Bitcoin is heating the planet. The cryptocurrency’s annual carbon footprint is roughly equal to Libya’s, and it consumes as much power as Pakistan. A single Bitcoin transaction produces more than 700kg of carbon dioxide, according to the website Digiconomist—equivalent to the carbon footprint of more than 1.5m transactions using a Visa credit card.
“It will take a lifetime for a tree to remove that carbon dioxide from the air,” says Camilo Mora, a climate scientist at the University of Hawaii. “We are totally underestimating the magnitude of what [Bitcoin] is actually doing.” So is it time to abandon Bitcoin because of its harm to the environment?
Last month, Elon Musk tweeted that Tesla would no longer accept Bitcoin for purchases because of climate concerns. Tesla had previously angered environmental campaigners by buying $1.5bn of the digital currency. Musk had also plugged the meme-based cryptocurrency Dogecoin on Saturday Night Live, to the delight of investors. But when the Tesla CEO pulled support for Bitcoin, the currency immediately plummeted in value by more than 10 per cent.
Not everyone was pleased with Musk’s change of heart. “I don’t think he spent a lot of time looking deeply at the long-term potential of what Bitcoin can be,” says Don Wyper, COO of Bitcoin point-of-sale provider DigitalMint.
“And he does a disservice to himself by promoting Dogecoin in the same breath as talking about Bitcoin. It's like talking about a McDonald's Happy Meal while eating a five-star Michelin steak: you can't compare the two.”
“The Cambridge Centre for Alternative Finance estimates Bitcoin now represents 0.51 per cent of global electricity production”
According to Wyper, when you take into account the energy costs of mining, storing, transporting and transacting, the gold-mining industry ultimately uses more energy than Bitcoin. Yet Bitcoin’s power consumption is undeniably vast: Cambridge University’s Centre for Alternative Finance estimates Bitcoin now represents 0.51 per cent of global electricity production.
Bitcoin relies upon a type of shared public ledger known as a blockchain. A lot of energy is consumed in Bitcoin blockchain’s use of a decentralised consensus mechanism called “proof-of-work,” which makes transactions secure without needing a third party. (Other proof-of-work blockchains also have huge energy costs—Digiconomist has calculated that the Ethereum network uses as much power as Qatar.) To mine Bitcoin using the proof-of-work protocol, computers race to solve cryptographic puzzles. But as unmined Bitcoins become rarer—18.5m of the total 21m Bitcoins available have already been mined—the algorithms that must be solved have grown more and more complex. Bitcoin’s price surges—despite sporadic dips—have made mining hugely profitable. But it has come at a cost. “Electricity consumptions and carbon emissions of Bitcoin may have almost tripled since we published our first study back in 2019,” says Christian Stoll, a researcher at the University of Munich and MIT who studies cryptocurrency mining emissions. “The higher the market price, the more miners can spend on hardware and electricity.”
When Bitcoin was created in 2009 by the pseudonymous inventor Satoshi Nakamoto, you could mine it on a normal computer. “Early on, people were making these solutions on their laptop computers in dorms and making money,” Mora says. “Now you need computers with technology that is just mind-blowingly fast to resolve [the puzzles].” The hardware created to solve the algorithms, which is not used for any other purpose, becomes obsolete very quickly as new technology develops.
Some cryptocurrencies, such as EOS and Cardano, use the proof-of-stake system instead of proof-of-work—which takes up the same amount of energy as a usual computer network. “There’s an academic debate about which system is better,” says Marc Bevand, a Bitcoin investor who developed one of the initial models for measuring cryptocurrencies’ environmental impact. Currencies that use proof-of-stake may be eco-friendlier, but the system is considered much less secure than proof-of-work. Ethereum says on its website that it currently uses proof-of-work, which “prevents certain kinds of economic attacks.” It has been planning to move to a proof-of-stake system, but the migration keeps getting delayed, Bevand says. “It’s four years behind schedule. It’s a trade-off. It seems the systems that do not require concentrated energy cannot be proved to provide the same properties [as proof-of-work].
“It would be better, of course, to have a system that doesn't require this high level of consumption of electricity. But, unfortunately, on a theoretical level we cannot demonstrate it's just as good.”
Much of Bitcoin’s energy currently comes from fossil fuels. Around 65 per cent of Bitcoin mining occurs in China, which relies heavily on coal as an energy source. (Several Bitcoin miners were temporarily shut out in April due to electricity grid blackouts in Xinjiang.) A report by the Cambridge Centre for Alternative Finance found that 39 per cent of Bitcoin mining uses renewable sources. Bevand argues that miners will increasingly turn to renewable energy sources as they become cheaper, slashing their carbon footprint. “Bitcoin mining is probably the industry that is the most sensitive to electricity prices,” he says. “Electricity costs represent 95 per cent of their operational expenditures per month. Miners are looking for cheap energy—so they will migrate to clean energy.”
Wyper agrees: “The more and more difficult mining becomes, the more focused miners are going to be on finding renewable, cheaper energy. Over the next few years, it's projected that renewables are going to be the cheapest form of energy. Therefore, in some ways, the Bitcoin protocol is pushing the whole industry towards renewables.”
Digital currencies are difficult to regulate—which makes them appealing to criminals. Last month China banned financial and payment institutions from providing services related to cryptocurrencies. If only the US were to follow suit, Mora says, that would “put a nail in [Bitcoin’s] coffin.” But no signs indicate that western governments are interested in a crackdown.
Although proof-of-work cryptocurrencies may be inching towards renewable energy sources, for the moment, their colossal carbon footprint is hard to justify. Mora does not see the point. “With cars, a cell phone, the internet, you can see the purpose behind all those technologies,” he says. “In the case of Bitcoins, or these other cryptocurrencies—it’s just for money. And this is a moment in which we're destroying nature. I think that we are better than this.”
