DUBAI: Bitcoin mining uses as much electricity as the entire UAE, S&P estimates.
The huge amount of electricity needed to mine cryptocurrencies will likely exclude them from investors that need to comply with ESG guidelines, the ratings agency said.
It comes as the sector attracts increased attention from investors and regulators after a year of rampant volatility.
“Among the many flaws that cryptocurrencies face is their excessive consumption of electricity,” Mohamed Damak, a senior director at S&P said during an online seminar on Sunday. “Today the number of investors with ESG considerations is just growing and growing every day.”
He said the immense amount of waste and power consumption required could lead to a change in the way digital coins are mined.
“This is probably related to the validation method. There are two of these — the 'proof of stake' where you have certain super users who can validate transactions and you have 'proof of work' where everyone on the network can validate transactions as long as they are able to solve certain mathematical challenges. That requires a lot of computing power and that is why the network consumes a lot of energy,” he said.
The comparatively short life span of bitcoin mining machines also adds to the waste created by the sector.
China’s State Council, last month, ordered a crackdown on bitcoin mining and trading because of intensive energy consumption.