Elon Musk raised the issue of the environmental sustainability of Bitcoin after announcing that Tesla would no longer sell its cars for this cryptocurrency due to the damage it does to the environment.
This can potentially lead to a ban on purchasing various other things with cryptocurrencies (planes, yachts, real estate, clothes…) and using cryptocurrencies in transactions of various types (e.g. depositing funds at bookmakers rated here that offer cryptocurrencies, such as Bitcoin Cash, as a payment method). After the announcement of Musk, the value of Bitcoin dropped sharply, and the topic of the amount of energy consumed by cryptocurrencies was raised in public.
Concerns About Carbon Footprints Leaving Cryptocurrencies Are Growing
Last week, the European Central Bank (ECB) described an excessive carbon footprint in cryptocurrency activities as a cause for concern. Earlier this month, The Bank of Italy (Banca d’Italia) said TIPS, the Eurozone payment system, had 40,000 times less carbon dioxide emissions than those produced by Bitcoin in 2019.
Other digital currencies have been shown to be far smaller consumers of energy than Bitcoin, and there have also been arguments that the classic banking system is a significantly larger consumer of energy as well as that gold mines cause immeasurable environmental damage. Despite the fact that, for example, the increasingly popular Dogecoin consumes as much as 6,000 times less electricity per transaction than Bitcoin, all cryptocurrencies have become notorious because the entire digital money market is still identified with the most famous of them.
It’s Calculated How Much Individual Transactions With Cryptocurrencies Cost in Terms of Energy
The energy required for computer operations and the launch of the algorithm behind cryptocurrencies can be calculated and, in accordance with that, a fairly precise calculation is made of how much an individual transaction costs in the energy sense. A great deal of research has been done and these results have been reached.
Cryptocurrency / Consumption of kilowatt hours (KWh) per transaction:
- XRP 0.0079
- Dogecoin 0.12
- Cardano 0.5479
- Litecoin 18,522
- Bitcoin Cash 18,957
- Ethereum 62.56
- Bitcoin 707
By comparison, the average monthly household consumption in the United States is 867 kWh. So, just one Bitcoin transaction costs a little less than the average American household in a month. These are really huge numbers that do not go in favor of Bitcoin, especially today when more and more attention is paid to energy consumption.
The Issue of ‘Mining’
There is also the issue of mining, and the largest ‘miner’ in the world is China. In as many as 60 % of cases, it uses coal to obtain electricity during these operations. It can be said, however, that cryptocurrencies can be an incentive for the development of renewable energy but renewable energy itself must be efficient enough to be able to produce electricity at more favorable prices than classical methods. The big ‘crypto-miners’ will go where electricity is cheap, following the supply and demand system.
These are long-term issues, and what is now crucially affecting the price is the energy cost per transaction. Some cryptocurrencies, due to a different algorithm, consume far less. The exceptional economy is shown, as can be seen above, by XRP (ripple), also a very popular cryptocurrency, which consumes only 0.0079 kWh per transaction. The already mentioned Dogecoin is also very economical with only 0.12 kWh per transaction.
In theory, a greener version of Bitcoin is also possible because its code could be switched to a less energy-intensive, so-called consensus mechanism. However, industry experts state that it is difficult to imagine the entire Bitcoin community, which is full of disagreements, to support such a plan despite that Bitcoin itself could raise the global temperature by two degrees Celsius in the next 30 years.
Some Opinions Say That the Environmental Impact of Bitcoin Mining Is Exaggerated
It is pointed out here that Bitcoin’s high energy costs per transaction are a common misconception. The vast majority of energy consumption occurs during the mining process but after the cryptocurrency is issued, the energy required to validate transactions is minimal.
These new insights raise two key questions about the energy consumption of Bitcoin mining that may change the usual picture of environmental impact. This may not solve the questions about its usefulness but it can help to contextualize how much impact it actually has on the environment.
Energy Consumption Is Not Equivalent to Carbon Emissions
There is an important difference between how much energy a system consumes and how much carbon it emits. Although determining energy consumption is relatively simple, it is impossible to determine carbon emissions without knowing the exact ‘energy mix’, i.e. the composition of the various energy sources used by Bitcoin mining machines. For example, one unit of hydropower will have a much smaller impact on the environment than the same unit of energy on coal. Estimates of how much Bitcoin mining uses renewable energy vary widely.
In December 2019, a report suggested that 73 % of energy consumption during Bitcoin mining was climate neutral, mainly due to the abundance of hydropower in major mining hubs such as southwest China and Scandinavia. On the other hand, in September 2020, the Climate Challenge Asset Fund (CCAF) estimated that figure to be around 39 %. But even if the lower number is correct, it is still almost twice as high as in the United States, which suggests that just looking at energy consumption is a difficult reliable method for determining carbon emissions when Bitcoin mining.
How Realistic Are the Claims That Bitcoin Mining Could Increase Global Temperature?
Because the energy footprint of this cryptocurrency has grown very rapidly, people sometimes assume that they will eventually manage entire energy networks. This was the premise of the 2018 study, making the claim we emphasized earlier in the text that Bitcoin could heat the country by two degrees Celsius. But there is good reason to believe that this will not happen.
First, as has become common in many industries, Bitcoin’s energy mix is less and less dependent on carbon each year. At the same time, many organizations in the industry have launched initiatives such as the Crypto Climate Accord, inspired by the Paris Agreement (UNFCCC). The idea is to advocate and commit to reducing the carbon footprint of Bitcoin. And of course, as renewable options like solar energy become more efficient, and therefore more sustainable for mining, Bitcoin could ultimately serve as a serious incentive for miners to build these technologies.
Is Bitcoin worth the impact on the environment? The actual negative impact is probably much less alarming than is often presented in the media. But there is no denying that this cryptocurrency is consuming resources. As in any other energy-consuming industry, it is up to the crypto community to recognize and address these environmental issues, work in good faith to reduce Bitcoin’s carbon footprint, and ultimately demonstrate that the social value that Bitcoin provides valuable resources needed to sustain it.