’s a tall order, of course, and plans to achieve it are still murky. Meanwhile, new controversies still seem to be emerging around FTX. Other crypto companies are also being investigated. Bitter regulatory battles are likely ahead over how to control the industry and its emissions.

In 2023, we will find out if the crypto industry can emerge from the “crypto winter” – and if it can do so while doing less damage to the planet.

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