Bitcoin has a PR problem on its hands. Environmental experts and climate scientists have started raising concerns about the popular cryptocurrency as Bitcoin mining uses a tremendous amount of electricity. This high energy usage, much of it from dirty sources, is contributing to CO2 emissions.
Now more than ever, there is a heightened public awareness around environmental issues. Public policy action may be next if the carbon footprint of mining operations is not reduced.
What Is Bitcoin?
Bitcoin is the most popular cryptocurrency. Cryptocurrency is an emerging form of currency, that exists digitally. There is no physical form, like with the Euro or U.S. dollar. Cryptocurrency is not controlled by any government or single authority. Instead, cryptocurrency operates based on a decentralized structure, kept secure with blockchain technology.
Blockchain and crypto has developed together, but blockchain has expanded into other areas. Records of transactions are available on the public blockchain network. Security of transactions is protected with encryption. And each transaction builds upon the last. In this way, if there is any malicious activity or attempts to change transaction data, it will be obvious.
How Is Bitcoin Harmful?
Part of the security inherent with Bitcoin comes from cryptography and consensus protocols. Bitcoin uses a Proof of Work consensus protocol. Each transaction that occurs, is stored on a block on the blockchain. Once verified, it is permanently recorded on the distributed ledger, or blockchain.
Proof of Work requires identification of the next hash, to verify the transaction. This is where the issue with Bitcoin begins. Bitcoin mining, describe the process of creating new blocks. Creating new blocks is energy intensive.
Bitcoin miners set up ‘mining rigs’, a basic computer with a graphics processing unit. Bitcoin mining does not involve complex mathematical equations. Instead, miners are trying to guess a 64-hexadecimal number, or hash. When a miner mines a block, they earn a Bitcoin, whose value at this point is $43,000.
The Energy Expenditure
The computing power needed to make these many guesses, means high energy usage. At current estimates, a single Bitcoin transaction, requires 2,300 kilowatt-hours of electricity. The average annual energy consumption for a house in Europe, is 1.3 toe or 15,000 kilowatt-hours. Verification of only 7 Bitcoin transactions exceeds the average annual energy consumption.
Increasing press coverage has highlighted the energy and environmental impact of this cryptocurrency. If Bitcoin was a country, it would rank 30th in the world for energy use. Bitcoin uses 142 terawatt hours (TWh) a year. That is higher than the annual energy use of Norway, Argentina, and the Netherlands. Energy expenditure for Bitcoin will continue to grow, year over year.
Why Can’t Bitcoin Use Green Energy?
The primary issue with the Bitcoin energy usage is the CO2 emissions. Electricity provided by coal-powered and natural gas is much dirtier. Europe has started to work in earnest to reduce their global carbon footprint. Bitcoin has risen to contribute to this issue.
Energy consumption itself is not environmentally unfriendly. The source of electricity generation that is the problem. Limiting the environmental impact is possible by using green energy sources. Wind, solar, hydroelectric, and geothermal are common options. Bitcoin is contributing 57 million tons of carbon to the atmosphere each year.
This solution isn’t so easy for Bitcoin. Bitcoin is a decentralized monetary system. There is no central authority and thus no control over Bitcoin miners.
Bitcoin miners already operated in areas where green energy sources were available. Green energy is cheaper, and power bills were already high. For example, 46% of mining used renewable hydroelectric power is available. When China banned cryptocurrencies, miners had to move. Many ended up operating in areas without reduced access to green energy sources. By fall of 2021, the percentage of mining operations that use renewable energy had fallen to 25%.
Solutions To Bitcoin’s Energy Usage?
Bitcoin, by design, is inefficient. Bitcoin will continue to get more and more inefficient to mine. Mining of the last Bitcoin won’t occur until 2140. It’s unlikely that Bitcoin will ever switch to a more efficient consensus mechanism. Proof of Stake does not match the infrastructure of Bitcoin and mining.
Bitcoin’s future may depend on the ability to reduce Bitcoin’s carbon footprint. Countries may provide incentives for Bitcoin miners to choose green energy sources. Or, countries can penalize Bitcoin mining ventures using dirty energy sources.
Climate activists may be happy with recent news in the Bitcoin community. Compass Mining is creating solutions for a greener electricity grid. Compass mining will supply Bitcoin miners with a carbon-neutral energy from their microreactors. These kinds of capital investments are common and grow by the day.