There are three types of lies as Mark Twain like to say lies, damn lies and statistics. Now when it comes to the effects of cryptocurrency on the climate, there has been no shortage of statistics. Bitcoin mining uses more electricity than a small country.
Bitcoin mining will cause global temperatures to rise by two degrees, a single bitcoin transaction uses more electricity than two dozen American homes in a day, if everyone started using bitcoin its network would consume more power than the world has to offer. Now these are just a few of the talking points you’ve heard from the likes of Bill Gates, Bill Maher and most major news outlets in recent months. Ironically it seems that none of these parties took the time to fact check this information that’s why I’m going to give you the facts beyond these misleading statistics and explain why cryptocurrency is actually good for the climate.
Crypto Mining Explanation:
Let me tell you about the role crypto really plays in climate change. To understand where all these crypto climate concerns are coming from you need to understand how crypto mining works. Bitcoin, Ethereum, Litecoin and a few other large cryptocurrencies use a proof-of-work consensus mechanism. In simple terms, a consensus mechanism is the process used by multiple entities to reach an agreement about a fact, as a simple example let’s say you’re hanging out with eight of your friends and you’re deciding whether to go to the movies or to the beach, the consensus mechanism for that decision could be a simple majority vote or it could be that all of you must vote to do the same activity. Cryptocurrency works the same way except instead of a group of friends deciding what to do for fun, it’s a group of computers spread around the world deciding which cryptocurrency transactions are valid, rather than confirm one transaction at a time cryptocurrency networks group multiple transactions into a single block. Each block contains a record of the previous block hence the term blockchain. For blockchains like bitcoins the reward for producing a block filled with bitcoin transactions is a small amount of BTC the digital currency transacted on the bitcoin network.
This BTC along with transaction fees acts as an economic incentive to attract more computers around the world to join the bitcoin network and process transactions which makes it larger and more secure. Bitcoin is technically the most secure payment network in the world and it has the added benefit of not being controlled by anyone since all its operations are determined by computer code rather than a simple majority vote, the proof-of-work consensus mechanism determines which computer on the bitcoin network gets to process a block of bitcoin transactions and earn BTC. The computer that does this is the first one to solve a complex equation, the more powerful the computer the higher the chance it has of being the first to solve this equation and produce a bitcoin block. Proof of work exists to prevent bad actors from manipulating the bitcoin network because they would have to spend billions of dollars on powerful computers if they wanted to produce bad bitcoin blocks.
Proof of work is essentially meant to simulate real-world resource mining in a digital way hence why cryptocurrency is mined by specialist computers called miners. There are over 1 million bitcoin miners around the world and that’s in addition to the millions of miners processing transactions for other proof-of-stake cryptocurrency networks like Ethereum and Litecoin.
Bitcoin Mining Climate Claims:
All this cryptocurrency mining is using a lot of energy and this has many people concerned about the effect cryptocurrency mining could be having on the climate although concerns about crypto’s effect on the climate have been around since bitcoin began back in 2009, it wasn’t until the 2017 crypto market boom that these concerns started to make the news. Many of the headlines we see today are almost identical to the ones we saw back then and most of the statistics cited by today’s and yesterday’s cryptoclimate critics, all come from a single source. The source in question is an academic article published in 2018 to nature’s climate change journal. As the title suggests it argues that emissions from bitcoin mining alone could increase the global temperature by two degrees.
Now as far as I understand this two-degree level is significant because it’s the temperature at which climate experts believe most of the planet’s coastal cities and shorelines would start to see serious flooding, staying below this two-degree level is the goal of the Paris climate accord and we’re currently sitting at about 1.4 degrees above pre-industrial temperatures, which is the benchmark climate experts are using. When you consider bitcoin’s comparatively small energy consumption on the global scale, the numbers from this frequently cited article don’t seem to add up and that’s because they don’t. The authors of the article argue that it would take 30 to 60 years for bitcoin mining emissions to change global temperatures and this timeline includes a series of seriously faulty assumptions about bitcoin.
For starters, the authors assumed that the exponential adoption of bitcoin that was happening in the peak of the 2017 bull run would continue indefinitely until BTC became the world’s go-to currency. They assumed that the bitcoin network would be processing nearly 1 billion transactions per day which is literally impossible given that bitcoin can only process a few hundred thousand transactions per day. Most importantly they assumed that the energy required to process each of these individual transactions would be the same as producing an entire bitcoin block however each bitcoin block contains multiple transactions not just one and the maximum number of transactions you can fit into a bitcoin block is somewhere around three thousand. As you might have guessed this gross miscalculation is behind statistics like one bitcoin transaction uses more energy than 7,50,000 visa swipes, this is false and also a false equivalency because there is much more to a visa transaction than a single swipe.
Visa transactions require a massive infrastructure of banks, merchants and middlemen that all use energy. I digress the authors of this popular article assume that bitcoin miners are using fossil fuels as their primary energy source which couldn’t be further from the truth. Now I’ll return to that in a moment not only that but the authors assume the total energy output of the planet will triple in the next few decades while the hardware used to mine cryptocurrencies will not improve at all. The fact of the matter is that cryptocurrency mining equipment has become more energy efficient and this is because there is a massive incentive for miners to invest in this sort of energy saving technology. This is also overlooked by the authors of the article who didn’t realize that the amount of energy they assume bitcoin mining will require in the future would make it unprofitable to do so, this is because bitcoin miners would spend more on energy than they earn from the BTC and transaction fees they get from each block they mine. These are just a few of the counterpoints from a TEDx talk by energy economist and climate protection specialist named Lars Dittmann, who published an article debunking the statistics in this frequently cited source.
Bitcoin Mining Energy Use:
Now that you know where most of these concerning Crypto climate statistics are coming from and why they’re crap. For starters nobody is actually sure how much energy bitcoin mining uses, much less cryptocurrency mining. In general, the University of Cambridge says it could be anywhere between 40 and 440 terawatts per year, which is a pretty large range. For context the Netherlands uses 121 terawatts of energy per year, Argentina uses 300 terawatts and the United States uses a whopping 4000 terawatts. Not surprisingly the claim that bitcoin mining uses more energy than a small country is based on the assumption that it is using substantially more energy than the estimated minimum.
Consider that even with the higher estimation all the lights lamps, computers, TVs and coffee machines in households across the USA are using more electricity than bitcoin mining when they’re idle i.e., plugged in but not actually on. None of these comparisons are fair either because bitcoin mining isn’t a kitchen appliance or a country, it’s a secure payment infrastructure that makes it possible to store and transfer value without a middleman. BTC is likened to digital gold because of its economic design so a fairer comparison would be with the energy consumption of gold mining which uses about 130 terawatts per year. If you were to compare the energy consumption of the bitcoin mining to that of the current financial system, it is estimated to be less than the power used by physical bank branches in the United States.
Note that this doesn’t count all the energy from the corporate offices, ATMs, servers, secure vehicles and the massive regulatory infrastructure that’s built around legacy finance. I’m sure the fed’s money printer has also been using a fair amount of energy these days too. All this infrastructure isn’t required for cryptocurrency and all the rules and regulations are built into the code itself. When you compare apples to apples, cryptocurrency offers the most energy efficient financial system in the world and it does much more than finance too.
Green Energy Bitcoin Mining:
Cryptocurrency mining has become instrumental in accelerating the growth of green energy this is because miners go to where power is cheapest because cheaper power means more profits. As it so happens renewable energy sources like wind, solar, geothermal and hydroelectric cost half as much as coal and natural gas. There are just two problems with renewable energy and these are availability and infrastructure. Geothermal and hydroelectric energy sources provide power around the clock but they are normally restricted to remote geographical regions, the cost of building a hydroelectric plant in the middle of nowhere and building the infrastructure required to power the nearest towns or cities is not always economically viable especially if there are alternatives.
However, when you add bitcoin mining into the mix, these hydroelectric plants are not only able to quickly cover their costs of construction but they are also able to expand their operations much faster than they otherwise could. Conversely solar and wind power can be generated almost anywhere and they are much easier to hook up to existing energy infrastructure. The problem here of course is that the wind doesn’t always blow and the sun doesn’t always shine, when it does you get an insane amount of energy generation but a lot of it ends up wasted because it can’t be stored. This was the focus of square’s bitcoin clean energy initiative white paper, which argues that crypto mining can and has optimized the renewable energy economy. Basically, wherever there is excess power that can’t be stored it can be used to mine bitcoin and the revenue from those profits can go towards the expansion of green energy operations.
As the basic laws of supply and demand dictate the more of something there is the cheaper it becomes. More renewable energy supplies mean even cheaper green energy, this attracts even more cryptocurrency miners to renewable energy creating a positive feedback loop, this is why bitcoin miners are primarily based in China, Norway, Iceland and parts of Canada while the university of Cambridge estimates 40 percent of all bitcoin miners use renewable energy. Recent statistics suggest this figure could be as high as 70 percent. This makes bitcoin mining one of the greenest industries on the planet even with the lower estimate. As renewables become even cheaper and more abundant their use in crypto mining will only continue to grow, there’s plenty of renewable energy to go around so there’s no arguing crypto is taking more than its fair share as many critics have implied. What’s more is that bitcoin mining companies are even trying to find ways to turn the byproducts of their own mining activities into more energy such as the heat emitted from all their hardware this is all because of bitcoin’s robust economic incentives and the absence of similar incentives in the current financial system might be why we have a climate crisis to begin with.
The Real Cause of Climate Change?
If I were to ask you which things have done the most harm to the environment what would you say overpopulation, e-waste, fossil fuels, pesticides, chemical runoff and land desertification are probably on your list maybe even toxic solar panel waste which will actually be larger than plastic waste by 2050 or the used wind turbine waste that can’t be recycled and doesn’t decompose. If I asked you what all these things have in common you would probably say capitalism or a lack thereof. In his book “the Price of Tomorrow” Jeff Booth argues that the common denominator in the world’s environmental woes is actually inflation. Put simply inflation is where money loses its value because of an increase in supply.
Ever since currencies stopped being backed by gold, most of them have had an annual inflation rate of between two to three percent per year. In other words, they’ve been losing two to three percent of their value every year this is basically because governments have been printing money for decades and this printing has accelerated over the last year because of the economic effects of the pandemic lockdowns. Generally speaking, there are two things you can do with money, you can save it or you can spend it. The thing is there is zero incentive to save a currency that is losing value by the day. On the contrary the incentive is to spend because that money is worth more today than it will be tomorrow.
The poor and middle class tend to spend their money on goods and services whereas the rich tend to spend their money on investments that increase in value over time because of inflation. Economically inflation creates massive disparities in wealth that leads to societal instability and ironically even more money printing by the government. Environmentally inflation is rocket fuel for the sort of over-consumption that leads to a massive waste of resources and energy. In contrast to fiat currencies bitcoin has a maximum supply and is technically deflationary, this means it takes less bitcoin to pay for the same goods and services as time goes on because even while the amount of goods and services grows the supply of bitcoin does not. Now there are two things you can do with bitcoin you can save it or you can spend it but why would you ever spend your bitcoin when saving it means you can buy more with it tomorrow than you could today. Deflation incentivizes saving and living frugally which is the complete opposite of what inflation incentivizes. If the entire world adopted bitcoin as its reserve currency, the behavioral changes required improve the environment and everyone’s quality of life, would begin to improve overnight, nobody would have to be taxed, no laws would need to be made no elaborate carbon credit schemes would need to be cooked up and all these corporate crypto climate critics would be gone for good.
I think it’s safe to say that all this crypto climate fud is nothing more than click bait, it’s easy to forget that the mainstream media is on its last legs and is desperately trying to remain relevant in an increasingly decentralized digital age. The only thing green about these critics is their recycling of faulty statistics. I think the criticism of cryptocurrency mining is fundamentally due to a lack of understanding. Cryptocurrencies can be hard to wrap your head around at the conceptual level much less at the computational level.
The proof of work consensus mechanism used by cryptocurrency blockchains like bitcoin does use a lot of energy and this is why most new cryptocurrencies use proof of stake and others like Ethereum are currently transitioning out of proof of work, even though bitcoin will probably never switch to proof of stake, this isn’t a problem because the energy it consumes is negligible compared to its equivalence. Most bitcoin miners are already using renewable energy and at this rate bitcoin mining might become the first global industry to become completely carbon neutral. At the same time bitcoin mining is making green energy more available to the average person by providing a de facto financial subsidy for all types of renewable energy.
I think we will even start to see bitcoin mining play a role in the expansion of nuclear power which has only been hindered by the long time it takes to break even with the initial cost of construction, on that note it seems that financial incentives are about as powerful as nuclear technology. When money is inflationary it’s like a ticking nuclear bomb similarly when money is deflationary or backed by a deflationary asset it becomes a source of stability, growth and sustainability for the entire planet like nuclear power. This is why bitcoin is so valuable and the utilities other cryptocurrencies like Ethereum provide are only starting to be realized. I think once all this crypto climate stuff becomes obsolete, the corporate elite will find something else to complain about, they seem to like the way things are now but the mass adoption of this magic internet money has already begun and there is nothing they can do or say to stop it.
- Bitcoin Mining Map:
- Full 2018 Article from Nature Climate Change Journal: https://www.researchgate.net/publication/328581842_Bitcoin_emissions_alone_could_push_global_warming_above_2C
- Bitcoin Mining Energy Consumption Estimate:
- Gold Mining Energy Use:
- Square Report on Bitcoin Green Energy Mining: https://assets.ctfassets.net/2d5q1td6cyxq/5mRjc9X5LTXFFihIlTt7QK/e7bcba47217b60423a01a357e036105e/BCEI_White_Paper.pdf
- 70%+ Of Bitcoin Miners Use Renewable Energy:
- Bitcoin Miners Reusing Heat Energy:
- Jeff Booth Discusses Inflation & Climate Change, How Bitcoin Fixes It: