New trend in crypto mining could solve major industry-wide problem — here are the details

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Cryptocurrency mining has a reputation as being bad for the environment. Traditional crypto mining, which was once a niche activity, has grown into an energy-intensive global industry, often powered by fossil fuels. However, there have been significant strides across the industry to reduce the environmental impact, and a new kind of mining called "cloud mining" could be another step toward making crypto more sustainable by expanding access to those strides.

A major cost for cryptocurrency mining is electricity, since the necessary machines generally use massive amounts of power to compute and need extra electricity (and sometimes additional water) for cooling units to avoid overheating.

Energy-intensive cryptocurrencies like bitcoin use a method called "proof of work" to create new coins, which is known as mining. Miners' rigs essentially solve difficult computer puzzles to add transactions to a digital ledger called the blockchain, and they earn new coins and fees as a reward.

The U.S. Energy Information Administration has estimated that crypto mining could make up about 2.3% of the country's total energy consumption. For context, 3.9% of utility-scale energy in the U.S. comes from solar. Fossil fuel combustion powers about 60% of America's utility energy production, which is part of where the power for crypto mining often comes from.

Many top-tier crypto mining companies have begun getting smarter about this. They're building or purchasing their own wind or solar farms, or making deals with power companies to use only excess power and shut off their operations when demand is high, but a lot of crypto mining still comes from the grid.

According to the Cambridge Centre for Alternative Finance, as cited by the BBC, bitcoin mining alone consumes an estimated 121 terawatt-hours of electricity annually — more than the entire country of Argentina. Even with a lot of renewable and excess energy supplying that power, and even if it helps to spur more renewable development, it's still a major power need that poses challenges to solve without adding significant pollution to the atmosphere.

Cloud mining, a new form of mining crypto, aims to reduce crypto's environmental impact by centralizing operations in certain data centers. Crypto mining can happen anywhere and is decentralized, so tracking what powers crypto is difficult. Instead of buying and operating their own mining equipment, cloud mining users effectively rent computing power remotely, which eliminates the need for some of the personal hardware and its associated energy use.

In theory, at least — since it will depend on the company offering these cloud services — cloud mining can lower miners' energy footprints by utilizing shared infrastructure that is easier to regulate and upgrade for efficiency rather than having as much low- and mid-tier crypto mining happening on outdated rigs running on the grid. Consider how a large facility can afford to invest in many additional small efficiencies to min-max its profit margins — and in most cases, improving profit margins in mining means increasing energy efficiency and finding ways to reuse the resulting heat for other profitable purposes.

While some data centers may intend to use sustainable power sources, utilities may not always have the capacity to power them sustainably. Not all cloud mining platforms disclose their energy sources, emissions, or operations, which obscures the ability for users or watchdogs to understand the true impact of cloud mining.

Even if mining takes place in centralized facilities, the traditional mining process still consumes vast amounts of power. This intensive power use (whether in data centers or homes) can strain the electricity grid and, in some communities, increase air pollution. If the cryptocurrency industry can continue to transition to less energy-intensive methods of powering its needs, it can more truly become the modern form of currency it intends to be.