Energy Consumption: Cryptocurrency vs Traditional Banks
Updated: May 22
What is cryptocurrency?
In this day and age, it is almost impossible to be unfamiliar with cryptocurrency. In simple words, it is a form of digital money where transactions are run using a cryptography system and are stored in a computer database or a blockchain rather than a central authority.
Cryptocurrencies such as Bitcoin and Ethereum are increasingly getting known and used by people and companies around the world. Some use it to invest, and some even use it as their source of income.
For many years since its inception, major corporations and banks have downplayed the value of cryptocurrencies.
However, in recent times, major corporations like Tesla have announced that people can buy their cars using Bitcoin. They have also invested $1.5 billion in Bitcoin this February.
This can be attributed to the major surge that happened in the crypto market at the beginning of this year.
It has become a new system of banking that requires no real-life transaction activities such as ATMs or branches. It is not run by a central authority, meaning that there is no one in charge & transactions cannot be traced.
As it is accepted more widely now, the sustainability aspect of this technology comes under scrutiny. How much energy does cryptocurrency consume, and is this modern way of banking worth it?
Crypto Energy Consumption
Cryptocurrency works through a process called crypto mining. It is a process of solving a computational puzzle and storing the transactions into a blockchain.
This process requires great computing power, which also consumes a lot of energy from electricity and other energy sources such as coal and gas.
Besides the actual mining part, the maintenance and security aspect of crypto also involves a lot of energy.
Research has found that bitcoin miners alone consume approximately between 60 to 125 TWh of energy annually, which is equivalent to around 0.6% of global electricity and ties the energy consumption of some countries such as Austria (75 GWh) and Norway (125 GWh).
Adding the other numerous cryptocurrencies out there, we can roughly estimate that the cryptocurrency industry consumes a substantial amount of energy.
Some cryptocurrencies require more computing power than others, differentiated by the number of users and the difficulty of the ‘puzzle’ that needs to be solved.
As puzzle difficulty increases, energy consumption will also increase. This makes cryptocurrency bad for long-term sustainability as energy consumed has to keep up with the increasing computing power required, maintaining the process of solving, and security as users also grow in numbers.
Nevertheless, cryptocurrency is a relatively new industry and is still being developed, so future energy-saving technology, algorithms, and innovations are expected.
It is also stated that up to 70% of bitcoin miners use renewable energy as their power supply, such as wind, solar, and hydropower.
Traditional Banking Energy Consumption
Like cryptocurrency, traditional banks also consume energy to run their virtual transactions and physical transactions.
The virtual transactions include the central server and digital security. Whereas the physical transactions involve branches, ATMs; also consider the requirements for each branch, for example, air conditioning, employee, computers, etc.
Additionally, traditional banks also use physical currencies such as coins and bills. To produce this, many resources are required besides energy, such as metals, ink, cotton, etc.
The total annual energy consumption of traditional banks is around 26 TWh on running servers, 26 TWh on ATMs, and 87 TWh from an estimate of 600k+ branches worldwide.
It is no surprise that traditional banks consume much energy as we can assume that 70% of the world population (adults) utilizes them.
Which one is better?
Although cryptocurrency consumes a lot of energy, it has already included the whole currency system with no added real-life energy consumption from physical branches, buildings, bills, even human resources.
However, it can only process a few transactions at a time. One transaction alone requires great computing power, especially NFTs, even utilizing the total electrical energy to power an average household for weeks.
On the other hand, traditional banks require huge energy consumption for both their virtual and physical aspects, but they can process thousands of transactions at a time.
Both crypto and traditional currency have unconsciously become a necessity to the world. It eases so many aspects and assists almost every activity and people on earth.
It is clear that the currency industry will consume a substantial amount of energy. Thus, answering the question of which method is more sustainable is still unclear.
However, the evaluation of sustainability should also consider the vast opportunities offered by both methods of currency.
The best solution is to continue innovating and developing these technologies to be more sustainable while still providing its benefits, for example, by using renewable energy, developing more efficient algorithms, and any other alternative solution.
These solutions are not easy and quick to do as the size of the currency industry is on a global scale.
Not all of us can contribute in terms of technology development. Still, by implementing the 6Rs method - rethink, refuse, reduce, reuse, repair, and recycle, as I have mentioned in my previous article, we can change our lifestyle to a sustainable one, to balance energy consumption!
Olivia Eugenia is an Environmental Science student at the University of Western Australia. She is also an activist and a content writer at the International Youth Organization for Peace and Sustainability.