By 2020, bitcoin energy consumption represented less than 0.04% of global consumption.
The traditional financial system consumes twice as much energy as bitcoin.
Time after time, Bitcoin mining has been listed as a highly polluting activity and a threat to the environment. According to an analysis from the Cambridge Center for Alternative Finance (CCAF), if Bitcoin (BTC) were a country, it would consume more electricity per year than Argentina or Switzerland.
Bitcoin depends on a network made up of computers that are distributed throughout the world and help to ensure that each operation is secure. This network is fundamental to the functioning of bitcoin, and every year it increases in size and complexity.
As the mining difficulty increases, which is a value indicating how complex it is to solve math puzzles, more energy is required. This difficulty prevents more coins from being issued than should be at any one time.
But, there are studies, likeBitcoin Net Zero, stating that although Bitcoin’s energy consumption can be considered as “high”, it does not represent even 0.04% of global consumption. So is Bitcoin as bad for the environment as they claim? Let’s look at the tests.
The truth about Bitcoin and energy consumption: is it as high as they say?
Bitcoin is constantly being accused of being an “energy waste” by some. And it is that, figures like Elon Musk, have criticized the environmental impact of the main cryptocurrency in the ecosystem. They argue that, due to the high electricity consumption that mining digital currency entails, bitcoin is harmful to the environment.
Nevertheless, several studies have disproved this theory. One of them is the report from the University of Cambridge. The report analyzes the changes that have occurred in the cryptocurrency industry from 2018 to 2020, and collects data from 280 companies from 59 countries. The main market sectors are studied: exchanges, payments, custody and mining.
Cambridge has a index which is updated every 24 hours and shows the energy consumption of the Bitcoin network. According to this index, its electricity consumption in the last year is estimated to be 101.97 terawatt-hours (TWh). Although it is true that this represents a higher consumption than in some countries, is not a valid argument to conclude that cryptocurrency is an environmental threat.
According to the study of Bitcoin Net Zero, bitcoin’s electricity consumption and its carbon emissions are not significant in global terms. For example, China’s energy consumption in 2020 was more than 5,500 TWh, a number much higher than that of Bitcoin, which is only 101.97 TWh, which represents less than 0.4% of energy production. global.
Bitcoin Net Zero was a study conducted by NYDIG, a subsidiary company of Stone Ridge Asset Management, a digital asset manager. This same study indicates that, in 2020, the carbon emission generated by Bitcoin was 33 tons of CO2, which represents 0.1% of the total global emissions for that year, which were 36,000 tons of CO2.
It is concluded that, since the creation of the cryptocurrency in 2008, energy consumption and carbon footprint have not increased dramatically due to Bitcoin mining.
Why does bitcoin mining consume a high level of energy?
Now, if you wonder why the multiple accusations that classify bitcoin as “energy waste” are due, the reason is mining. Is about a process in which network transactions are validated and then add them to the blockchain. To mine cryptocurrencies, specialized computers are required, which must decipher a series of complex mathematical puzzles. It could be compared to a “lottery” in which a number has to be found out of a 256-bit possibility.
As you can imagine, these specialized computers consume a considerable amount of energy, since they are in operation 24 hours a day. And, as the mining difficulty increases, more powerful equipment is needed to get the reward.
Without mining there would be no bitcoin, as it is a necessary process, not only for the validation of transactions, which allows you to receive and send cryptocurrencies, also to issue new coins, which are the reward given to miners for their work.
The Bitcoin network is designed to adjust the mining difficulty depending on the number of miners available. The greater the number of miners, the greater the difficulty, which means that more and more advanced equipment will be needed and, therefore, that they consume more electricity. However, it is important to note that these computers tend to be more efficient than their previous versions.
On the other hand, mining is essential to maintain the security of the network and ensure that the blockchain is unalterable. All transactions are recorded in this “ledger,” so it is expected to be impossible to manipulate by hackers.
With other validation systems, such as Proof of Stake (PoS) or Proof of Stake, it only takes money to acquire a greater stake in the control of the network. With Proof of Work (PoW) or Proof of Work, which is the consensus used by Bitcoin, the shortage of chips and specialized equipment imposes a physical limit on the control that malicious participants want to exercise over the network.
Bitcoin mining and renewables go hand in hand
It is important to understand the difference between electricity consumption and carbon footprint. While the carbon footprint is an environmental indicator that reflects the amount of greenhouse gases that is expelled into the atmosphere, energy consumption is the amount of energy used.
If we only analyze the energy consumption of Bitcoin to determine if it is an environmental threat, we would be telling a small part of the story. Not only do you have to take into account the level of energy consumed, but also how this energy is generated.
And this is a key factor in the case of Bitcoin. It turns out that more than 50% of Bitcoin mining pools use renewable energy, according to a report of the Bitcoin Mining Council, published in July 2021. In fact, many miners use surplus of these renewable energies.
In some cases, for cryptocurrency mining, use is made of gases that are released into the atmosphere by other activities, such as methane. This actually helps to significantly reduce the carbon footprint, as a by-product of oil extraction is used.
As previously noted in CriptoNoticias, bitcoin favors the development of environmentally friendly technology and renewable energy. This industry is looking for increasingly efficient ways to develop mining and reduce the environmental impact of this activity.
As the mining of BTC is a process that requires a high demand for electricity, miners must seek solutions to obtain sources of energy that are cheaper than conventional ones. That is the reason why this industry encourages the development of renewable energies that are as efficient as possible.
For example, Elon Musk and Michael Saylor, founder of MicroStrategy, are members of a council of Bitcoin miners that seeks to promote the use of renewable energy for this activity.
The company SkyBridge Capital bought bonds equivalent to 38 thousand tons of CO2 to MOSS Earth to offset the carbon footprint generated by Bitcoin. The founder of this company, Anthony Scaramucci, expects mining to be pure renewable energy in 2030. And this is just one of many companies that are supporting similar initiatives and taking steps to make mining a more environmentally friendly process.
And what about traditional financial services?
According to research conducted by Galaxy Digital, a financial services company, the international banking system consumes twice as much energy as Bitcoin. This sector uses an average of 238 TWh each year, which is equivalent to the consumption of countries like Spain.
The gold industry is another example of an energy-intensive sector, much more so than the Bitcoin network. The study details that the activities to produce the precious metal they consume an average of 500 TWh per year. In view of these data, it was concluded that the Bitcoin network consumes an acceptable level of energy.
Bitcoin vs home appliances: which consumes more energy?
Given the complaints about the electricity consumption of bitcoin, not everyone takes into account that there are other activities and devices that have a much higher energy demand. For instance, something as common as home appliances actually dwarfs the electricity consumption of Bitcoin.
The difference is that most people easily see the utility behind these devices. The usefulness of bitcoin is not so obvious because some are not informed about it. But the importance of this digital currency and its contribution to the economic system cannot be denied.
According to the Bitcoin Net Zero study, in 2020, the consumption of domestic refrigeration systems was 630 TWh, and that of dryers 108 TWh, while that of Bitcoin was 62 TWh. Air transport had a consumption of 4,030 TWh, maritime transport 3,055 TWh and air conditioning and fans 2,000 TWh.
The carbon emission from the extraction of raw materials also far exceeds that of Bitcoin. During steel production, an estimated 4,227 tons of CO are released2, and BTC only 33 tons of CO2. From the figures, it is evident that cryptocurrency does not threaten the environment to the degree that other much more polluting industries do.
Conclusion: How bad for the environment is bitcoin?
We cannot deny that bitcoin mining pollutes. But not to the degree that various media and influential figures have pointed out, labeling the currency an environmental disaster. Compared to other industries, we could say that Bitcoin is harmless to the environment. Rather, it contributes to the development of renewable energy and technologyeco friendly.
The carbon footprint of this activity is low, since most miners (more than 50%) use renewable energy. It is expected that, in the near future, this percentage will increase to 100%, leaving behind the energies that contribute to the production of greenhouse gases.