Why Bitcoin’s Environmental Problems Are So Hard to Solve
1. What is the power involved?
Bitcoin’s estimated power consumption has grown from an annual rate of 6.6 terawatt hours at the start of 2017 to 138 terawatt hours at the start of 2022 – more than a country like Norway – according to the Cambridge Center for Alternative Finance, which retains a current estimate. . As for its carbon footprint, Digiconomist puts the annualized emissions from Bitcoin mining at 114 million tonnes of carbon dioxide, comparable to those of Belgium.
2. Why does it need so much energy?
The biggest miners have operations with tens of thousands of computers buzzing in warehouses that look like data centers. The calculations they perform are used to verify transactions within the network, and their completion unlocks new Bitcoins. The complexity of the calculations increases as the number of miners increases. The amount of computing power required hit an all-time high in early 2022, forcing miners to invest in even more powerful machines and larger server farms to maintain a competitive edge. Bitcoin advocates say the cryptocurrency still only uses a tiny fraction of the world’s electricity consumption – less than what is needed to power the world’s Christmas lights.
3. Are miners trying to reduce their carbon footprint?
Yes. Some use excess natural gas that would otherwise be “flared” or burned just to get rid of it, to generate electricity for mining. Others have installed solar panels above their server rooms or struck deals to source low-carbon nuclear power. Many have settled in places like upstate New York, Canada, Iceland and Norway, where there is an abundance of emission-free hydroelectric or wind power. This is driven as much by self-interest as it is by concern for the climate – renewable energy tends to be cheaper than other sources anyway.
4. So, are Bitcoin emissions decreasing?
It’s hard to say. China’s ban in June 2021 deprived Bitcoin miners of the country’s clean and plentiful hydroelectricity and sent them in search of any inexpensive and reliable power they could find. Some have settled near renewable sources in the United States. Others have appeared in places like Kazakhstan, where fossil fuels still dominate the energy mix. The impact of all this on Bitcoin’s carbon emissions is unclear because no one knows precisely where all the miners are and what kind of energy they use. However, a study published by the research journal Joule in February suggested that Bitcoin’s environmental impact has worsened since the move from China, with the share of renewable energy used to power the grid rising from more than 40% in 2020 to around 25% as of August 2021. And don’t overlook the environmental impact of the growing mountain of old computing equipment being scrapped by miners as they try to maintain an edge in processing power.
5. What are governments doing?
In parts of the world that have surpluses of renewable energy, Bitcoin miners are still welcome. Texas, for example, is trying to attract more to act as a demand-response source to match the state’s variable wind generation. In other places they are seen as a threat. The Chinese ban was a response to an energy deficit that forced it to ration electricity supplies and cut industrial production. Kazakhstan, a major Bitcoin producer, has imposed limits on the industry after facing its own energy shortages. Sweden’s financial regulator has called for a Europe-wide ban on cryptocurrency mining, saying it “threatens the climate transition that urgently needs to happen.” Some governments would prefer to channel renewable energy into older industries that are trying to decarbonise, such as transport and manufacturing. Other big power users complain that Bitcoin miners suck up scarce energy resources with little return to the host country in jobs and tax revenue.
6. Has the issue impacted the crypto markets?
Yes. In February 2021, Tesla Inc. said it had invested $1.5 billion in Bitcoin and would start accepting cryptocurrency as a form of payment. The double move was a catalyst for a digital currency rally. But in May of that year, Musk announced a stunning about-face, suspending acceptance of the token citing environmental concerns. The decision sparked a selloff in Bitcoin that spread to many other digital currencies.
7. What does all this mean for the future of Bitcoin?
Bitcoin critics say the power-hungry “proof of work” system used to verify transactions on its digital ledger, or blockchain, was never designed to back up what is now a trillion-dollar asset. Proponents of rival cryptocurrencies have seized on Bitcoin’s environmental impact as an argument for switching to lower-powered alternatives. Many newer blockchains, like Solana and Cardano, use variations of “proof-of-stake,” an alternative process that consumes less electricity. Bitcoin’s rival, Ethereum, is expected to switch from “proof of work” to “proof of stake” in mid-2022, reducing its estimated power consumption by up to 99%. Bitcoin remains the dominant cryptocurrency in the world, but its energy challenge is set to grow with its popularity: a rise in the price of bitcoin lowers the break-even point for miners, encouraging them to continue using older machines and less effective.