As bitcoin has become increasingly popular, questions about how it works have naturally arisen among both investors and the general public. One of those questions is about the potential environmental impact of mining, which is the process that the blockchain uses to generate new bitcoins and verify transactions.
First, a basic fact: Bitcoin mining is a very energy-intensive process. there is no debate on that. as prices rise, new miners are incentivized to participate, increasing energy consumption (at least until the next halving, when the number of new bitcoins issued will be halved).
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But unraveling the real environmental impacts of that energy use is, like many things, complicated. In this post, we’ll take a look at some of the top concerns that are often raised, and see how much truth there is to them.
According to the best available science, this is simply not true. while bitcoin’s energy consumption is significant, that does not automatically equate to it being a significant driver of climate change. To understand why, it helps to know a little about how mining works.
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Mining is the process that bitcoin and some other cryptocurrencies use to generate new coins and verify new transactions. Vast decentralized networks of computers around the world secure blockchains (the virtual ledgers that document cryptocurrency transactions). In exchange for contributing their processing power, miners are rewarded with new coins. it’s a virtuous cycle: the miners maintain and secure the blockchain, the blockchain grants the coins, and the coins provide an incentive for the miners to maintain the blockchain.
In April, there was a flurry of headlines warning that emissions from bitcoin mining in China could spiral global warming out of control. but the report on which these articles were based was deeply flawed. The numbers were derived from the fuel mix used by China as a whole, not the actual energy mix used by miners. Because much of China’s power grid runs on coal, these researchers assumed that bitcoin must be similarly dependent on coal. here’s why that’s inaccurate:
the facts:
- miners are encouraged to find the cheapest energy sources available. that usually means excess energy (electricity that would otherwise be wasted) and/or sustainable energy, the price of which is plummeting.
- half of the world’s mining takes place in sichuan, china, where the excess hydropower allows mining to be powered by 95% renewable energy.
- 75% of miners already use renewable energy as part of their energy mix.
- most Important of all, the researchers behind the Cambridge Bitcoin Index’s electricity consumption have concluded that “Bitcoin’s environmental footprint currently remains marginal at best.”
As both crypto and green energy technology mature, the reverse scenario seems more likely. bitcoin miners have incentives to go where energy is cheaper. While that may mean some use of fossil fuels, the best way for miners to maximize their profits is to find places with oversupply. in fact, bitcoin is exceptionally well positioned to help make renewable energy cheaper and more accessible to all:
the facts:
- Renewable energy sources tend to be in oversupply. when the grid cannot support that energy supply, energy is wasted.
- natural gas producers use a process called “flaring” to simply burn excess production, harming the environment and not benefiting to nobody. bitcoin can convert this excess energy into value with no net increase in emissions.
- By placing mining operations in the green energy source, utilities can monetize their excess supply. in fact, at least one publicly traded energy company has explored directly engaging in mining to capture value from excess supply that can be used to build sustainable energy operations.
- by ensuring viable markets for renewable energy, bitcoin incentivizes companies to build more green infrastructure, further lowering the price of clean energy. this virtuous circle can actually contribute to the fight against climate change.
Many of the most alarming headlines stem from a basic lack of understanding of how bitcoin works. You might hear startling claims like “Bitcoin would require 14 times the world’s total electricity just to process the one billion credit card transactions that take place every day.” these numbers tend to come from combining the energy cost of mining bitcoin with the cost of transactions.
the facts:
- Power consumption comes mainly from mining blocks on the blockchain, not from transactions. (The “mining” process accomplishes multiple goals, including generating new bitcoins and verifying new transactions, but the main function of mining, as the name suggests, is to generate new bitcoins.)
- the energy spent is per block, not per transaction. As tools (such as batch processing, segwit, and lightning network) allow parties to aggregate more transactions per block, energy costs per transaction will decrease.
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Because bitcoin is relatively new, the idea that it consumes as much energy as a country like Norway might seem shocking. But consider this: Norway’s GDP is around $400 billion. the total economic value that bitcoin secures (its market capitalization) has reached $1 trillion. It’s not easy to make a direct comparison, but the important thing to remember is that everything uses energy. Whether or not that energy use is considered justified depends largely on the value that is derived from the use of the resources. And by that measure, bitcoin is a substantially more efficient user of resources than many industries. here’s some perspective:
the facts:
- The energy wasted by home devices turned on but idle each year in the us alone. uu. could power bitcoin mining for 1.5 years.
- bitcoin has been found to consume much less than other financial systems: half of the gold mining industry and less than a fifth of bank branches and ATMs.
As the largest cryptocurrency, bitcoin is often treated as a proxy for the entire crypto space. this ignores the upgrade currently being made by the second largest cryptocurrency, ethereum. the eth2 upgrade is designed to make a wide range of economic activities, from lending and saving to minting nfts, greener, cheaper, and faster.
Similarly, newer cryptocurrencies like Cardano are designed from the bottom up with sustainability in mind.
And when it comes to mining, major stakeholders in the space are actively incentivizing sustainable energy sourcing in a number of ways, including launching earlier this year the crypto climate deal, which aims to reach 100% sustainable. energy production by 2025.
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the facts:
- Elon Musk, who recently tweeted that Tesla would discontinue accepting Bitcoin as payment over fossil fuel issues, met with North America’s largest mining companies (including Argo Blockchain, Hive Blockchain, and Riot Blockchain) on May 23. Following the meeting, the mining companies announced the formation of the bitcoin mining council, a consortium that aims to accelerate the adoption of sustainable energy mining around the world.
- ethereum is currently in an upgrade that is moving higher cryptocurrency by market cap from a mining-based system to a more energy-efficient system called proof-of-stake. many cryptocurrencies already use proof-of-stake.
- square recently announced a $10 million bitcoin clean energy investment initiative to promote the use of clean energy in bitcoin mining.
- just in the last week or so, several major mining companies announced green initiatives: greenidge generation holdings said its new york bitcoin mining operation would be carbon neutral on June 1 and argo blockchain announced new operations in canada using mostly energy hydro.
- argo also recently joined mining company dmg blockchain in the crypto climate agreement (cca). the cca is an initiative launched by the private sector that is committed to helping the mining industry transition to 100% sustainable energy production by 2025 and net zero carbon emissions by 2040.
- coinbase ventures recently invested in crusoe energy: a company that harnesses excess flare energy from natural gas producers for crypto mining and other productive uses.
