Why Bitcoin Mining is so unpopular with environmentalists
A recent study by Cambridge University has found that bitcoin mining requires more energy annually than Argentina. This has provoked criticism of the cryptocurrency from environmentalists who question the value of such high energy usage. But is bitcoin really as bad for the environment as people are saying? Let’s take a closer look at the environmental impact of bitcoin mining.
What is bitcoin?
Bitcoin, often described as a cryptocurrency or digital currency, is a type of money that is completely virtual. You can think of it like an online version of cash. Although not many shops accept it currently, you can use it to buy products and services. For example, PayPal announced last year that they would be allowing their customers to buy and sell bitcoin.
The value of bitcoin has increased rapidly over the last year, partly due to interest in the currency from major Wall Street institutions, including JPMorgan and Goldman Sachs, as well as (celebrity) endorsement from Elon Musk. When Tesla announced recently that it had bought $1.5 billion worth of bitcoin and planned to accept future payment in the currency, the value of bitcoin rocked to a record $48,000.
What is bitcoin mining?
Bitcoin mining is a way of earning bitcoin, which involves computers solving a highly complex series of algorithms. Miners verify transactions made by people who send or receive bitcoin, solving puzzles to ensure no one is fraudulently editing the global record of transactions. As a reward, they receive bitcoin.
This process is extremely energy intensive and often compared to a lottery, with whoever can solve the algorithms quickest earning bitcoin. To increase their chances of earning the currency, miners often connect multiple computers, even whole warehouses to the network.
So why does bitcoin mining require so much energy?
The energy consumption of bitcoin
When bitcoin was first started (nobody knows by whom) in 2009, you could mine bitcoin on a normal computer like you or I might have in our homes. But the way bitcoin has been designed, there is only a finite amount of bitcoin in existence: 21 million to be precise. This means that the more the currency is mined, the harder the algorithms become that must be solved for successful mining. This requires more and more computer processing power.
According to one study, the computer processing power required for Bitcoin mining quadrupled between 2018-2019.
To date, over 18.5 million bitcoin have been mined, with the result that your average computer is no longer powerful enough to solve the algorithms required for bitcoin mining. Instead, people are investing in special computer equipment that has a much greater processing power. And as you’ve probably guessed, these computers burn through a lot of electricity. As the competition for currency becomes fiercer, more energy will be required, and bitcoin’s environmental impact will become exponentially worse.
Currently, Cambridge researchers estimate that the mining process uses around 121.36 terawatt-hours (TWh) of electricity per year.
Bitcoin uses as much energy as Argentina
According to The Cambridge Bitcoin Electricity Consumption Index, the energy used to create bitcoin is equivalent to the annual carbon footprint of Argentina.
This has brought bitcoin into the firing line for its environmental footprint. Many people believe bitcoin is wasteful of energy and the cause of immense environmental damage.
If bitcoin were a country, it would be in the top 30 energy users worldwide. To take an equivalent from everyday life, the energy bitcoin uses could power all kettles in the UK for 27 years according to Cambridge’s research.
The environmental consequences of bitcoin
Bitcoin miners tend to flock to places where energy is cheapest, to power their computers. This often means places that use coal, which remains the cheapest form of energy in many parts of the world. The impact of bitcoin is exacerbated by the fact that most of its miners are based in China, where over two thirds of power comes from burning coal.
There is currently no system in place to track where bitcoin is being mined and which energy source miners are using. This means there is no guarantee that they are using fossil fuels or renewables. Miners frequently move around to follow cheap energy, meaning it is hard to keep tabs on where they are, particularly since there is no requirement to declare bitcoin mining activities.
Many people have noted the discrepancy between Tesla’s previous environmental stance and Elon Musk’s recent investment in bitcoin. So what do supporters of bitcoin have to say in defence of the cryptocurrency?
Is bitcoin actually that bad for the planet?
The answer depends a lot on where the cryptocurrency mining is taking place.
Defenders of bitcoin propose that mining can be done with energy from renewable sources, which is becoming cheaper than fossil fuels and are better for the environment.
And this is already happening. There are some instances of eco-friendly mining solutions popping up around the world. For example in Iceland and Norway, whose energy is nearly 100% renewable, cryptocurrency miners’ machines are running on hydro-electric and geothermal energy. The naturally low temperatures of the countries also helps to keep the computer servers cool with less need for air conditioning which adds to energy usage.
In Quebec, Canada, 95% of electricity comes from hydroelectric power, and electricity prices here are low. Consequently, the country’s carbon footprint remains low and so has a less negative environmental impact.
With renewable energy set to become increasingly more cost-efficient than fossil fuels, it is hoped that more miners will be incentivised by lower prices to use electricity from renewables to power their computers.
Bitcoin uses ‘waste’ energy
This is another argument frequently made in defence of bitcoin. People maintain that bitcoin is a way of using energy that would otherwise be wasted. For example, in Sichuan, there is an overcapacity of power due to the Three Gorges Dam. Here, miners can come and take advantage of the excess power which would otherwise go unused.
What’s really at question here is whether bitcoin is or will be in the future a valuable addition to our society.
Don Wyper, COO of DigitalMint, questions the findings of the Cambridge University study: “If bitcoin can become the digital currency it was initially envisioned, we’ll need to consider all the electricity consumed via currency creation, destruction, transmittance, securitisation, loss etc. I personally believe climate change is one of the most important issues in our world today, but people who say bitcoin will lead to even more environmental destruction don’t understand that bitcoin is actually acting as an accelerant to helping our environment.”
His argument is rooted in the observation that increased use of Bitcoin will reduce paper pollution and other polluting activities associated with fiat currency (government regulated money) like printing money, fraud services, and people overseeing its allocation.
Defenders of bitcoin also maintain that the environmental costs that come with mining bitcoin are worth the potential benefits for society. However, it’s worth asking: benefits for who exactly? The vast majority of the world’s population will never have access to bitcoin, but they will be affected by climate change, to which the vast energy consumption of bitcoin undoubtedly contributes.
Are there any alternatives?
The second most popular type of cryptocurrency: Ethereum, has proposed to change their currency’s algorithm to make its mining more environmentally friendly. Currently, ethereum’s mining, like bitcoin, operates on the basis that the most powerful computers are most likely to mine cryptocurrency successfully, as they can complete the required algorithms quicker.
However, ethereum’s developers are working on a randomised process where miners enter a pool and are selected to complete the transaction, meaning it wouldn’t just be a case of the most powerful computer winning. In theory, this will reduce electricity consumption by removing the incentive to have a more energy intensive computer.
But for now bitcoin is still by far the dominant cryptocurrency, meaning the currency’s environmental impact is only likely to increase, especially as it receives more investment.
A carbon tax on cryptocurrencies has also been suggested to balance out some of the negative consumption. But so far this has not materialized, and does not solve the problem, but would serve to make bitcoin even more inaccessible to everyone except the uber-rich.
For all governments, corporations and individuals investing in bitcoin, serious reflection is needed on how bitcoin will interfere with their carbon footprint reduction goals.