Stop wasting energy. Start mining Bitcoin
03 Mar 2021
Bitcoin has always had its share of detractors who, like their bitcoin maximalist counterparts, insist on their position no matter what new information becomes available.
Besides being a Ponzi scheme in a bubble with no intrinsic value or utility, detractors are quick to single out bitcoin as a catalyst for the impending environmental disaster the world is fast approaching due to wasteful energy practices.
Shortly after Elon Musk announced Tesla had bought $1.5 billion worth of BTC as a way to protect cash reserves against inflation, critics said the move increased the company’s carbon footprint to such an extent it goes against its mission of accelerating the adoption of renewable energy.
While it’s certainly true that bitcoin uses up a lot of electricity, whether it’s wasteful or not is up for debate.
Why bitcoin requires so much electricity
Bitcoin has allowed us to make direct peer-to-peer payments without having to rely on a central authority as the intermediary validating the transactions. Bitcoin and other cryptocurrencies replace payments intermediation with an open network of independent users, called ‘miners’, who compete to validate transactions and whose majority agreement is required for any transaction to be approved.
The complex computational math problems that miners compete to solve enable the execution of transactions. These problems are so complex that they are difficult even for incredibly powerful computers. The luck and work required by a computer to solve one of these problems is the digital equivalent of a miner striking gold in the ground. The chance of getting it right is about 1 in 13 trillion. All the other miners that compete and ‘lose’ will have only wasted energy in the process.
That requires a lot of energy, wastes a lot of energy, and it’s entirely by design. Because consensus is required for transactions to go on the ledger, defrauding the system using false transactions against other miners’ agreement would require vast computational power, rendering fraud uneconomical.
So how much energy does the entire bitcoin ecosystem currently require? Cambridge researchers say it consumes around 121.36 terawatt-hours (TWh) a year – just above the annual electricity consumed by Argentina but below that of Sweden. That makes for a cool headline but fails to inform you. Argentina has a population of 45 million, whereas Sweden has only 10 million yet consumes more electricity. You can draw comparisons between the two nations but the fact that Bitcoin is in between doesn’t reveal anything. Bitcoin represents a new global financial system, not a single country’s economy.
Perhaps the question of quantity is wrong. Instead, we should be asking about the quality.
Where the power comes from
Driving a Tesla is not inherently better for the environment. It all depends on how the electricity is generated at the source – driving on coal-powered electricity for example will not do much for getting sustainability reward points. Elon himself explained that over time Teslas will “become greener” as renewable energy increasingly replaces the more harmful ways we generate electricity today.
Essentially, we should be taking the same view when we look at the energy consumed by bitcoin globally, and particularly how the electricity is generated. While much of the data is based on estimates, it’s thought that close to 75 percent of bitcoin mining is fuelled by renewable energy.
Iceland is still popular with bitcoin miners, and much of the electricity is generated using renewable geothermal sources, which also emit much lower amounts of carbon than coal- or gas-fired plants. Canada uses hydroelectric power to generate 59 percent of its electricity and in the crypto-friendly province of Quebec, 95 percent of power is hydroelectric.
China, the largest market for bitcoin mining, is currently not a clean source of energy at all using mostly coal-fired plants. Although, Sichuan province where most mining takes place has excessive hydropower capacity. Additionally, in recent years China has been investing heavily in upgrading its economy infrastructure to rely more on renewable energy, planning to raise the minimum renewable power purchase to 40% by 2030 nationwide.
Altogether, if the world’s governments get their act together bitcoin will actually “become greener” over time as the world invests more in the right infrastructure and develops policies to power the global economy using renewable energy and sustainable practices. Of course, this is a much larger issue that will have a positive impact on so much more than just bitcoin mining, and the monumental shift would likely take decades to take on meaningful proportions.
In the meantime, some players in the bitcoin mining industry are taking matters into their own hands developing innovative ways to reduce energy waste in one way or another. For example, founder of Upstream Data Steve Barbour operates bitcoin mines on oil fields in Canada which are designed to consume wasted energy from oil wells. Instead of burning methane deemed uneconomical by oil companies, Upstream captures the potential and earns bitcoin.
What it all means
It’s safe to say most reports of bitcoin mining destroying the environment are largely exaggerated. The environmental impact of mining has more to do with the energy policies in the countries where miners operate. And now we know why bitcoin requires energy, how much it uses and how it is generated, we can consider whether it is wasteful or not. That depends on how much you value what bitcoin stands for.
With bitcoin, we have the tools to create a new alternative financial system controlled by individuals and governed by technology, as opposed to gatekeepers and central authorities. It has the hallmarks of a generational shift in the way the world works, and yes, that is going to require some energy.
It is perfectly fine for people not to value what bitcoin stands for, but the sustainability argument rings hollow. By the same token, no one should be buying electric vehicles unless the overwhelming majority of energy produced in a country is already generated using sustainable practices.
And we all know that’s not how you start a revolution, by waiting for someone else to make everything just right.
About the author
Joe Caselin is on a mission to Save Great Ideas from Obscurity. He has worked with several startups including crypto exchanges, DeFi projects, digital banks, and trading platforms helping to build brands rooted in purpose. When he's not writing, he's reading what he just wrote.
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