Even though much of 2022 was a hellscape for the crypto industry, somehow, this year managed to mark a turning point for one of its most notorious issues: pollution.  

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

Ethereum managed to pull off a storybook success story this year with a software upgrade called “The Merge.” Before the highly anticipated event, Ethereum developers promised that The Merge would drastically cut the blockchain’s enormous hunger for electricity. But over years of delays, crypto critics and environmental advocates shrugged The Merge off as the industry’s white whale. 

It turned out to be worth the risk

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

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

“It was actually a really boring event in itself. It just worked,” says Alex de Vries, who founded the website Digiconomist, which tracks Bitcoin and Ethereum’s energy use. Given the melee of this year’s brutal crypto winter, capped off by the spectacular meltdown of FTX, a boring Merge was a triumph. “It’s nothing less than a massive success,” de Vries tells The Verge

With The Merge, Ethereum axed a particularly polluting method for validating transactions called proof of work (PoW). In proof of work, crypto miners race to solve puzzles for a chance to add blocks of verified transactions to the blockchain. They receive new tokens in return, at the cost of exorbitant energy needed to solve all those puzzles. 

While Ethereum nixed those puzzles, Bitcoin is holding on to proof of work. In the wake of The Merge, Bitcoin miners reportedly swooped in on data center space freed up by 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 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 heavily in specialized puzzle-solving hardware. So they’re even more hard-pressed to let that go. But they’re also finding fewer places willing to host them and their energy-intensive tech. 

Cracking down on crypto 

Attempts 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 environmental advocates in those areas started pushing for more transparency into crypto miners’ operations. Bitcoin is the primary target of those efforts now that Ethereum has voluntarily reined in its own greenhouse gas emissions.

Early in the year, Democratic lawmakers — led by Senator Elizabeth Warren (D-MA) — probed crypto mining companies to divulge 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 stress on its already fragile grid, they sent a letter to the state’s grid operator demanding more details about the crypto industry’s energy consumption. 

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

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

The power plant continues to kick up dust, spurring a state-wide moratorium on new permits for other fossil fuel power plants that might try to start mining Bitcoin. The moratorium, which gives the state time to conduct an environmental impact study, targets proof of work cryptocurrencies specifically. Basically, it singles out Bitcoin in a roundabout way. 

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

And here’s where at least one of crypto’s other 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 a matter of weeks, FTX went from being an industry darling trying to bail out other struggling exchanges to filing for bankruptcy itself amid a swirl of scandal described as “one of the biggest financial frauds in American history” by US Attorney Damian Williams. FTX co-founder Sam Bankman-Fried was arrested in the Bahamas this month to face a slew of criminal and civil charges.

FTX’s fall from grace roiled the entire industry, pushing already low crypto prices even lower and bolstering arguments for more regulation. That drama might have made it more politically palatable for lawmakers like Hochul to impose restrictions on the crypto industry. Previously, they seemed reluctant to shoo away the business and jobs crypto enthusiasts promised to bring — not to mention the donations crypto poured into election campaigns including Hochul’s.

Meanwhile, in Europe, the EU parliament also proposed a rule that targeted proof of work cryptocurrencies — with somewhat less success. Early drafts of its proposed framework for regulating virtual currencies more broadly included language that might have limited PoW crypto mining and amounted to a de-facto Bitcoin ban. That provision was defeated in a parliament committee vote in March. But war in Ukraine has exacerbated Europe’s energy crunch, and the European Commission in October warned that EU member states might need to curtail crypto mining to cope with potential energy shortages during the winter. 

While some efforts to regulate crypto’s energy use and emissions have fizzled out, the scrutiny has led to more transparency and given us some truly wild analogies. The crypto industry in the US uses around as much electricity as every home computer in the nation combined, according to a report published in September by the White House Office of Science and Technology Policy. That report came with policy recommendations — including potential measures to “limit or eliminate” energy intensive operations like proof of work. Globally, Bitcoin’s climate damages are similar to that of the notoriously polluting crude oil and beef industries, a September Scientific Reports research paper found. 

Some of those numbers may be somewhat outdated now after Bitcoin’s prices took a beating. Estimates of the blockchain’s energy use globally dropped this year, along with its value. The price of a single Bitcoin tumbled from a high of $69,000 in November 2021 down to well below $20,000 this year. Following a particularly dramatic price plunge in June, the blockchain’s annualized energy consumption fell from about 204 terawatt-hours per year to around 132 TWh per year within a couple of weeks. The lower price just makes it less profitable to run so many energy-hungry mining rigs. 

Proof of stake takes center stage 

Moving forward, experts tell The Verge, it’s far more likely to see more cryptocurrencies behaving like Ethereum than Bitcoin. 

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

There’s still plenty of mess for crypto to clean up heading into the new year

Even so, proof of stake isn’t necessarily a cure-all for crypto’s 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 company Crypto Carbon Ratings Institute (CCRI) and charts each crypto network’s annual electricity consumption and planet-heating CO2 emissions. Solana, for instance, uses more electricity and pumps out more emissions than Ethereum despite being a smaller network. Because Solana prioritizes having a high rate of transactions per second, nodes on its network typically require more sophisticated hardware than other cryptocurrencies. And those differences in hardware can determine their environmental impact, according to CCRI co-founder and CEO Uli Gallersdörfer. 

There’s still plenty of mess for crypto to clean up heading into the new year. Ethereum is grappling with all the pollution it generated in the past. Ethereum software developers launched an effort to “counteract” the greenhouse emissions the cryptocurrency produced while the network was still using proof of work. That’s a tall order, of course, and plans for how to accomplish that are still murky. Meanwhile, new controversies still seem to be cropping up around FTX. Other crypto companies are under investigation, too. Bitter regulatory battles are likely ahead over how to keep the industry and its emissions in check. 

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

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