Crypto’s bad environmental reputation has preceded digital currencies for some time: Bitcoin is bad for the environment. Crypto mining is a monstrous power guzzler. The process consumes a disproportionate amount of energy. In short: mining crypto as we are currently is contributing to climate change.
But is that really the case? Recent findings on the subject shed new light on crypto’s environmental footprint.
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Is crypto that bad for the environment?
The number one energy-consuming cryptocurrency is Bitcoin – the number one cryptocurrency in the mainstream media up to this day. Its energy consumption is likely to be one of the most discussed aspects since 2018, along with its price development. It is generally assumed that Bitcoin harms the environment. There are numerous ways of looking at this, a one-sided judgment seems impossible. This article would therefore like to approach the effects of Bitcoin on the climate with two questions:
- How much energy does conventional mining use – and where does it come from?
- Is crypto useful enough for the world to claim these energy resources?
A complex subject, based on numerous factors – so complex that many studies come to completely different – and often premature – conclusions.
“Anyone who interferes in this grim debate must deal with the basics before making a final assessment,” warns Nic Carter, the partner at Castle Island Ventures and the co-founder of blockchain data aggregator Coinmetrics.io.
That sounds a bit like a declaration of war, and one could understand it that way. The fight is against half-truths and tendentious reporting.
Carter is one of the most-cited experts on the subject of Bitcoin and the environment. He is also an advisor to the “Bitcoin Clean Energy Initiative” and an author for Bloomberg, CNBC, Euronews, and Yahoo Finance. In addition, the Bitcoin enthusiast holds a bachelor’s degree in Philosophy from the University of St Andrews and an MSc in Finance from the University of Edinburgh.
Carter has established himself as a fixture within the crypto industry – his word carries weight and is quoted a lot. He has devoted himself to the subject for years, tirelessly commenting on misinformation – with growing success. “I think people will better understand the utility of crypto if they consider some of the data,” the entrepreneur said in the interview.
Bitcoin consumes more electricity than entire Finland
Which data is relevant to get an impression of crypto mining’s impact on the environment? How much energy does crypto mining actually require?
1 Bitcoin Transaction currently equals 100,000 Visa transactions in terms of energy consumption according to Statista.
Cambridge University in England is recognized for valuable input in the research of Bitcoin energy consumption. According to the researched data, Bitcoin’s (whose share in crypto assets is about 40%) annualized power demand alone is estimated at 125 terawatt-hours in 2022. For comparison: According to the Federal Environment Agency, Germany had a total of more than 551 terawatt-hours consumption in 2021. In neighboring France, 500 terawatt-hours of electricity were generated in the same time period. The much smaller Finland, on the other hand, achieved 84.2 TWh in 2020, and Belgium 82.1 TWh.
Given these numbers, the case seems clear: Bitcoin consumes almost twice as much energy as a relatively small country. However, the comparison of crypto-mining and the country-based energy consumption is inherently flawed.
The real question is: Can crypto’s power consumption be assessed without precisely checking and considering what this energy is used for? Or to put it another way: Is it possible to assess crypto’s impact on the environment without having a deeper understanding of how crypto works – and what it is used for? The allegedly enormous carbon footprint is also often cited. Carter writes, “I keep telling people that there’s a big difference between energy use and the associated carbon intensity of that energy. Very few listen.”
Anyone who believes that they can extrapolate the relatively known energy consumption linearly to the carbon intensity of that energy (which is not known at the moment) is deluding themselves. “You can create a model assuming different energy mixes, that’s the best thing you can do right now.”
The fact is: that crypto mining requires a lot of electricity. Undisputed. But does it actually use “too much” electricity, as critics complain?
To put into perspective, air conditioning systems consume 2,000 terawatt-hours per year to keep you cool.
Crypto environmental expert Carter emphasizes that airconditioning systems, heaters, dishwashers, tumble dryers and other everyday things also consume massive amounts of electricity – each of them even far more than crypto.
Tumble dryers for domestic use, for example, use twice the amount of energy worldwide (the balance is even worse for industrial appliances). Even tenfold energy consumption comes from using refrigerators. According to Carter, air conditioning systems generate an incredible 2,000 terawatt-hours per year. Even if one were to add up the total energy expenditure of the financial sector, one would find that “it is much, much larger than the energy consumption of crypto”.
Estimates from 2021 suggest values of 100 TWh for banks alone – per year. Not to mention the electricity costs for Netflix or the Christmas lights during the winter season. However, nobody would complain about the consumption sources mentioned, since their benefit is obvious: “So when the critics talk about the energy consumption of Bitcoin, the ulterior motive is that Bitcoin has no benefit.” Carter adds: “You can’t talk about the costs or discuss the energy consumption without considering the purpose and benefits of the system. So is crypto useful enough?”
Ultimately, it remains a matter of opinion whether one finds a non-governmental, uncensorable, and globally accessible means of payment more useful for financial inclusion than tumble dryers and dishwashers. However, there seem to be signs that Bitcoin will retain its place in society. From an environmental point of view, one question, in particular, appears relevant in the future: where SHOULD the electricity for crypto mining be coming from? Could alternative energy pave the way for sustainable mining?
Elon Musk: the Crypto U-turn
Since Elon Musk’s high-profile crypto environmental rant in mid-May 2021, many have been fully convinced of the asset’s negative carbon footprint. At the time, Space X and Tesla’s CEO let millions of Twitter followers know that his companies would reinstall crypto payments only “when there is confirmation of reasonable (~50%) clean energy use by miners with a positive future trend”. Although this caused the crypto market to crash spectacularly, it also had positive consequences: Musk’s demand immediately made “green mining” popular and also led to the founding of the so-called Bitcoin Mining Council (“Bitcoin Mining Council”). This is an association of North American miners and numerous Bitcoin companies. Their goal is to make crypto mining more environmentally friendly.
This can be achieved, for example, by using clean sources such as geothermal energy or hydropower. Critics fear a lack of objectivity, as many of the council members have an increased financial interest in crypto’s success.
First and foremost, MicroStrategy CEO Michael Saylor. His company holds 105,085 Bitcoins (as of June 2021), and he himself holds another 17,732 BTC. However, the council’s analyzes and reports are subject to rigorous scrutiny – both by Bitcoin opponents and proponents, as well as by the media and academia. The Council itself also regularly discusses the results in detail online.
Bitcoin mining is getting greener
In the report for the third quarter of 2021, Verbund comments: “The members of the council would currently use electricity with a sustainable mix of 65.9%. This would result in an increase to 57.7% for the global crypto mining industry in the sustainable electricity mix.”
That in turn represents a 3% increase over the previous quarter and a significant increase over the 50% required by Elon Musk. Crypto consequently runs on a higher mix of sustainable energy than any other major country or industry. The crypto ban in China and the subsequent miner exodus also brought the movement to the industry.
Bitcoin bull Michael Saylor speaks of “dramatic improvements in the energy efficiency and sustainability of Bitcoin mining” – partly due to advances in semiconductor technology and the global switch to modern mining techniques.
As early as September 2020, a study by the Cambridge Center for Alternative Finance came to a positive conclusion. According to this, the Bitcoin network consumed 39% of renewable energies at the time of the analysis. At the same time, 76% of miners would have used renewable energy “in some form”. If the numbers are correct, Bitcoin’s energy mix consequently contains less carbon from year to year. According to the World Economic Forum, crypto could also be used to store surplus renewable energy, for example from households. Yet another optimistic perspective for the future development of the cryptocurrency mining industry.
El Salvador – the green mining pioneer
It turns out that the Bitcoin network could not only be less environmentally harmful than assumed – it also offers effective incentives for the generation of clean energy. The latest example is El Salvador. The country declared digital coins to become a means of payment by law in September 2021, and now coins are already being mined there is a greenway – using volcanic energy. A corresponding mining farm has been put into action.
Cryptocurrency mining using geothermal energy: this is absolutely clean, completely renewable, and without emissions, according to President Nayib Bukele. At the same time, he lured crypto miners to his country through Twitter, referring to dream beaches, raving about properties in top locations, and promising tax breaks. Crypto and the environment, it seems, may yet become friends.