- Bitcoin mining, an opportunity to accelerate the global energy transition to renewables by serving as a complementary technology for clean energy utilization.
- Solar and wind are now the least expensive energy sources in the world but are hitting bottlenecks primarily because of a lack of constructive utility.
- Bitcoin miners could potentially help solve much of these issues allowing the deployment of substantially more renewable energy.
- Deploying more clean energy will lead to relaxation in their respective cost curves, bringing them closer to minimum effective cost energy production.
While writing the world’s most famous white paper, Satoshi Nakamoto defined the Bitcoin ( BTC) mining process. It was established that the minting of new coins would take place through proof-of-work. To carry out this verification and to be able to mine the cryptocurrency, computers need to solve complex mathematical calculations.
In the beginning, there were not many miners. However, that changed before the first Bitcoin bull run. Mining competition skyrocketed, causing a sharp increase in the cost of machines capable of competing. Even more importantly, energy demand exploded with the new machines( ASIC miners) — which needed energy mainly for processing and cooling.
After eight years, the energy demand for mining Bitcoin has grown — and today has reached ~120 terawatt-hours per year, according to data from the Cambridge Bitcoin Electricity Consumption Index, or CBECI. This would place Bitcoin’s energy use somewhere between the United Arab Emirates and the Netherlands, two countries with a combined population of approximately 27 million people.
At first glance, this seems like a lot, right? But let’s take a closer look at the data to gain a better understanding of the real impact that Bitcoin mining has on the environment.
The Darker Side
Comparing the energy use of cryptocurrencies with the traditional banking sector — or fiat, in particular — might look quite devastating like Bitcoin, for instance, is estimated to consume 123.77 billion kilowatt-hours of energy annually, compared with 2.64 million kWh for cash. According to Digiconomist founder Alex de Vries, if Bitcoin became the world’s reserve currency, global energy production would need to double.
In terms of the difference in transaction volume: While the Visa network completed over 185 billion transactions in 2019 alone, Bitcoin has facilitated 643 million since its inception. Current estimates are that a single bitcoin (BTC, +9.26%) transaction has a carbon footprint of over 350 kilograms (772 pounds). US Democratic Senator Elizabeth Warren claimed that Bitcoin “requires so much computing activity that it eats up more energy than entire countries.”
The Concerns caught up attention when…
Tesla stopped accepting Bitcoin claiming that there is a huge environmental concern attached to it due to fossil fuels being used for bitcoin mining and transactions. This is not the case. In fact, he conveniently missed that 75% of bitcoin minors use renewable energy sources.
This selective representation of facts led to widespread pessimism about bitcoin and people started selling it. Right after this tweet, the value of bitcoin plummeted. These faces of the Tesla owner are actually seen by many as market manipulation, rendering them infuriated by his tweets.
However, this flame was calmed down after a meeting that took place between the Bitcoin Mining council and Elon Musk along with Michael Saylor. And recently here is Elon’s Tweet where he agreed upon accepting bitcoins again after there’s a confirmation that half of the miners use clean energy for mining, causing Bitcoin to rally to ~$40k.
The market perception of bitcoin thus does not represent the true value behind the blockchain. People like Elon Musk who enjoy the reputation of someone who deeply cares about sustainability have time and time and again misled people into making the decision not representative of crypto assets’ true values. Here is another example of some voices that claim that.
Okay, so what are the real arguments?
The arguments against proof-of-work and the incentive mechanism around mining, created by Satoshi Nakamoto, are:
- A1 — Bitcoin mining consumes a lot of energy.
- A2 — The vast majority of Bitcoin miners are located in China.
- A3 — Bitcoin miners are mainly using dirty coal-based energy.
- A4 — Bitcoin mining has a comparatively extreme carbon footprint.
- A5 — Bitcoin is bad.
Argument A1 is true. It is one of the fundamental reasons why the Bitcoin network is so incredibly secure. But we will break down it further.
Argument A2 used to be true, but the situation is changing, as more regions globally are entering the BTC mining industry. As this does not matter for energy consumption by the Bitcoin network, we will consider it to be true. Also, the recent crackdown in China has made a lot of miners move to other countries and especially where they can find out
Let’s debunk A3, which consequently discredits A4 and A5.
Debunking A3: Bitcoin is an energy hog, but… RENEWABLE
Let’s roll through a few researched proofs — — -
- Recent research published by CoinShares Research found that most of the electricity consumed to mine Bitcoin (about 74.1%), in fact, comes from clean sources, such as wind, solar and hydroelectric.
Also apart from this, Publicly traded petroleum multinational Equinor is moving to reduce natural gas flaring by mining cryptocurrency. This converts waste natural gas that would be otherwise released into the atmosphere into electricity at the well site.
“By connecting these inverse pains, we can satisfy both needs with no cost to market expense.”
- In Fact, The research concludes that the Bitcoin network obtains 74% of its electricity from renewable sources, making it more focused on clean energy sources than almost all other large-scale industries in the world.
Also, according to the CBECI, 25,082 TWh of energy is produced in the world yearly. Only 20,863 TWh is consumed, meaning 16.82% is wasted. Bitcoin represents an energy expenditure of 0.47% of the total energy produced and only 0.54% of total electricity consumption worldwide.
- Also according to a study published by the University of Cambridge in September 2020:
“Hydropower is listed as the number one source of energy, with 62% of surveyed hashers indicating that their mining operations are powered by hydroelectric energy. Other types of clean energies (e.g. wind and solar) rank further down, behind coal and natural gas, which respectively account for 38% and 36% of respondents’ power sources.”
- As far as Solar energy is concerned 👇🏻
Debunking A4: The Carbon footprint of Bitcoin
According to data released in 2019 by the scientific journal Joule, Bitcoin’s carbon footprint is between 22 and 22.9 metric tons of CO2. It is indeed a relevant amount that is comparable to Jordan or Sri Lanka’s emission rates. However, it is considerably less, for example, than the energy expenditure by the American military force, which according to data compiled by Statista emits 59 metric tons of CO2.
Fortunately, there are simple ways to offset the carbon footprint left by Bitcoin. With the tokenization of assets, some companies have chosen to tokenize carbon credits, making it easier for miners and all those involved in some way with the cryptocurrency industry to lessen the impact caused by the generation of electrical energy used in mining machines.
Explosive Growth? Volcano powered Bitcoin Mining at El-Salvador
As Salvadoran President Nayib Bukele said his country, which has just adopted bitcoin as legal tender, would make it easy for miners to harness green geothermal energy from the country’s volcanos. He has directed El Salvador’s geothermal company, LaGeo, to let power-hungry bitcoin miners plug into his country’s volcanic resources.
He further pledged: “This is going to evolve fast!”
Final Argument for Bitcoin: Comparison with traditional finance and gold mining
A survey released by Galaxy Digital compares Bitcoin’s use of energy to the use of banks and gold mining. According to the document, the gold industry uses 240.61 TWh per year, while the banking system uses 263.72 TWh. Therefore, in absolute energy consumption terms, bitcoin would win. However, since we have established that bitcoin energy consumption is renewable, we do not need to worry about the per-transaction energy cost associated with bitcoin. Moreover, this energy consumption is becoming increasingly sustainable.
Having said that, bitcoin has far more benefits than traditional finance and gold. To name a few: No third party seizure of bitcoin (since there are large redundant copies of the transactions database), No taxes, No tracking, user autonomy, discretion, peer-to-peer focus, elimination of banking fees and fraud, low transaction costs, and mobile payments.
Furthermore, in addition to being energy efficient, Bitcoin is better than gold as a store of value in the following ways:
- One can transfer it quite easily across the world in minutes 24/7
- It has no storage costs meaning, unlike gold bullion that must be secured in a safe environment (at a cost to the owner), bitcoin can freely reside on a digital wallet
- Its supply will always be capped at 21 million bitcoins.
- Gold supply generally increases by about 2% per year — if gold continues to increase in value, new mining activities could further increase supply per year
It is clear that Bitcoin’s energy consumption is not as relevant as it’s said to be when compared with global energy production and waste. It is thus unfair to accuse Bitcoin or miners of degrading the environment while turning a blind eye to the other 99.54% of the energy generated.
Bitcoin is open and can go to the ends of the Earth, regardless of limitations or prohibitions imposed by third parties.
It is important to remember that this cryptocurrency was created to provide a dignified life to ordinary and underprivileged individuals, to prevent the depreciation of money, to guarantee purchasing power, and to improve the quality of life. The benefits outway the costs by a huge margin.
Aditya Gite, Research Analyst at Moving