Bitcoin

What is the environmental impact of Bitcoin?

Concerns about Bitcoin’s environmental impact have grown as it has progressed from a technological toy to a serious financial instrument.

This scrutiny reached new heights when Elon Musk withdrew Tesla’s Bitcoin payment option, citing Bitcoin’s negative environmental impact. Following Elon Musk’s public admonition, media coverage increased significantly. Unfortunately, this was accompanied by a decrease in the caliber of criticism. The purpose of this article is to shift the debate away from sensationalism and toward reality.

Overview

Almost all criticism of Bitcoin’s real and imagined environmental impact can be summed up in the following statement. Bitcoin is bad for the environment because it uses a lot of electricity, making it morally repugnant. There are three claims being made here in total.

  1. Bitcoin consumes a significant amount of electricity.
  2. Excessive electricity consumption is harmful to the environment.
  3. Things that are harmful to the environment are unethical.

We believe that each of these claims contains a significant amount of truth, but the manner in which they have been discussed has frequently misrepresented truth. Let’s go over each claim one by one to help clear up some of the more serious misconceptions.

Claim 1: Bitcoin uses a lot of energy.

Would you believe it if I told you that Bitcoin currently consumes around 71.86 Terawatt hours per year? Most people require comparisons to understand what these kinds of numbers mean. Recently, headlines such as this one from the BBC have used eye-catching country comparisons to demonstrate that Bitcoin consumes a lot of electricity. However, we must be cautious of such comparisons because, similar to this optical illusion, the choice of what to compare can influence how you feel.

Get Started Environment Illusion
The Delboeuf illusion is a type of optical illusion. source: bitcoin.com

Despite the fact that the two circled dark discs are the same size, the left disc appears to be smaller than the right.

The data in that BBC article comes from the Cambridge Bitcoin Electricity Consumption Index (CBECI). The BBC article omitted to mention that the CBECI reports that Bitcoin accounts for approximately 0.37 percent of global electricity consumption. According to the CBECI, the entire Bitcoin network could be powered by just 35% of the transmission and distribution power losses in the United States. In other words, the amount of energy wasted in the US electrical grid is three times the amount of energy used by Bitcoin globally. Later in this article, we’ll go into more detail about Bitcoin’s use of excess and wasted energy.

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Many media articles have been written about Bitcoin’s potential for exponential energy growth, based largely on its historical growth rate. For example, a 2017 Newsweek article headlined “Bitcoin Mining on Track to Consume All of the World’s Energy by 2020.” Interestingly, the same argument was made about the Internet’s electricity consumption, yet neither the Internet nor Bitcoin have had a catastrophic effect on global power consumption. Instead, developing countries are understandably responsible for the majority of the increase in global power consumption since 1990.

The Internet has not destabilized global power consumption, owing in part to its slowing adoption curve, but also to significant advances in computer efficiency. This, as well as many other considerations, apply to Bitcoin, and they imply that Bitcoin’s electricity consumption will not continue to rise at its current rate. Is this to imply that Bitcoin consumes or does not consume a lot of power? Will Bitcoin’s energy consumption skyrocket in the future? The unsatisfactory answer, the one that will not make headlines: it’s complicated. It all depends on your perspective.

Claim 2: Excessive electricity consumption is harmful to the environment.

To begin, many people have mixed up electricity consumption and energy consumption. Electricity is an important way to measure energy consumption, but focusing solely on electricity can lead to the omission of other important contributors. The agricultural industry, for example, consumes far more fossil fuels than electricity. Comparing only Bitcoin’s electricity consumption to that of other industries can result in unfavorable apples-to-oranges comparisons. Bitcoin uses more electricity than the gold mining industry, but the gold mining industry uses more than twice as much energy and contributes to other environmental issues like deforestation and water pollution.

The electricity used to run computer hardware accounts for nearly all of Bitcoin’s energy consumption (a small amount is used to manufacture and transport the computer hardware). Because electricity is generated from various sources, the environmental impact varies depending on how that electricity is generated: one kilowatt generated by a hydroelectric plant will have a much lower environmental impact than one kilowatt generated by a coal-fired plant. Knowing where Bitcoin’s electricity comes from will thus aid in determining how harmful Bitcoin’s energy consumption is to the environment.

Get Started Environment Pie Chart Lg@2x
In 2018, the following sources generated the majority of the world’s electricity. source: bitcoin.com

Bitcoin miners generate the vast majority of Bitcoin’s electricity. You can estimate the energy composition by tracking where Bitcoin miners are located and how electricity is generated in those areas. Unfortunately, because tracking Bitcoin’s energy composition is still a new endeavor, the best estimates are flawed. They do not, for example, include all mining pools, and the energy mixture used is sometimes at the country level, which lacks the granularity to capture differences in energy composition within regions of large countries such as China and America.

This results in a significant difference in estimates of Bitcoin’s energy composition. For example, this report suggests that renewables account for 73 percent of Bitcoin’s energy consumption, whereas this report estimates that renewables account for only 39 percent of Bitcoin’s energy consumption. The truth appears to be somewhere in the middle of these two estimates.

Is it a bad thing that Bitcoin’s energy comes from 70% renewable sources? What if that percentage is only 40%? To put this in context, America’s energy is 20 percent renewable.

Claim 3: Things that are harmful to the environment are unethical.

It’s not quite that simple. Let’s take a look at an example to see why.

Hospitals use a lot of energy and generate a lot of waste. One-use products such as plastic packaging for sterile necessities such as syringes and needles, alcohol swabs, masks, and absorbent paper account for a large portion of the waste. Is it bad to have hospitals with all of these negative environmental effects, or is it worth it? Despite their negative impact on the environment, most people would agree that hospitals are generally good. This demonstrates an important point: even when things are bad for the environment, they can still be good.

This raises a much more interesting (and difficult) question: is Bitcoin worth the environmental cost?

Is the environmental impact of Bitcoin worth it?

What you think about the three claims discussed above, as well as other factors, will influence how you answer this question. For us, the answer is a resounding yes.

We believe Bitcoin consumes a lot of electricity, despite the fact that its relative size is smaller than some have attempted to portray. We believe that Bitcoin’s electricity consumption will rise in the future, but at a much slower rate than in the past, similar to how the Internet’s energy has risen.

We are not convinced that Bitcoin’s energy consumption is harmful to the environment. For starters, there is evidence that Bitcoin’s energy consumption comes from sources that would otherwise be wasted, such as hydroelectric in areas where energy production far outnumbers demand. Flared natural gas is also used in Bitcoin mining, which is a rapidly growing industry. Any extra energy used by Bitcoin causes very little additional harm to the environment.

Nonetheless, we are dissatisfied with Bitcoin’s current energy composition, whether it is 40 percent renewable, 70 percent renewable, or derived from waste energy. Bitcoin is a next-generation technology that should power a next-generation energy composition, which we believe is very likely.

Finally, and most importantly, we believe Bitcoin is a positive force. From assisting the estimated 1.7 billion unbanked people in gaining access to wealth-creating financial tools such as savings accounts and credit to addressing the UN’s Sustainable Development Goals (SDG 10) of reducing exorbitant International Remittance fees, Bitcoin is improving the lives of people who have been largely ignored by the legacy financial system.

Bitcoin is far from ideal. Bitcoin, like all industries, deserves to be scrutinized in terms of environmental impact. We are confident that things are improving for the environment, but even if they aren’t, Bitcoin does far more good than harm.

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