Is Bitcoin really that bad for the environment?
Is Bitcoin really that bad for the environment?
A comparison between Bitcoin and the traditional banking system
Cryptocurrencies are notorious for their volatility and that has been one of the issues that have limited their mass adoption as global currencies. It’s not easy to accept payment in a currency that could lose almost half its value in a matter of days just because one guy said something in one tweet. Namely, Elon Musk tweeted that Tesla would no longer be accepting Bitcoin as a payment method because of the cryptocurrency’s negative environmental impact.
But in this article we’re not going to talk about volatility or any of the other issues that are slowing down mass adoption. Instead we’re going to get into the issue that tweet was all about: the environment.
What Musk was referring to is the amount of energy spent on Bitcoin mining and that a lot of that energy comes from coal. While there’s no doubt that coal-based production of electricity emits a lot of greenhouse gases, let’s take a closer look at Bitcoin’s energy and environmental costs, compared to those of traditional banking.
Bitcoin’s use of energy:
There’s no question that Bitcoin and other proof-of-work cryptocurrencies can use a lot of power. Some people have said that it has a high energy cost per transaction, but that’s not entirely accurate. Sending or receiving Bitcoin doesn’t really require that much electricity; you can easily do it from your phone. But the computers that validate transaction blocks do consume quite a bit. These are the Bitcoin miners that a lot of people talk about. There are mining centers all over the world with whole warehouses of these specialized computers working to solve the cryptographic puzzles that are at the core of the blockchain. Bitcoin mining is what actually consumes a lot of power.
It has been estimated that global Bitcoin mining consumes about 127 TWh (terawatt-hours) of electricity, or about 0.6% of the world’s total yearly energy production. If Bitcoin were a country, it would rank 28th in power consumption. Right above Argentina and behind Ukraine.
While that certainly is a lot of power, it’s not all about how much electricity you use. You also have to take into account where that energy is coming from; whether it’s from fossil fuels or renewable energy sources.
Studies have shown that, globally, about 40% of Bitcoin mining uses renewable energy sources, like solar, aeolic or, mainly hydroelectric. And depending on the region, that percentage can be even higher. In Iceland, for example, almost all large mining facilities use clean geothermal energy. Europe, the US, Latin America and most of Asia use hydroelectric power for at least 60% of their Bitcoin mining. All in all, while there is room for improvement, Bitcoin mining isn’t really that bad for the environment as some people think. Most of the power is coming from renewable energy sources instead of coal.
The Banking System’s use of Energy:
Figuring out how much energy the traditional banking system uses is a lot more complicated because there are different energy requirements for different activities. But the three main energy spenders would be servers, branch offices and ATMs. And branch offices can vary wildly in size and power requirements. One branch office in my home city is basically a tiny room where five people work: the office manager, one customer service rep, two tellers and one security guard. Other offices are, of course, much larger. One study from a few years ago, using numbers and estimates from the World Bank, estimated that the traditional banking system uses about 140 TWh of electricity. While there is no breakup of this energy into renewable or non-renewable sources, we could assume that the percentage is similar to that of Bitcoin’s. But the main takeaway here is that Bitcoin is actually using less power than the traditional banking system and is likely more environmentally friendly as well.
Wrapping it up
Bitcoin mining uses a considerable amount of power. Placing its power consumption higher than a country like Argentina, with a population of over 45 million people, is not to be neglected. But the truth is that most Bitcoin miners are using renewable energy sources instead of fossil fuels and are thus a lot greener than many people give them credit for. There’s also the fact that the traditional banking system is using even more electricity than Bitcoin, so the latter has less of a negative environmental impact than the former. Besides, for the more environmentally conscious people out there, those high energy requirements aren’t an issue with all cryptocurrencies. Early proof-of-work blockchains like Bitcoin and Ethereum are based on mining and power usage actually increases as more miners become involved in the process. But newer-generation blockchains based on delegated Proof-of-Stake consensus like EOS have no mining, so their energy requirements are a lot lower and more environmentally friendly.
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I feel compelled to reframe the argument as "is energy consumption really that bad for the environment?" to which the answer is yes. Bitcoin is an idealist revolution and hopefully worth the sacrifice.
I wonder if those World Bank numbers took into account the creation of physical currency, or if that was even considered as a part of the environmental impact during their study. I imagine it is a resource and energy intensive process, getting those metals out of the ground and pressed into the change we find in our pocket. And paper/plastic bills too, those can't be easy to print either.
But on the flip side, what about the materials/energy involved in making the machines that validate transactions? I mean sure you get an end product that is more useful, but most of the devices found in mining facilities aren't used for anything else. It's not like running Nicehash on your 1070ti on your old rig while you surf Writer.io casually on the side (who does that).