Let’s have a look at the truth about Bitcoin energy consumption and carbon footprint impact.
1. Bitcoin is “not a great climate thing”:
On the one side Sustainability is becoming a critical aspect of our every day decisions. On the other side, the consensus mechanism called proof-of-work (PoW) used to mine Bitcoin and other cryptocurrencies consumes a lot of electricity. Each Bitcoin transaction performed on Bitcoin blockchain consumes about 750 kWh, which is equivalent to 25 days of power consumption of an average U.S. household. The amount of energy Bitcoin consumes can be calculated by adding the total of the energy consumption of all the mining machines and nodes that secure the network. A current estimatation of Bitcoin electicity consumption would equal the average energy consumption of 10 million people.
As would say Bill Gates about Bitcoin,
It’s not a great climate thing. There is no doubt about it in term of environmental cost.
According to the University of Cambridge Bitcoin Electricity Consumption Index, Bitcoin takes up more electricity than the entirety of Argentina.
In the same vein, the current annual carbon emissions from the electricity generated to mine and process the cryptocurrency equal the amount emitted by New Zealand or Argentina.
As bitcoin is most likely a better technology for performing central banking than the current government monopolies on central banking, shall we put things into perspective?
2. Is Bitcoin that bad ?
2.1. Bitcoin relatively to other sectors
The energy used in Bitcoin production is low in comparison to other sectors:
The industrial sector uses a huge 45% of global energy, with building and transport taking up 29 percent and 21 percent respectively. By comparison, Bitcoin consumed a mere 0.51%.
The banking sector itself, if we consider the banking system’s branches and ATMs, in addition to cotton, plastic, and metal for manufacture of notes and coins, can be estimated to consume 750 TWh of energy, and produce about 400 Mt of CO2 produced. Bitcoin consumes around 120 TWh each year in comparison and has a carbon footprint of nearly 40 Mt of CO2 a year (therefore 10 times less and comparable to nearly 800,000 VISA transactions).
Gold: In 2020, 3,500 tons of gold were mined. According to a study from DePaul, the gold mining industry totals to 265 TWh of energy used and 145 Mt of CO2 produced. More than triple the numbers related to bitcoin’s footprint.
A World Gold Council (WGC) report highlighted the need for gold sector emissions to fall by 80 percent by 2050 in order to meet the guidelines set out in the Paris Climate Agreement. What about bitcoin and green energy?
2.2. Green energy is already the preferred source for bitcoin miners
While 2018 reports were stating that only 28% of energy used in mining was renewable, latest study showed has an improvement with over 55% of cryptocurrency miners using electricity from renewable sources.
Bitcoin mining is nowadays mainly powered by hydroelectric power. Since fossil fuels are already too expensive to be a profitable source of Bitcoin mining energy, miners have privileged green energy. This has been facilitated by satellites and wireless internet connections, enabling Bitcoin mining to be located anywhere. Crypto miners are even using excess electricity that we could argue would be wasted otherwise. Research shows that crypto mining tend to be located in regions where electricity is cheap, meaning there is an oversupply of electricity relative to local demand.
Another recent from coinshares estimates the approximate percentage of renewable power generation in the Bitcoin mining energy mix to stand at 73%. In fact, as Bitcoin finances the for-profit development of cheap, clean energy infrastructure on a massive scale, Bitcoin may also represent the biggest catalyst the world has ever known for developing abundant, clean, cheap energy. Lastly, miners are even developing ways to transfer the heat into homes in their local communities.
2.3. From proof-of-work to proof-of-stake, and other side chain use
More and more cryptocurrencies (or the latest cryptocurrencies) are using other consensus mechanisms (e.g. proof-of-stake) that are much more environmentally friendly. The best example is Ethereum which transitions from proof of work to proof of stake with Ethereum 2.0. Regarding Bitcoin, while mining or sending transactions consumes electricity, the process of holding Bitcoin does not, and it is possible to use side chain such as lightning network to increase the number of transactions for an equivalent energy consumption. Finally, Bitcoin may consume as much electricity as the country of Ukraine, but it is important to mention that Ukraine has a GDP of around US$150 billion, whereas Bitcoin has a market cap over $1 trillion.
What is your views about Bitcoin and its environmental impact going forward?
Overall, the pressure is on to make Bitcoin even greener. Square’s CEO, Jack Dorsey, whose company is holding bitcoin, has pledged $10 million to invest to support more sustainable way of mining Bitcoin. And it is only the beginning!