Bill Gates hailed Bitcoin as a “technological tour de force” while Peter Thiel, the co-founder of PayPal, said that it “has the potential to do something like change the world.”
Not everybody is as gushing with praise. Billionaire investor, Warren Buffett, said that it is a “delusion” because it has no “unique value” and also described it as “rat poison squared”. After being gifted approximately $2,000 of Bitcoin, gold investor Peter Schiff described how he lost it all when his Bitcoin wallet became corrupted, saying “crypto was my worst investment because I lost 100%.”
However, Bitcoin’s lack of intrinsic value, the ease with which it can be lost, its lack of regulation, and its price volatility are not the only aspects of digital gold that have been criticised. Estimates have suggested that the total energy consumed to send and receive money is more than 19 European countries and approximately 0.7% of total energy consumption in the USA.
The energy consumption figures do not stack up favourably when compared to traditional currencies and payment methods, either. However, more recent reports suggest that the figures have been grossly over-estimated, so what is the truth? Is Bitcoin bad for the environment and is this a good reason to avoid using it?
What is Bitcoin?
At its simplest, Bitcoin is a digital currency. It was created in 2009 by the anonymous programmer, Satoshi Nakamoto, and was designed to make it easier to transfer wealth from one party to another regardless of their geographical location. It was also meant as a means of transferring money without the involvement of central banks which, according to the Bitcoin whitepaper, are capable of devaluing currency. Because Bitcoin is purely digital, and no notes or coins can be printed to denote the value of the digital currency, it does not require any energy in the traditional sense.
Bitcoin itself is not bad for the environment because it is not a physical product. No trees are chopped down to manufacture the currency, and it does not require the manufacture of plastic for notes. It isn’t even necessary to mine the finite supplies of gold and other precious metals that are used in most modern currencies. However, large amounts of energy are required to conduct the process of mining, which is an integral part of the Bitcoin transaction process.
What is Bitcoin mining?
Miners use computer hardware and, often, entire server farms to complete complex mathematical equations. This enables the miner to verify a transaction on blockchain and a transaction cannot be completed until the miner has done their job. For their part in the equation, miners receive a portion of Bitcoin for every transaction verified.
The problem with this process, from an environmental point of view, is that the verifications require a lot of processing power. Mining rigs are powerful computers and are known to run hot. Even the latest iterations of these computers are still power-hungry.
Verifying Bitcoin transactions
Verifying transactions uses electricity. The cost of this electricity is borne by the miner, so it is no surprise that they have improved the hardware used for the process, creating increasingly more powerful machines. Furthermore, with every halving event, when the reward for mining is halved, miners are being forced to either process more transactions per unit of electricity, or reduce the amount of electricity required to mine a single block.
Increasing computational requirements
Unfortunately, Bitcoin is in finite supply, and the computational algorithms required to confirm a transaction become increasingly difficult with every block that is mined. The more complex the calculation, the more power required to mine a block, so the energy requirements for Bitcoin mining will continue to grow.
Cheap energy means dirty energy
It isn’t just the power of the computer that determines the financial efficacy of mining. Those that live in areas where electricity has a high cost will find it difficult to turn a profit. As such, the majority of mining is conducted in countries where electricity is cheap: countries like China. Unfortunately, cheap electricity tends to mean dirty electricity.
Recent estimates suggest that China’s energy system is still primarily powered by coal – in fact, nearly 50% of the country’s electricity is generated using coal. The country is the world’s largest coal producer and, while their renewable energy production has increased greatly in recent years, the majority of Bitcoin mining done in the country is reliant on fossil fuels.
Green alternatives to Bitcoin
It is worth noting that Bitcoin is just one of more than a thousand different cryptocurrencies, and each one has its own mining and energy requirements.
A portion of Ven’s overall value (7% at the last estimate) is backed by carbon credits.
BitGreen, which was once known as Bitcoin Green, claims to be a “scalable and sustainable alternative” to Bitcoin and utilises a new proof-of-stake model. This model means that miners can use existing coins to gain credit, thereby reducing the need to “prove” transactions and cutting energy consumption. BitGreen is yet to take off, but if concerns over energy consumption persist, it could enjoy a bright future.
Green alternatives to traditional Bitcoin mining
It isn’t just cryptocurrencies themselves that are making changes. Some mining companies are getting in on the act, too. Miners make more profit if they spend less on electricity so some are making the move away from expensive fossil fuels and towards renewable energy such as solar and wind power. Once the mining company has paid for the solar panels, turbines, and other equipment, their energy expenditure is greatly reduced.
A mining company called VenusEnergy is looking to mine cryptocurrencies using energy from renewable sources including windmills and solar panels.
Another miner set up his entire mining operation in the desert. Typically, miners want to operate from cool climates because this helps minimise the temperature of the mining farm which, in turn, keeps running costs down. However, one big advantage of running a farm in the desert is access to the sun. The miner reported having 24 ASICS (the powerful rigs with the hardware required to mine cryptocurrency), all mining Bitcoin, and said that his operation is going that well that he plans to expand to 1,000 machines all mining the popular cryptocurrency.
Current energy consumption levels
One analyst predicted that Bitcoin uses roughly 25 Terawatt hours per annum, sometimes more. This, according to the report, is the equivalent of the entire energy consumption of Morocco and higher than the consumption of 19 different European countries. A single transaction uses as much energy as one household uses in a week, with more than 300,000 transactions conducted every day.
A group of scientists, funded by the Independent Research Fund Denmark, found that Bitcoin mining not only uses 31.3 Terawatt hours of electricity a year, but produces 17.3 megatons of carbon dioxide during the same period.
Others, however, have predicted a figure closer to 5Twh.
Bitcoin is, by its very nature, anonymous, which means that it is virtually impossible to determine who is mining the cryptocurrency, where they are based, the hardware they are using, or even their preferred source of electricity, so all figures used are speculative in nature.
Is it the fault of miners at all?
What’s more, proponents of cryptocurrency argue that it is not their fault that the electricity they consume comes from non-renewable energy sources. This is down to the governments and local authorities that choose coal-powered plants and other fossil fuel powered electricity production. Where renewable energy sources are available, and where they offer a financially viable mining solution, miners often use them.
Traditional payment processors
The numbers are not favourable when compared to traditional forms of payment either. Digiconomist, who gave the 25Twh estimate, states that a single Bitcoin transaction uses more than 500,000 times more electricity than a Visa transaction, even taking into account the massive number of employees that work for the payment intermediator.
Because the average Bitcoin transaction is vastly higher in monetary terms than the average Visa transaction, however, it works out that Bitcoin uses 5 times more energy for every dollar sent, when compared to Visa: still a much higher level, but not as alarming as at first glance.
Making changes to reduce energy consumption
Whether it’s through off-setting, setting up mining farms in areas that offer renewable energy sources, or installing and using renewable energy technologies like windmills and solar panels, it is reasonable to state that changes are needed to make cryptocurrency a more environmentally friendly and ecologically sound technology.
Some miners will continue to use dirty energy to power their rigs, but others are already looking for innovative and sustainable methods of producing the power they need. Governments also need to play their part, by moving from fossil fuels to renewable sources.
How to stay green while investing in cryptocurrency
If you are looking to invest in cryptocurrency and are worried about the environmental impact, look into currencies like VEN, which claims to have protected more than 25,000 acres of Amazon rainforest already, and if you are considering mining cryptocurrency as a means of making money, ensure that you use energy efficient machines and that your rig or farm is set up to use as little energy (preferably renewable) as possible. You can also lobby governments and energy companies to offer renewable energy sources over fossil fuels.
Resources:
https://www.motherjones.com/environment/2017/12/climatedesk-bitcoin-is-really-bad-for-the-environment/
http://www.digitaljournal.com/tech-and-science/technology/just-how-bad-for-the-environment-is-bitcoin-mining/article/562377
https://www.cato.org/blog/why-bitcoin-not-environmental-catastrophe
https://environment-review.yale.edu/how-can-we-reduce-bitcoin-pollution-0
https://www.cbsnews.com/news/how-is-bitcoin-affecting-the-environment/
https://www.kitco.com/news/2020-01-21/-I-lost-all-the-bitcoin-I-ever-owned-Peter-Schiff-tells-Kitco-News.html
https://www.investopedia.com/news/solarpowered-cryptocurrency-mining-next-big-thing/
https://themerkle.com/will-mining-cryptocurrency-in-the-desert-using-solar-power-make-you-rich/
https://earth911.com/eco-tech/eco-friendly-digital-currencies/
http://www.ven.vc/
https://bitg.org/
https://venusenergy.io/