Bitcoin’s environmental impact under debate
In recent months, and especially in the last year, we see how every now and then, a new storm of FUD is hovering over the crypto ecosystem, related to the environmental impact of cryptocurrencies due, according to some, to their high electricity consumption. The funny thing is that, most of the time, this news does not make a distinction between cryptocurrencies but instead lumps them all in the same bag. One example of this is by not emphasizing that this high consumption, which indeed exists in some cases, is inherent to projects based on Proof of Work (PoW) consensus protocols, such as Bitcoin or Ethereum. But this is not all. In addition, this lack of informative rigor makes them stay only in the flashy headlines, without analyzing whether what is being stated has any foundation.
One of the most striking examples of this type of noise occurred in mid-2021 when Elon Musk surprised the world by announcing that Tesla (NASDAQ: TSLA), the prestigious electric vehicle company of which he is CEO, would stop accepting payments in bitcoin (BTC), due, according to his statements, to the high energy impact that the king of cryptocurrencies meant for the planet. Contradicting the facts and announcements made just months ago when he announced just the opposite and claimed to have acquired $1.5 billion in bitcoins as an asset for the Tesla company, of which only 10% is known to have been sold.
That is why, in the face of so much energy debate that appears recurrently in the media, I decided to do my own research, which I will explain below:
The first thing I did was to try to find out the real consumption of Bitcoin; According to data provided by the tool developed by Cambridge University, to obtain the “Cambridge Bitcoin Electricity Consumption Index,” the Bitcoin network currently consumes more annual energy than Sweden, Malaysia, and very close to that of Egypt or Poland. In fact, since 2019, it has gone from accounting for 64.15 TWh per year to 149.63 TWh of consumption in 2021.
As we can see, we cannot deny that these figures are huge. Still, we must put them in perspective: For example, the consumption associated with Apple (NASDAQ: AAPL) for the use of all iPads that exist in the market could amount to around 1.5 TWh per year, according to the study by Electric Power Research Institute. This figure clearly lower than that of Bitcoin but that allows us to establish a good reference. Similarly, the consumption of Christmas lights in the US, which only last a few weeks, represents a consumption higher than that of a year in a small European country, and I have never seen any article condemning it. Anyway, the best thing is that the important thing is not the consumption but the real carbon footprint, as we will see below, which is what really dismantles the arguments of those who try to attack Bitcoin and cryptocurrencies.
Bitcoin’s actual carbon footprint is a difficult figure to determine, as much of bitcoin mining is powered by renewable energy. According to Smart Energy, 39% of Bitcoin’s energy consumption is green energy, while the Global Cryptoasset Benchmarking Study estimates that three quarters of cryptocurrency mining uses some renewable energy, something that the traditional economic system cannot claim. Therefore we can say that Bitcoin is much greener than the rest of the economy which has an average of around 11% being made of renewable energy.
But it is not only green energy generated on purpose for mining that supplies some PoW-based projects. Recently we have seen announcements such as that of Exxon (NYSE: XOM) , where they communicated their intention to mine Bitcoin with natural gas produced as waste in some of their oil exploitations and that until now they were burning in flares, which released thousands of tons of useless CO2 into the atmosphere. This new “cogeneration” system does not pollute and helps reduce the carbon footprint of other clearly polluting processes while generating wealth and adding value and security to the grid.
That said, and as you can deduce from my words, this debate about the environmental impact and the high energy consumption of Bitcoin is useless. That is, it contributes nothing since anyone who knows the technology knows that Bitcoin’s power consumption is intrinsic to the way it works; higher power consumption means a higher hash rate, which means greater strength and security for the network.
Moreover, Bitcoin miners are the first to be interested in reducing the energy consumption derived from mining since the lower the cost of electricity, the greater the economic return they will receive for their contribution to the network. And so it is easy to understand that they will be the first interested in investing part of their profits in renewable energy production systems (solar, wind, etc.) to help them, at least in part, supplement the supply of their mining equipment, to reduce their electricity bill, and thus achieve better performance of their systems.
I agree that perhaps these actions are not taken with the main objective of reducing the impact of their activity on the environment, but even if it is for a selfish motive (to achieve more profits), the result is that they end up reducing their carbon footprint.