First, a basic fact: Bitcoin mining is an energy-intensive process. There’s no debate about that. As prices climb, new miners are incentivized to participate, which drives up energy usage (at least until the , when the amount of new bitcoin issued will be reduced by half).
But teasing out the actual environmental impacts of that energy use is, like a lot of things, complicated. In this post we’ll look at some of the major concerns that are often raised, and see how much truth there is to them.
According to the best available science, this simply isn’t true. While Bitcoin’s energy consumption is significant, that doesn’t automatically equate to it being a meaningful driver of climate change. To understand why, it helps to know a little about how mining works.
that Bitcoin and some other cryptocurrencies use to generate new coins and verify new transactions. Vast, decentralized networks of computers around the world secure blockchains (the virtual ledgers that document cryptocurrency transactions). In return for contributing their processing power, miners are rewarded with new coins. It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, and the coins provide an incentive for the miners to maintain the blockchain.
In April, there was a flurry of headlines warning that emissions from Bitcoin mining in China could push global warming out of control. But the report these articles were based on was deeply flawed. The numbers were derived from the mix of fuels used by China as a whole — not the actual energy mix used by miners. Because much of China’s electric grid is powered by coal, these researchers then assumed that Bitcoin must be equally coal-dependent. Here’s why that’s inaccurate:
Miners are incentivized to find the cheapest energy sources available. That generally means excess power (electricity that would otherwise be wasted) and/or sustainable energy, which is plummeting in price.
As both crypto and green-energy technology mature, the reverse scenario is seeming more likely. Bitcoin miners are incentivized to go where power is cheapest. While that can mean some use of fossil fuels, the best way for miners to maximize profits is to find places with excess supply. In fact, Bitcoin is uniquely well-positioned to help make renewable energy cheaper and more accessible for everyone:
By placing mining operations at the source of green energy, utilities can monetize their excess supply. In fact, at least one publicly-traded power company has explored to capture value from excess supply that can be used to build out sustainable-energy operations.
By ensuring viable markets for renewable energy, Bitcoin incentivizes companies to build more green infrastructure, which further drives down the price of clean power. This virtuous cycle can actually contribute to the fight against climate change.
Many of the most alarming headlines come from a basic lack of understanding around how Bitcoin works. You might hear like, “Bitcoin would require 14x the world’s total electricity just to process the 1 billion credit card transactions that take place every day.” These numbers tend to come from conflating the energy cost of mining Bitcoin with the cost of transactions.
Energy consumption comes primarily from mining , not from transactions. (The “mining” process accomplishes multiple goals — including both the generation of new bitcoin and the verification of new transactions. But the primary function of mining, as the name suggests, is generating new bitcoin.)
Because Bitcoin is relatively new, the idea that it consumes as much energy as a country like Norway can seem shocking. But consider this: Norway’s GDP is around $400 billion. The total economic value that Bitcoin secures (its market capitalization) has been as high as $1 trillion. It’s not easy to make a direct comparison, but the important thing to remember is that everything uses energy. Whether that use of energy is considered justified or not depends in large part on the value that’s derived from the use of resources. And by that measure, Bitcoin is a substantially more efficient user of resources than many industries. Here’s some perspective:
As the biggest cryptocurrency, Bitcoin is often treated as a stand-in for the entire crypto space. This ignores the upgrade being currently made by the second-biggest cryptocurrency, Ethereum. The is designed to make a — from lending and saving to minting — greener, cheaper, and faster.
And when it comes to mining, the major stakeholders in the space are actively incentivizing the sustainable sourcing of energy in a variety of ways — including the launch earlier this year of the Crypto Climate Accord, which aims to reach 100% sustainable-energy production by 2025.
Elon Musk, who recently tweeted that Tesla would suspend accepting bitcoin as payment over fossil-fuel concerns, met with the biggest North American mining companies (including Argo Blockchain, Hive Blockchain, and Riot Blockchain) on May 23. Following the meeting, the mining firms — a consortium that aims to accelerate the adoption of sustainable-energy mining worldwide.
Just in the last week or so, several major mining firms announced green initiatives: Greenidge Generation Holdings its New York Bitcoin mining operation would become carbon neutral on June 1. And Argo Blockchain new operations in Canada using mostly hydroelectric power.
Argo also recently joined mining firm DMG Blockchain in the . The is an initiative launched by the private sector that pledges to help the mining industry to transition to 100% sustainable-energy production by 2025 and net-zero carbon emissions by 2040.
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Today we’re launching an effort to mobilize 52 million crypto owners – younger and more diverse than the US population as a whole – into a powerful force heading into the 2024 elections with an intense focus on nine key states.