Cryptocurrency is a decentralized form of digital money with roughly 20,000 different types in circulation — Bitcoin and Ethereum being the most common. Unlike most modern currencies that rely on a central banking system and authority to manage and maintain value, cryptocurrency distributes this task across online “miners” and is frequently powered by blockchain, an open, distributed ledger of transactions shared across a network. Tech gurus first embraced the digital “cash” for its representation of the borderless digital economy with a currency that bypassed the control of governments and financial institutions. It quickly grew from a digital concept to reach a market cap exceeding $3 trillion at its peak in November 2021, according to reports by Forbes.

This industry has not only been rife with controversy surrounding its volatility but also its energy consumption. When cryptocurrency was first conceived, few of us could have predicted that it would scale in popularity to levels that cause environmental concern. The rapid rise in crypto valuation triggered a race for crypto “miners” to compete in solving high-compute math problems to earn their digital tokens. The exponential rise in computing power to solve these problems, naturally, has been powered by a similar increase in electricity use. 

Taken at face value, the impact of crypto on the environment reveals a massive carbon footprint the size of some small countries. Each Bitcoin transaction consumes the same amount of power as one U.S. household would in two-and-a-half months. Concerns over the sustainability impacts have seen large corporations, like Tesla, refuse to accept it as a payment method, and government officials across many regions are beginning to take a hard look at regulation.

Environmental scrutiny

The rapid growth of cryptocurrency has caused electricity usage to balloon — some estimates show it doubling or quadrupling annually. The effects of this exponentially growing industry could have significant impacts on the power grid, energy makeup, greenhouse gas emissions, and other forms of air and water pollution.

Crypto mining operations are under environmental scrutiny for more than just their energy use and mix — crypto also has an issue with electronic waste. The hardware used to mine the various cryptocurrencies regularly becomes obsolete and isn’t suited for circular repurposing.

Crypto mining has also been put under the microscope, so to speak, for instances when miners discharged heated water back into lakes after it was circulated through server farms, prompting fears of algae blooms and associated fish deaths. In other cases, power demands from crypto prompted closed coal plants to reopen, triggering fears of toxic nitrogen oxide emissions, which contribute to smog and respiratory illnesses. 

This has prompted some authorities to call for policy measures that address the significant carbon footprint of certain crypto operations. Some regulatory efforts have been successful, while others have not. Or, better said, not yet … 

Global regulatory efforts

In September 2021, China implemented a comprehensive ban on all cryptocurrency transactions and mining due to concerns related to financial stability, consumer protection, financial crime, and environmental impact. This ban resulted in a significant disruption to the global crypto market, both routing the operations to other countries as well as forcing it underground within their own.

Following the increased presence of crypto-asset producers in Europe’s Nordic region, there is concern that countries, such as Sweden, will see their renewable energy consumed by crypto miners instead of being used for essential services, threatening their ability to meet the commitment outlined in the Paris Agreement. They have called on the EU to consider a ban on the more energy-intensive mining methods. As a result, the European Parliament considered a ban on crypto mining but, instead, decided to introduce additional environmental disclosures for crypto asset producers starting in 2024. However, the European Central Bank expressed the likelihood of further regulatory measures, including a potential ban on crypto mining, as concerns about its environmental impact persist.

As crypto mining has been uprooted from some territories, more mining operations have moved into the U.S., triggering proposals across many states to regulate carbon emissions tied to both crypto mining and data center operations. The U.S. now hosts most crypto operations, with estimates at roughly one-third of the world’s mining compute, consuming between 0.9% and 1.7% of its electricity. 

Washington state passed House Bill 1416, which requires customers of rural utility districts to curb emissions associated with the electricity they purchase. The law aims to ensure that crypto mining operations reduce their environmental impact and align with the state's Clean Energy Transformation Act of 2018, which requires utilities to phase out nonrenewable energy use by 2045. 

House Bill 2816 was introduced in Oregon, aiming to impose emissions reduction targets on crypto mining operations and data centers. The bill sought to impose the emissions reduction timelines laid out in Oregon’s 2021 climate law on crypto miners and data centers by cutting cut greenhouse gas emissions from electricity use 60% below baseline levels by 2027 and achieve carbon neutrality by 2040. This would close a loophole that some crypto mining operations could take advantage of, which allowed them to buy power on the market from nonrenewable sources if the hydroelectric-powered local utility can’t satisfy their demand. The bill received opposition from existing data centers in the region and, ultimately, did not progress further.

Likewise, a California law regulating crypto companies was vetoed in 2022, again opposed by other leading data center operators, from Amazon to Uber.

I find the efforts of New York most unique because of their role as the financial capital of the U.S., where regulators seem truly torn on how they should approach the digital currency. There really seems to be a rift between those who believe in currency innovation from a financial perspective and those who are terrified of the new currency seeking much too hard to regulate what they cannot control. This state, more than any other, reveals society’s divided views on the subject. On one hand, some of the proposed restrictions are simply pending a two-year comprehensive environmental impact study, demonstrating apparent willingness to investigate further, while trying to maintain an acceptance of the dosh (digital wallet) and not putting a complete kibosh on all existing mining operations. Additionally, bills have also been introduced this year that would allow New York state agencies to accept cryptocurrency as a form of payment, indicating support of the innovative currency form. On the other hand, the bills to restrict crypto operations have been numerous and cover a broad range of regulatory efforts.

Wherever you sit in this world, efforts to regulate, such as these, will be heading your way. They fall primarily in a handful of categories. The largest effort is to prohibit crypto mining operations from receiving power from fossil fuel plants. Another effort seeks to limit their use of renewables that could be used elsewhere. Others stil, seek to restrict the most carbon-intense processes, such as proof-of-work (PoW) mining. No matter which way you think about our future efforts, change is unavoidable.