If Bitcoin is here to stay, then sadly, our combined global efforts to tackle climate change might well be going down the drain. But not all cryptocurrencies are as menacing on the planet. Certainly not Ethereum.
- Bitcoin’s massive energy consumption outstrips some of the world’s most developed countries.
- A single Bitcoin transaction consumes more energy than needed for 100,000 Visa transactions or the monthly power consumption of an average American household.
- Bitcoin mining also significantly contributes to Global Warming and has become the reason to reignite Fossil Fuel powered energy creation.
- Nevertheless, Ethereum, the world cryptocurrency number 2, is moving towards an energy efficiency model that might be the answer to the climate conundrum.
Back in February, Elon Musk announced that Tesla had invested $1.5 billion in Bitcoin. In March, he announced that the company’s electric cars can now be bought using Bitcoin. Not only did Musk send the price of the world’s most popular cryptocurrency soaring ($60,000), he also raised a lot of eyebrows. Naysayers, in unison, criticized Musk, the otherwise climate-friendly entrepreneur, for promoting an “energy-intensive” mode of payment to buy “climate conscious” electric vehicles.
The Musk fiasco well documents the skepticism and confusion among millions of crypto-enthusiasts. These are millennials who have a soft spot for the planet. The questions are plenty and answers have been tough to come by. Are cryptocurrencies harmful to the environment? Is Bitcoin really bad? Can cryptocurrencies and blockchain truly fight climate change? We decode how cryptocurrencies, not Bitcoin, can help the planet…
Watch: Why Bitcoin is so bad for the Planet
Bitcoin Consumes A Lot of Power
Mining Bitcoin is energy-intensive. It requires large amounts of electricity. As a result, any increase in Bitcoin purchases leaves behind a hefty carbon footprint. According to a 2020 estimate, Bitcoin currently uses more electricity than the entire countries of Austria and Greece combined.You will find more infographics at Statista
The Bitcoin system uses blockchain, a public ledger, to track its transactions. This ‘mining’ or verification process, which allow miners to decipher a computationally demanding proof-of-work in exchange for bitcoins and validate the transactions, is extremely energy-intensive. To give you an example: A single Bitcoin transaction – which consumes more energy than 100,000 Visa transactions – could power an average American household for a month!
As the world looks to make the shift towards green energy, Bitcoin’s electricity consumption – from hydropower, coal or geothermal power to fossil fuels – is a deterrent. “Bitcoin is a cryptocurrency with heavy hardware requirements, and this obviously translates into large electricity demands,” said Randi Rollins, a master’s student at the University of Hawaii.
The Bitcoin Carbon Dioxide Emissions
Bitcoin mining also contributes to global warming. A recent study projects Bitcoin to generate more than 130 million metric tons of carbon emissions in China alone by 2024. Bitcoin alone could produce enough emissions to raise global temperatures by 2°C as soon as 2033, a 2018 study has already warned.
“With the ever-growing devastation created by hazardous climate conditions, humanity is coming to terms with the fact that climate change is as real and personal as it can be. Clearly, any further development of cryptocurrencies should critically aim to reduce electricity demand, if the potentially devastating consequences of 2°C of global warming are to be avoided,” said Camilo Mora, associate professor of Geography in the College of Social Sciences at University of Hawaii and lead author of the study.
Bitcoin alone could produce enough emissions to raise global temperatures by 2°C as soon as 2033.
The growth of CO2 emissions could have long-lasting negative impact for the entire planet. A key signatory of the Paris Agreement, China has pledged to be carbon neutral by 2060. But the country remains the world’s largest contributor of greenhouse gases (China produces two thirds of its power from coal) as more than two-thirds of Bitcoin mining is believed to occur in China, and not in Finland where power generation is low-carbon. This explains the correlation between Bitcoin and climate change.
Can A Green Bitcoin Fix Climate Change?
The answer is: it can’t. Because, there is currently no such thing as a “green Bitcoin”.
61% of Bitcoin mining in China is powered by fossil fuels. Redundant and cheap coal mines in Australia have been reopened to power Bitcoin mining. The quest for residual energy is also increasing the profitability of natural gas in Siberia. It is also supporting oil drilling in Texas. In Congo, Bitcoin miners have been given special access to cheap, clean energy produced by an EU-funded hydroelectric plant which was designed to help locals find livelihoods.
Watch: Inside a Secret Chinese Bitcoin Mine
Cambridge University’s 3rd Global Cryptoasset Benchmarking Study in 2020 found that 39% of global proof of work mining was powered by renewable energy. However, the fact that renewables only supply 28% of the world’s electricity, the Bitcoin network’s use of green energy simply means that other areas of the economy cannot decarbonize. And if Bitcoin is here to stay, global energy consumption WILL rise drastically.
Susanne Köhler, a sustainable blockchain researcher at Aalborg University, warns: “I don’t think you can participate in Bitcoin and have zero impact. Firstly, one could attribute to your transactions the related share of the system’s impacts. Secondly, using Bitcoin adds to the miners’ revenues and likely impacts the market price, so you are perpetuating a system that has a negative impact, whether that’s you buying USD .05 Bitcoin or Elon Musk buying 1.5 billion.
“There have been multiple cases where Bitcoin mining facilities have displaced other electricity consumption. So, if they use the renewable electricity, others may not have access to renewables anymore.”
Can Cryptocurrencies Fight Climate Change?
Not all cryptocurrencies are as energy-intensive as Bitcoin. According to Peter Howson of Northumbria University, there are alternatives to proof-of-work. He says the second biggest blockchain project, Ethereum, is switching to proof-of-stake. So, that’s a new system which will remove the need for data miners and perpetual hardware updates.
“Not using proof-of-work would reduce the calculated footprint to zero and the overall footprint by approximately 99%,” Köhler added. So, why can’t Bitcoin shift to proof-of-stake? “The miners are not interested in moving to proof-of-stake. They make tons of money with the current system and are highly invested in it. So, why would they want to move to a different one?”
Watch: Proof-of-Stake vs Proof-of-Work
Further, if countries around the world initiate climate-related crypto regulations or start regulating cryptocurrencies from a financial standpoint, it would not only be possible to maintain stability in their prices but also force companies seeking to issue cryptocurrencies to investors to comply with similar climate-related disclosure requirements.
In other words, sustainable finance and sustainable investing can promote the environmentally sustainable applications of Blockchain. Jon Truby of Qatar University says that less energy-intensive Blockchain technology can be encouraged by feasible policy choices. He, however, argues that stronger international cooperation and progressive leadership by governments around the world is needed to reduce the colossal energy use of the cryptocurrency.
With climate crisis worsening, could the benefits of cryptocurrencies outweigh their environmental costs?
David Charles concludes: “Cryptocurrencies are one way for activists and citizens to take control of public spending. Every time we use the Pound Sterling, the Euro or the U.S. Dollar, we are inadvertently supporting financial institutions that subsidize the purchase of fossil fuels. Cryptocurrencies give us the opportunity to create new financial instruments that do not support industries that are destroying the environment.
“Rather than making a fast buck with the Bitcoin bubble, consider exploring proof-of-stake cryptocurrencies and investing in community-driven projects that also help heal the planet, projects like SEEDS, Celo, Circles, Regen Network and the many more that are sure to come. Together, we can create a fairer financial system for the future.”