Bitcoin Vs. The Environment | Are Cryptocurrencies Sustainable?
In recent news, the infamous Elon Musk tweeted out, announcing that Tesla will no longer be accepting bitcoin as payment for Tesla automobiles, citing environmental concerns.
This tweet was likely the earthquake that caused a tsunami to crash over the entire crypto-industry, decimating coin values in its wake. Since his tweet on May 12th, 2021, crypto value dropped nearly 50% on all major coins.
This then begs the questions:
Is this worry of environmental degradation due to the mining justified?
Or is it just plain old market manipulation on the side of Musk and Tesla?
What is bitcoin mining?
First, it’s important to understand the basics of bitcoin mining. "mining" is when computers solve complex problems, in turn, validating transactions, and supporting the decentralized blockchain-based network. The reward for maintaining the network is bitcoin.
Every 10 minutes the entire network holds a competition for whoever’s computer can solve a cryptographic problem, completing a block. The winner is then rewarded with 6 bitcoin while simultaneously supporting the network and verifying the last 10 minutes of transactions. On average, around 2000 transactions are verified per block that is completed. This type of mining is known as a proof of work consensus mechanism (a category where bitcoin, eth, BTC cash, and many more coins fall into). Bitcoin is the #1 most mined coin in the world, although smaller coins have been garnering more attention recently. Notably in Latin America, eth is mined by 63% of hashers.
For this to be profitable for miners, the cost of electricity and other capital must be less than the value of bitcoin. The potentially lucrative business of mining does not come cheap. Depending on the project scope, miners may need to shell out big bucks into setting up their operation. Examining hasher expenditure around the globe, it is common to spend up to 50% of total expenses on high-end mining systems, and another massive chunk on utilities (like energy).
Since these mining processors generate an immense amount of heat, miners generally locate their operations in colder climates with cheap electricity, to reduce the cost of cooling and running their immense systems.
How much energy does bitcoin mining use?
An increasing number of miners are joining the industry every day, meaning that competition is rising for those who can build the most powerful mining computer, further incentivizing increased power usage. This industry is absolutely massive.
According to the Guardian, energy consumption associated with bitcoin equals out to around 280,000 USD every 10 minutes. This is about 2.5x the combined energy usage of apple. Google, Facebook, Amazon, and Microsoft per year. Total energy consumption comes out to around 41M $ of energy per day and 0,1% of the world’s total electricity usage or 120Twh of electricity. With this estimation, bitcoin consumes a similar energy amount as the Netherlands, the Philippines, UAE, or Pakistan.
When compared to the gold mining industry, which consumes about 130thw/year and relies significantly less on renewable energy sources, bitcoin begins to look more viable as a secure, reliable, and efficient store of value.
How much of this energy comes from renewables?
The amount of energy required and the environmental impact associated with cryptocurrency have been an important topic. With Tesla no longer accepting it as a form of payment because of its extreme energy requirements, we are left wondering whether this form of currency will ever make it to the mainstream.
The University of Cambridge recently released its 3rd global crypto-asset benchmarking study, which provides much insight into the mining of crypto and its respective energy usage. The report noted that 76% of miners had renewables as part of their energy mix. It is important to consider that this only means some of their electricity consumed was a product of renewable energy sources.
Digging a little bit deeper, we find that 39% of total energy consumed by Proof of work mining comes from renewable energy sources. Comparing this number to last year’s 29% - it appears significant gains are being made in terms of mining sustainability.
A massive 62% of miners make use of hydroelectric power, coal comes second, then natural gas, wind, solar trailing behind. Hydroelectric is by the far the most used, however, this is partially due to the significance of China in the industry. The oversupply of hydroelectric energy in china’s Sichuan and Yunnan Provinces means there is plenty of power to go around.
Miners from Asia pacific, NA, Latin America use, Europe, use an equal percentage of hydroelectric power compared to other sources. Coal still makes up a huge portion of the Asia Pacific region's energy source. Natural gas, wind, oil, solar, and nuclear make up a smaller portion across the geographic board.
Current numbers by Deutsche bank, Morgan Stanley, and the Chinese national energy agency estimate that these figures could be even higher, at around 78% of Bitcoin's energy consumption coming from renewables.
Unsustainable or Sustainable?
So we know that the industry is largely supported by renewable energy sources, however, there are still many deniers who say that this portion of renewables would be put to better use in another function and the degree of fossil fuels supporting the industry is still too high.
Now, let’s look at some of the common arguments for and against Bitcoin.
The financial incentive of renewables.
This position is based on the idea that miners are incentivized to scour the globe and find the cheapest power to run their miners. The fact is, the cheapest power is currently found where it is produced by renewable energy technologies. Since 2010, the cost of renewables has plummeted in price, with solar and onshore wind costing almost half the price as coal per megawatt-hour.
Almost every type of renewable energy is location-specific, leading to issues of infrastructure. Square’s white paper laid out how they believe crypto mining can actually support adoption. They propose that the advent of mining will allow for the construction of renewable infrastructure, where it would otherwise be not possible. It is expensive to set up a hydroelectric dam in rural areas, but by providing energy to power hungry-miners, investors could begin to recover their expenses almost immediately. In turn, money generated from mining bitcoin would be further invested into renewable tech to decrease the price, creating a positive sustainable feedback loop.
This theory is also supported by Cathie Wood, as quoted on CNBC stating how mining operations could be integrated into a sustainable grid. The excess energy generated from intermittent renewables (eg. solar roofs, wind farms, and more) can be offloaded into bitcoin mining, make the whole system more economic. In turn, increasing the adoption of these types of green positive technologies.
The productivity of intermittent power sources
Another topic of debate is the Productive use of intermittent power sources like solar or wind. these electricities are not always being used, for example, when people are sleeping.
A guest on The Guardian exclaimed, stating that if we are paying for assets being wasted, we are ensuring to keep them stranded. On a surface level, this logic follows, however it does not tell the full story. A bitcoin proponent would refute this point by referring to the nature of renewable energy technologies. whether it be solar, hydroelectric, wind or geothermal, a stranded energy scenario will be created whether we like it or not. Therefore, using this energy to support a blockchain network with the potential of Bitcoin is not wasteful
Yassine from Ark Invest holds this view. Since these methods of energy generation are intermittent with the planet’s cycle, there will always be some which do not have a purpose, and the nature of this attribute of renewables will actually push the adoption of infrastructure like hydroelectric power generation and solar as crypto mining becomes more widespread.
Bitcoin miners using flared natural gas
After recent news came out about a series of miners running off of flared natural gas, detractors of Bitcoin's sustainability quickly voiced their opinions.
The number of American companies mining bitcoin with flared/vented natural gas is on the rise, which on a surface level, appears to be negative. However, taking a closer look, this gas cannot be transported because it is not economical. So miners are setting up rigs near these sites to capture this flared natural gas and use it as power. This is not an ideal long-term solution, however, since we are already refining natural gas, this could even be seen as a net positive from a climate perspective, because the CO2 from the combusted natural gas is less harmful than the otherwise untouched methane which would enter the atmosphere.
Scaling the system
There is often one point a lot of the critics and academic papers get wrong. They assume a standard energy footprint on a per transaction basis and extrapolate this out. However, this is not the right way to understand this phenomenon. 85% of revenue comes from the issuance of new bitcoin, and 80% of Bitcoins have already been mined.
Because of this,
most of the revenue from future miners will accrue from fees associated with using the bitcoin network. So, when determining the sustainability of crypto, it is necessary to consider the impact of scale on efficiency. There is no per-transaction energy cost, and individual transactions do not carry any individual payload. This means that as the network expands, energy usage will continue on a linear trajectory.
What Is The Future of Bitcoin And Other Cryptocurrencies?
With central banks and the Fed beginning to implement their own cryptocurrencies, likely, this technology is not going anywhere. The value proposition of a secure payment infrastructure that allows for the transfer of value without a middleman is incredibly alluring.
But what will this future look like? The experts have their opinions… Likely, we will eventually Transition to less energy-intensive coins. Coins that currently use less energy.
In terms of kilowatt-hours, bitcoin turns out to be one of the worst performers regarding environmental impact. At 707 kW-h extrapolated to a per transaction basis, it uses more than 10x as much electricity as Ethereum, 1300x more electricity per transaction than a proof of stake coin like Cardano, and
6500x more than an energy-conscious coin like IOTA. The per transaction energy cost is skewed towards larger coins, although the discrepancy is still massive, and may lead miners to begin expanding their operation to include a variety of other altcoins. We will also begin to see the emergence of new eco-friendly cryptocurrencies.
TRG Datacenters believes that as awareness of the power-hungry nature of many of the world’s best-known cryptocurrencies continues to grow, we can expect to see some big changes in both the practices of existing currency providers and the development and creation of new blockchain-based currencies. Keep an eye out for more eco-friendly digital currencies on the horizon – ones created with sustainability in mind.
Crypto is going through a difficult time. While a significant number of these coins are mined sustainably, there is still a huge portion that is not, where the work is assigned to regions that may have questionable human rights practices and unsustainable energy production. There is no doubt these forms of digital coins will be part of our future financial system. The question is how? And when will BTC, eth, or DOT be a household name?
We’ll have to wait and see.