The real ecological footprint of Bitcoin

2023-06-01 by Hugues Marty

In the mid-2010s, Bitcoin had gained considerable traction in both financial markets and public consciousness. The concept of a decentralized, purely digital currency governed solely by code and open protocols was gaining popularity. Some viewed it with skepticism, while others hailed it as a revolution akin to the advent of the Internet. Bitcoin became a subject of fascination, intrigue, and concern—it had become an undeniable presence.

Bitcoin and the mining conundrum

The mainstream media began to take notice and started exploring the fundamental aspect of Bitcoin’s operation: mining. The term itself, especially in the context of environmental concerns, evokes fear. And the reality behind it was far from reassuring. Bitcoin transactions were verified and validated through intensive calculations conducted in specialized computer-filled “mining farms.” The entire Bitcoin network and its security relied entirely on these computations—and by extension, electricity. Alarming articles began to emerge.

Media alarm: Bitcoin’s environmental disaster

In 2017, CNN declared, “Bitcoin could become an environmental disaster.” Wired magazine, known for its embrace of technology, also expressed worries about this energy-hungry beast whose “carbon footprint was expanding rapidly.” It even predicted that by July 2019, the Bitcoin network’s electricity consumption would surpass that of the entire United States. Newsweek, a publication renowned for its credibility, went as far as proclaiming that “Bitcoin mining would consume all of the world’s energy by 2020.” These claims were not to be taken lightly.

In January 2018, concerns about Bitcoin’s energy consumption escalated. Some articles claimed that a single Bitcoin transaction required enough energy to power an American household for over eleven days. They lamented the reliance of Bitcoin on coal and predicted that it could consume the same amount of energy as France within a year, and all global electricity by 2020. The media consensus portrayed Bitcoin as an environmental menace, fueled by dirty energy sources.

Questioning the source: Digiconomist and alternative perspectives

However, there was a flaw in this widespread belief. Almost every article on the topic referenced a single source: Digiconomist. This website and its “Bitcoin Energy Consumption Index” provided precise figures on Bitcoin’s ecological impact. Yet, calculating the true energy consumption and environmental footprint of Bitcoin is exceptionally challenging. The network is decentralized, with participants and equipment constantly changing based on profitability and local factors. Thus, accurately measuring the mining’s actual cost is extremely challenging, yielding only rough approximations at best. Nonetheless, the media heavily relies on this website as the primary, if not the only, source for assessing the magnitude of Bitcoin’s energy inefficiency.

However, a few dissenting voices, albeit with limited media coverage, pointed out the inconsistency. Jonathan Koomey, a researcher and lecturer at Stanford University specializing in climate and technology’s environmental impact, criticized Digiconomist’s methodology. He wrote that the site’s approach was completely unreliable, and no credible analyst would use it for energy calculations. Koomey firmly believed that Bitcoin’s impact on global energy demand was minimal, representing only a fraction of the electricity used by data centers. However, despite these counterarguments, the Digiconomist estimates were quickly embraced by many journalists, analysts, and even billionaire investors, perpetuating the perception of Bitcoin as an ecological disaster.

Unraveling the numbers: real data and comparative analysis

In January 2018, however, calculations based on mining computer consumption estimated Bitcoin’s global energy consumption to be within the range of 14 to 27 TWh per year. This figure should be considered against the backdrop of the 26,000 TWh of electricity produced annually worldwide. Similarly, in late 2018, two researchers from Cincinnati published a study in the scientific journal Nature, comparing Bitcoin mining to traditional metal mining. Their findings revealed that Bitcoin’s energy consumption was seven times lower than that of aluminum and 3.5 times lower than gold. They concluded that in 2017, Bitcoin consumed energy equivalent to Angola, ranking 102nd globally in terms of electricity consumption. Additionally, Bitcoin mining generated between 3 and 15 million tonnes of CO2 emissions from 2016 to 2018, which pales in comparison to the global CO2 emissions of 37,000 million tonnes.

In 2019, the University of Cambridge introduced the Bitcoin Electricity Consumption Index, providing real-time estimates of Bitcoin’s energy usage. This index considered various parameters, including the technical specifications of mining computers, resulting in fluctuating figures. According to the university’s calculations, Bitcoin mining reached 54 TWh in 2018, dropped to 32 TWh in early 2019, and peaked at around 80 TWh in February 2020.

A study conducted by Aalborg University in Denmark, published in November 2019, revealed that Bitcoin’s environmental impact was significantly lower than previously believed. The study indicates that in 2018, the Bitcoin network consumed 31.29 TWh and produced a carbon footprint of 17 megatons of CO2. These figures are considerably lower than those suggested by Digiconomist, almost four times less. Furthermore, the researchers predict that as computing power increases, energy consumption and carbon emissions will decrease.

Another study from the Technical University of Munich, published in the journal Joule in June 2019, estimated Bitcoin’s annual electricity consumption at 45.8 TWh, positioning it on par with countries like Jordan or Sri Lanka, or the city of Kansas City in the United States in terms of CO2 emissions.

Refuting the catastrophe narrative: Bitcoin’s minimal ecological impact

What can we gather from these assessments? Firstly, using the term “mining” to describe the security of a computer network is misleading. Secondly, the sensational figures and predictions presented by the media in 2017 and 2018 have been decisively refuted by experts and actual data. Contrary to claims from outlets like Newsweek, Bitcoin currently accounts for only 0.15% to 0.35% of global electricity consumption, at most a third of a percent. Lastly, the notion of Bitcoin causing an ecological catastrophe is far-fetched. Even under the most pessimistic assumptions, the 15 to 20 million tons of CO2 attributed to Bitcoin mining would represent a maximum of 0.05% of total CO2 emissions.

Hence, we can emphasize Bitcoin’s electricity usage to make it seem enormous, comparing it to the consumption of certain countries. Conversely, we can downplay it by highlighting that it is less than the electricity consumed by Christmas decorations worldwide. Cambridge University echoed this sentiment in July 2019, noting that the electricity used by Bitcoin could power the entire University of Cambridge for over three centuries, while also pointing out that the energy wasted by appliances on standby in the United States, such as televisions, could power four Bitcoin networks.

Harnessing renewable energy: Bitcoin’s green potential

CoinShares, a cryptocurrency research firm, argues that solely attacking the cryptocurrency industry based on its electricity consumption is absurd. Bitcoin mining has minimal overall ecological impact, as it can be powered by a single hydroelectric dam or renewable energy sources. CoinShares analysts report that 75% of Bitcoin mining utilizes renewable energy, making it greener than most large-scale industries.

Katrina Kelly-Pitou, an expert in power systems and environmental economics, suggests in an article that the focus should shift to the source of electricity production rather than the amount of energy Bitcoin consumes. The discussion should consider who produces the energy and where it comes from. Bitcoin mining can act as a power buyer of last resort, supporting economically disadvantaged regions with renewable energy resources. In other words, the portrayal of Bitcoin as an ecological disaster or a currency dependent on coal is unfounded.

This symbiotic relationship between the flexible cryptocurrency mining industry and clean energy sites has the potential for positive outcomes. Bitcoin mining can provide financial resources to underutilized clean energy sites, making them more competitive and lowering production costs. Regions with surplus hydroelectricity, such as Scandinavia, the Caucasus, the Pacific Northwest, Canada, and China, have become hotspots for Bitcoin mining operations.

According to CoinShares’ report, there is a “new gold rush” with Bitcoin miners flocking to underutilized locations in North America, such as former industrial sites or regions with abundant hydropower like Canada. These miners are attracted to the availability of affordable energy and the presence of ready-to-use facilities on these sites.

Bitcoin miners are driven to seek the cheapest electricity available, which often leads them to utilize renewable energy sources like solar, hydro, and wind power due to their cost-effectiveness compared to fossil fuels. However, it’s worth noting that Bitcoin miners currently use only a fraction of the untapped hydroelectric power available.

Balancing energy consumption and benefits: unlocking the ecological potential

If we consider that Bitcoin’s power consumption and carbon footprint are not as alarming as previously portrayed and that it can even incentivize the profitability of clean energy, we can explore its potential ecological benefits. The mining process secures a global financial network valued at $175 billion as of February 2020. Supporters argue that the advantages of having a free, transparent, and decentralized cryptocurrency justify the associated costs. They believe that Bitcoin’s decentralized nature makes it more energy-efficient and less exploitative in terms of added value compared to traditional systems in the banking and financial sectors.

When comparing the energy and carbon costs, Bitcoin’s impact pales in comparison to other sectors. The collective energy consumption and carbon emissions of data centers, hundreds of thousands of bank branches and office buildings, millions of ATMs, and cash transport operations far exceed that of Bitcoin. Environmental NGOs have also criticized banks for their high carbon footprint and urged legislative action to curb their support for fossil fuel expansion.

Shaping a sustainable future

In conclusion, the prevailing narrative around Bitcoin’s environmental impact has been exaggerated and often misinformed. While initial concerns painted a dire picture of energy consumption and carbon emissions, expert analysis and real-time data have revealed a more nuanced reality. Bitcoin’s energy consumption, even at its peak, represents only a fraction of global electricity production. Furthermore, the symbiotic relationship between Bitcoin mining and renewable energy sources holds the potential for positive outcomes, as miners seek out affordable and sustainable energy options. By harnessing untapped clean energy and promoting a decentralized financial system, Bitcoin can offer ecological benefits while challenging the dominance of traditional banking and financial sectors. It is crucial to approach the conversation with a balanced perspective, considering the wider context of energy consumption across various industries.