Cryptocurrencies prices are displayed on a mobile phone screen photographed for illustration photo. Krakow, Poland on May 12, 2021.  (Photo by Beata Zawrzel/NurPhoto via Getty Images)
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Can Bitcoin ever be sustainable?

Bitcoin has an environmental problem. Well, pretty much all of cryptocurrency does. But Bitcoin, which is the most popular and most valuable of the virtual currencies, got called out by one of its biggest backers last week, when Tesla CEO Elon Musk finally came to the realization that the considerable amount of electricity that the mining process requires is bad.

Currently, according to the Digiconomist's Bitcoin Energy Consumption Index, the cryptocurrency's total carbon footprint is comparable to that of the entire country of Peru, and each individual transaction consumes the same amount of electricity that a single U.S. home uses over the course of 39 days. That will only get worse, as Bitcoin is designed to require more and more computing power — and in turn, use more electricity — for mining over time. Musk has said that he and his companies will return to Bitcoin when it becomes more sustainable. So it's worth asking: Is a sustainable coin even possible?

Why does Bitcoin use so much electricity?

In order to understand why Bitcoin and other cryptocurrencies have become such an energy suck, it's important to know how these things work, exactly.

You likely have a pretty good idea of how a standard credit card transaction works. You take your card, which was issued to you by a bank that manages your funds, and plug it into a merchant's credit card terminal. Money is then transferred from your bank account to the bank that the business is working with. Everything is accounted for: Your bank has a record of you making the purchase at the store, and the store's bank has a record of you giving them money.

Bitcoin, and basically all cryptocurrencies, don't work this way. Everything is done anonymously, and there are no institutions serving as the keepers of all this information. Instead, every transaction completed using Bitcoin is logged on the blockchain, which is a distributed ledger that serves as a constantly updating account of all Bitcoin activity. Purchases, sales, trades, the release of new Bitcoin — it's all logged on the blockchain.

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Unlike the banks that store these records in a centralized location, the blockchain is distributed across tens of thousands of computers. The theory is that by distributing transactions across many sources, all of those sources can independently verify everything. The problem is that confirming that a transaction is legitimate requires solving complex encryption — essentially a series of difficult-to-decipher codes. Because there is no central source doing this work, individuals must offer up processing power from their own computers to solve these equations. In exchange for lending their processors to this task, they are rewarded token amounts of Bitcoin — which is why it's called mining.

Proof-of-work: An environmental disaster by design

Every cryptocurrency that relies on a decentralized ledger has to confirm transactions somehow. But not all of them do it in the energy-sucking way that Bitcoin does. Bitcoin uses what is known as proof-of-work — and according to Alex de Vries, the founder of Digiconomist and a data scientist focusing on financial economic crime for De Nederlandsche Bank, the energy consumption that it requires is a feature and not a bug.

"Proof-of-work is built to require the waste of natural resources," he says. "That's the security model." Bitcoin and other cryptocurrencies that utilize the proof-of-work concept are built to require more and more effort to solve the increasingly challenging encryption; this prevents anyone from manipulating the system. If the barrier to proof was too low, someone might attempt to hack the blockchain. But with proof-of-work, that's not really a risk, because it would require way too many resources to carry out that kind of attack.

"It's just never been properly addressed."

This is a problem that has been known since basically the inception of Bitcoin. Hal Finney, the late computer scientist who was an early contributor to Bitcoin and received the first-ever Bitcoin transaction, identified the fact that the cryptocurrency would require a lot of electricity very early on. In a tweet made just two weeks after Bitcoin launched, Finney wrote, "Thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation." That was in 2009.

[Finney] had immediately realized that the inherent wastefulness would cause problems on a large scale," de Vries says. "It's just never been properly addressed afterward."

The myths of Bitcoin and renewable energy

Some of Bitcoin's biggest backers insist that the energy consumption issue is basically solving itself, thanks to the adoption of renewable energy sources. Spend any time wading into Crypto Twitter and you'll find folks refuting the idea that Bitcoin is a burden on the planet, citing a stat that claims that 75% of Bitcoin mining is powered by renewable energy.

Except it's not. Yes, about three-fourths of miners report using some renewable energy sources. But just 39% of the electricity powering the actual mining process comes from renewables, according to a study from the University of Cambridge. That means 61% is coming from natural gas, coal, and other dirty-burning fossil fuels.

The other problem is more tangible: It takes a ton of plastic and electronic hardware to build the machines that suck up all this energy. "You can try to somehow fill this up with renewable energy, but you're still going to be left with a big pile of electronic waste and a disrupted semiconductor supply chain," de Vries explains. Most Bitcoin mining is now done with specialized hardware, which becomes obsolete after about 1.5 years as more powerful processing parts become available. The demand for mining-capable machines has caused a shortage of semiconductor chips — which use rare earth metals that have to be mined from the planet. Meanwhile, those same machines get trashed when they're outpaced by technology, because they serve no purpose other than cryptocurrency mining. You can see the snowball effect.

The proof-of-stake solution

The only real way, then, to fix the outsize carbon footprint of Bitcoin and other cryptocurrencies is by changing how mining is done. "In general, anything that runs on proof-of-work will be as bad as Bitcoin if it reaches the size of Bitcoin," de Vries says. "The only real technological solution there is to move away from proof-of-work mining altogether."

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The good news is that there are viable alternatives out there. The one with the most momentum is called proof-of-stake. Instead of the resource-draining process that proof-of-work requires, proof-of-stake asks miners to stake their own shares of cryptocurrency in order to validate a transaction. This system rewards those who provide accurate information and penalizes those who provide false information.

Some cryptocurrencies already utilize proof-of-stake. But they have only a fraction of the market capitalization that Bitcoin has. Ethereum, the second-largest cryptocurrency, has laid out a roadmap to adopting a proof-of-stake system, though the actual implementation has been repeatedly delayed. "Proof-of-stake is something that completely eliminates the need for specialized energy-hungry hardware, so that solves all of these sustainability issues, not just energy use," de Vries says. More pointedly, he adds: "Bitcoin could implement this if they wanted to."

But Bitcoin has no plans to do so at the moment. And it seems unlikely it ever will. Not only would the shift require a ton of coding work on the backend to shift from proof-of-work to proof-of-stake, but there's no one even in charge of Bitcoin who could simply unilaterally implement a change for the whole system. "You need to get the entire network to run the upgrade at the same time, or otherwise there's a risk of the network splitting," de Vries explains.

A split in the Bitcoin network has happened in the past, when a faction of users believed a particular technical aspect of Bitcoin's design was limiting its potential to serve as an actual currency. That resulted in the development of Bitcoin Cash, which is considerably less popular than Bitcoin. It's possible that there could be another split to create an alternate version of Bitcoin that relies on proof-of-stake, but there's no guarantee it would actually take off. Plus, Bitcoin miners profit off the current system and have no real incentive to give that up.

What the future might hold for Bitcoin is unclear. It seems really unlikely that a shift to proof-of stake can happen, but it was also unlikely that the cryptocurrency would ever become as valuable as it is today. Protecting that value could be enough of an incentive to make the move to a more sustainable coin. After all, what's the point of amassing cryptocurrency if the planet you spend it on is just an overheated husk?