Blockchain’s environmental impact faces growing scrutiny

The environmental impact of blockchain and cryptocurrency faces growing scrutiny, particularly with regards to energy consumption. Bitcoin, as one of the first and largest cryptocurrencies in the world, has long been a major contributor, accounting for 0.2% of all global emissions in 2022. A single transaction alone has the same carbon footprint as a single seat on a passenger flight from New York to Amsterdam.

According to the Energy Information Administration (EIA), cryptocurrency mining accounts for up to 2.3% of all electrical consumption in the US alone. However, bitcoin is far from being the only offender – other proof-of-work cryptocurrencies, such as Litecoin and Monero are also highly energy-intensive, since they involve complex algorithms to validate transactions and add blocks to the blockchain.

Fortunately, newer generations of cryptocurrencies, such as Ethereum, Cardano, and Solana, are much less demanding, since they use a proof-of-stake method where coins are locked up as collateral to confirm transactions. Their energy consumption is around 99.9% lower, since there’s no need for mining. However, while much more sustainable, critics argue that it can centralize power among those who hold the most tokens, thereby negating the oft-cited benefit of decentralized finance.

While more sustainable alternatives have existed for some years now, thanks to the industry making efforts to shift from proof-of-work to proof-of-stake models, bitcoin remains by far the world’s largest crypto asset. Its inclusion in the new US crypto reserve will likely see its popularity continue to grow.

Aside from the massive energy consumption of crypto mining operations, there’s also the growing problem of e-waste. Mining hardware, such as high-end graphics cards which companies have been buying up in vast quantities for years, is quickly discarded due either to becoming obsolete or simply failing due to excessive use. As demand continues to grow, so too will the e-waste problem.

What are governments and regulators doing to stem the tide?

In response to these growing environmental concerns, many countries have introduced regulations to help mitigate the ecological impact of blockchain and cryptocurrency. China, for example, imposed a nationwide ban on crypto mining activity in 2021, while the United Nations proposed a climate tax in November 2024 to reduce emissions. The same year, Russia even had to restrict mining operations in several regions of Siberia during the winter months to ensure there was enough energy for people to heat and light their homes.

For fintech companies – particularly in the US – it’s an exciting time for blockchain and cryptocurrency, but it’s vital not to lose sight of the enormous ecological impact. Fortunately, the industry is in a prime position to prioritize the adoption of proof-of-stake and low-energy models that present a competitive advantage to increasingly environmentally aware consumers and investors alike.