Bitcoin in green flowerbed, plants and one pansy flower. getty
Bitcoin BTC 0.0%, the world's first decentralized digital currency, has been embroiled in a persistent debate regarding its environmental footprint. However, it is crucial to clarify that energy usage does not inherently lead to environmental harm. According to the Cambridge Centre for Alternative Finance, bitcoin's annual energy consumption amounts to a substantial 129.45 TWh, comparable to that of entire countries. Yet, this comparison often leads to misunderstandings about the true nature of bitcoin's environmental impact.
In fact, the CCAF has determined that the bitcoin industry uses a significant amount of renewable energy, sometimes more than half, depending on the jurisdiction. This is a testament to the industry's commitment to sustainability and its potential role in the green revolution.
Furthermore, it's a common trend for technologies to start off with a high level of inefficiency, including a larger emissions footprint. Over time, these technologies evolve and become more efficient, reducing their environmental impact. This pattern is evident in various technologies, such as solar power or EV batteries, which initially had a higher emissions output that has been progressively reduced.
The primary driver of environmental damage is emissions, not energy use. And there are a variety of ways for bitcoin miners to reduce emissions while remaining effective.
Demystifying Bitcoin Mining And Energy Usage
To evaluate bitcoin's environmental footprint, it's essential first to understand the intricacies of bitcoin mining. Bitcoin mining is a complex operation which is vital to the bitcoin network's functioning. It plays two key roles:
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- It facilitates permanent transaction recording on the blockchain, thereby removing the need for a central authority.
- It enables the fair distribution of bitcoin's total supply of 21 million coins, rewarding miners with new coins for using real-world resources, especially electricity, to secure the network.
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In the bitcoin network, an intense competition occurs among miners who use specialized computers, known as Application Specific Integrated Circuits, to compute cryptographic hash functions. These computations are like buying lottery tickets; the more a miner can compute (i.e., the more tickets they possess), the better their chances of winning.
However, winning isn't random. The goal is to calculate a hash that's lower than a certain value, known as the network 'difficulty'. This difficulty adjusts approximately every two weeks, based on the total computing power of the network, to ensure that a new block is added to the blockchain roughly every 10 minutes.
As the popularity of bitcoin grows, so has the number of miners. This has significantly driven up the mining difficulty. In fact, over the past two years, the difficulty has increased by 3.6 times, meaning miners have to work 3.6 times harder to win the block reward. As the difficulty rises, the profitability for miners subsequently diminishes.
The bitcoin difficulty chart: a historical overviewCoinWarz
The miner who achieves the 'winning' hash earns the right to add a new block of transactions to the blockchain and gets rewarded with new bitcoins. Currently, the block reward is 6.25 bitcoins, but this number undergoes a 'halving' approximately every four years.
The next halving event, due in mid-2024, will reduce the block reward to 3.125 bitcoins. This event implicitly requires miners to double their energy efficiency every four years to maintain profitability. This built-in feature not only encourages miners to consistently boost their efficiency, thereby fostering technological advancements in mining, but it may also enhance the overall sustainability of the bitcoin network. The ever-rising mining difficulty further amplifies this efficiency demand, pushing bitcoin miners to keep pace with the increasing challenge.
A report by JPMorgan highlights this stark reality: only bitcoin miners with access to cheap electricity and a high proportion of sustainable energy will likely survive in this progressively competitive space. As we hit an all-time high in mining difficulty, it's clear that being a bitcoin miner is no easy task.
The Evolution of Bitcoin Mining: A Journey Towards Efficiency
Since its inception in 2009, bitcoin mining has witnessed a significant surge in efficiency. Initially, mining was conducted using Central Processing Units. As the network expanded, Graphics Processing Units took over, and since 2013, ASICs have been the preferred hardware due to their superior efficiency. The first CPU, the ARM Cortex A9, had a Joules per Terahash (J/TH) of 877,193 in 2009. In contrast, the Antminer S19xp has a J/TH of just 21.5, marking an efficiency increase of approximately 4,077,000%.
Rapid advancements in bitcoin mining efficiency: a 58x increase over 8 years.Bitcoin Mining Council
Bitcoin's Energy Consumption: A Fair Comparison
Bitcoin, often criticized for its energy consumption, actually uses less energy than many traditional industries. With an annual consumption of 129.45 TWh, it accounts for only 0.078% of global energy use. In comparison, the gold industry consumes around 240.61 TWh annually, factoring in emissions from various stages of production and refining. The traditional banking system, encompassing data centers, branches, ATMs, and card network data centers, uses even more energy, estimated at around 638.88 TWh annually.
Other sources, like the cybersecurity engineer and cryptographer Michel Khazzaka, told CoinTelegraph in an interview that the banking industry uses at least 56 times more energy than bitcoin. It's important to note that these comparisons are based on available data, and exact energy consumption can be challenging to calculate due to non-disclosure in some industries.
Bitcoin's Emission Intensity: A Comparative Analysis
When we delve into the emission intensity (g/kWh) of bitcoin and compare it with other industries, it becomes clear that bitcoin, with an emission intensity of 296 g/kWh and a sustainable energy mix of 52.6%, is more environmentally efficient than many other sectors.
The gold industry, which relies on a combination of non-electrical and electrical power sources, has an even higher emission intensity of 679g/kWh and a sustainable energy mix of a mere 12.8%, according to Goldmoney.com. These figures underscore the critical role of the energy mix in determining the environmental impact, and they position bitcoin in a more favorable light when considering emission intensity.
Turning Energy Waste into Wealth
Bitcoin miners are exploring a novel solution to the problem of stranded energy, which refers to energy that is generated but remains unused due to its isolated location. For example, remote natural gas mining often allows some gas to escape.
By establishing bitcoin mining operations in such areas, bitcoiners are converting this otherwise wasted energy, escaped natural gas, into a valuable resource that fuels the mining machines. For yet another example, bitcoin miners are also harnessing stranded sources of wind and solar power, thereby improving the financial viability of these renewable energy projects. Furthermore, bitcoin miners such as EZBlockchain and Crusoe Energy are addressing the issue of natural gas flaring, a common byproduct of oil drilling, by utilizing this gas to produce electricity for mining operations.
This strategy does more than merely utilizing stranded energy; it's also emerging as a cost-efficient method to decrease atmospheric methane, a potent greenhouse gas. According to a report by ESG analyst Daniel Batten, this approach could significantly aid in the fight against climate change. Surprisingly, bitcoin miners could potentially play a beneficial role in environmental conservation. Batten's study suggests that by 2045, bitcoin mining could reduce global warming by 0.15%. The report emphasizes that currently, bitcoin mining is the only technologically viable solution for mitigating methane emissions.
Bitcoin's Journey Towards Sustainability
It's crucial to remember that in the grand scheme of things, bitcoin's environmental footprint is relatively small when compared to larger industries and adjacent sectors. These financial sectors require our immediate attention and concerted efforts to significantly reduce global carbon emissions.
In conclusion, the environmental narrative surrounding bitcoin is multifaceted and evolving. Its journey towards sustainability is fueled by relentless innovation and efficiency enhancements, making it a promising player in the green revolution. Bitcoin's unique ability to harness stranded energy resources and mitigate potent greenhouse gas emissions positions it as a potential ally in our fight against climate change.