Pretty much everyone between the age 16 and 50 have by now heard of Bitcoin, the so-called replacer of the monetary system as we know it. While it’s proponents such as a limited supply, decentralisation, and transparency are interesting on it’s own, in this blog I will delve into the ecological implications of the Bitcoin network. Many state that the digital currency is a massive polluter, and should be banned because of rising climate concerns, while others do not share this concern. Why is this the case?
Bitcoin, like any other product/service requires energy to function. In this case, a lot of energy. 150 terawatt-hours of electricity per year to be exact. To put things into perspective: the Netherlands uses approximately 120 terawatt-hours per year. The reason why the bitcoin network consumes such large amounts of energy is because of the way the blockchain network works. The network needs miners who use powerful hardware such as computers to verify and validate transactions on the bitcoin network, as it uses a proof-of-work (PoW) concept. Elon Musk, who was once responsible for one of the first major companies (Tesla) to accept Bitcoin as a means of payment. However, supposedly after accepting it, retracted the option as Bitcoin’s electricity consumption concerns grew by the public. Every year, Bitcoin’s electricity consumption has been growing and this is causing large concerns for the public, consumers, regulators, and investors as global warming is a hot topic (pun intended) nowadays. Clearly, there seems to be a valid argument for the concerns of these stakeholders.
While the previous sections does raise some eyebrows with many people, it lacks some nuance as it does not tell the whole story. For example, Nasdaq researched the energy consumption of bitcoin when compared to gold mining (Bitcoin and gold are often compared due to their similar characteristics). The report shows that bitcoin uses less than half of the energy consumption of gold yearly. Next to that, gold is an extremely destructive industry not only in terms of energy expenditure, but also with regards to human rights (slavery, working conditions, etc.). This shows that Bitcoin is much less “bad” than gold, but this is not necessarily a tremendous accomplishment. However, there is also so more “good” news in Bitcoin’s energy expenditure. This year, the Bitcoin Mining Councel – which consists of the largest bitcoin miners – announced that it has plans to further renewable energy usage by its miners. Cambridge currently estimates that 39 percent of global Bitcoin mining is powered by renewables, mainly hydropower. Globally, the average of renewables in electricity generation is only 25 percent, which means that the Bitcoin network is already heavily outperforming the average.
With some more context, concerns about energy consumptions appear much less critical than before. However, while it is a much better alternative to gold, there are still large, valid concerns about its total energy expenditure. Global warming is real, and is a major topic among pretty much all of society. Therefore, while clean energy consumption is outperforming the market and is expected to rise with the aid of the Bitcoin Mining Council, improving this even further is of essence for the concerns to subside completely.
Sources: https://www.economist.com/graphic-detail/2021/05/14/as-the-price-of-bitcoin-has-climbed-so-has-its-environmental-cost
https://www.banking.senate.gov/hearings/building-a-stronger-financial-system-opportunities-of-a-central-bank-digital-currency
https://www.earthworks.org/campaigns/no-dirty-gold/impacts/#:~:text=Gold%20mining%20is%20one%20of,health%20of%20people%20and%20ecosystems.
https://www.nasdaq.com/articles/how-much-energy-does-bitcoin-really-consume-2021-05-13
https://www.earthworks.org/campaigns/no-dirty-gold/impacts/#:~:text=Gold%20mining%20is%20one%20of,health%20of%20people%20and%20ecosystems.
https://www.bbc.com/news/technology-57240090
https://www.smart-energy.com/renewable-energy/cryptocurrency-mining-and-renewable-energy-friend-or-foe/
Hi Fred,
Very enriching piece of information. I was wondering whether you though about blockchain technology using proof of stake. This form of blockchain is more energy efficient. I know Ethereum migrated from POW to POS and they are very energy efficient at the moment. Besides, have you seen El Salvador mining bitcoin through volcanic energy? Very green and a cool use case. All in all, very positive of this piece of work. Hope you do well in the rest of your master.
Kind regards,
Paulo Bos
Hi Fred, Thank you for posting this very informative post on Bitcoin’s impact on the environment. Bitcoin is a very interesting concept that I personally do not know much about. It was very insightful how you explained blockchain and compared the environmental impact of both Bitcoin and gold. This leaves us as a society with a dilemma of whether or not to ban Bitcoin or maybe cash in general as well? Very interesting and well written post! Best regards, Mia