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Crypto isn’t bad for the environment. Here’s why.

People love to peg their crypto bearishness on one thing: the environmental cost.

But what is the actual environmental cost of cryptocurrencies? It’s not as much as pockets of the mainstream media think. And, even though the Web 3 world is growing, the environmental cost is decreasing.

First, I’ll explain why Bitcoin is at the forefront of the environmental cost debate and why its energy usage is actually far less than what people (cough cough Elon) say it is. Then, I’ll compare Bitcoin energy usage to Traditional Finance. Finally, I’ll wrap up with details on how cryptocurrencies like Ethereum are rapidly becoming orders of magnitude more efficient than they used to be.

Article summary:

  • Why Bitcoin gets the bad press in the environmental discussions
  • Traditional Finance (TradFi) uses an unquantifiable amount of energy to operate
  • New consensus mechanisms are already replacing Proof of Work

Why Bitcoin gets the bad press in the environmental discussion

Excluding anyone who uses “Bitcoin” to refer to all cryptocurrencies (I see you, I know you’re out there, and I want to talk), there’s a group of people who argue that Bitcoin is bad for the environment. They want the miners to turn the lights off and the HODLers to…..well, I’m not sure what they want them to do. Let’s first talk about why they believe that Bitcoin is as bad for the earth as a 19th-century oil tycoon:

Bitcoin uses Proof of Work, which gets a bad rap

Proof of Work is often called “mining.” Miners own super computers that solve complex algorithms. Whoever’s computer solves the algorithm first gets to create the new block and mint coins. Currently an average of 6.25 BTC are minted per block and a new block is created every ten minutes.

Because of the super computers required to solve these algorithms, it is often perceived that tons and tons of energy is being used. But the truth is that Bitcoin miners only use a minuscule portion of the global energy consumption each year. Here’s a chart from economist Lyn Alden’s article, “Bitcoin’s Energy Usage Isn’t a Problem. Here’s Why.”

A pie chart of the global energy consumption. Bitcoin makes up such a small sliver it is barely even noticeable.
Bitcoin’s global energy consumption is a teeny tiny portion of energy used each year.

Alden writes, “Bitcoin’s energy usage is a rounding error as far as global energy is concerned. And I mean that literally.” She goes on to explain that global energy usage has a margin of error of a handful of percentage points, and Bitcoin’s energy use is hardly 0.1%. If Bitcoin usage expands by 10x, it will hardly crack 1%, which means it will still be in that margin of error range. Teeny tiny.

Bitcoin is claimed to use the same amount of energy as entire countries

This argument. Ah. Easy clickbait for an innocent online reader. The thing is, just about any energy-consuming item created uses the same energy consumption as small countries, too. It just depends on the data you have (Is it the aggregate amount of consumption from MacBooks all over the world, or just one MacBook?) and the country you’re comparing it to (Are we talking China, Belgium, or Easter Island?). This chart from Demystifying Bitcoin breaks it down:

Bitcoin mining by the numbers: Bitcoin’s energy consumption is 12x smaller than always-on electrical devices in U.S. households, 15x less than global electricity lost in transit every year, 27x less than the financial sector, 16x less than aluminum production, 7x less than the US military, 4.7x less than bank branches and ATMs.

The industries that make your AC window unit, the Coke can you’re drinking out of, and the fridge in your kitchen are all beating Bitcoin in energy consumption.

The energy source for Bitcoin miners is not analyzed

Many individuals who oppose Bitcoin for environmental reasons are not looking at the source of the energy. Bitcoin miners are looking to turn a profit, so they’re going to go for a cheaper energy source—often unused, leftover energy or a variety of renewables.

Energy consumption is not equal to carbon emissions. Even though Bitcoin uses energy, it doesn’t mean it’s bad energy. It’s estimated that 50% of Bitcoin miners in the U.S. use renewable energy sources. It’s also been estimated that 73% of all Bitcoin miners use carbon neutral energy. Another group pegged it at 39%. The number is a moving target, since Bitcoin miners are spread all over the world. But that’s better than banks, which pour trillions of dollars into fossil fuels year after year (more on the banks below).

A chart of energy sources for Bitcoin miners per region. The breakdown of energy sources is very diverse, with hydroelectric making up a major part of the energy. In North America in particular, many renewable sources are used as well.
Energy source for miners by region, according to the University of Cambridge.
Renewables as part of hashing (aka mining) energy mix. 76% of miners use renewable energies as part of their mix, and 39% of hashing’s (mining’s) total energy consumption comes from renewables.
Percentage of renewables used for energy need to mine Bitcoin, according to the University of Cambridge.

Bitcoin miners can set up anywhere as long as they have an internet connection. And this means they can use forms of energy that would have otherwise been wasted by mining only when there’s a surplus of energy in the grid and not mining when the grid is at capacity. Because miners don’t need to run all the time and can move wherever the energy is, it has even been argued that Bitcoin incentivizes a future of cleaner, un-wasted energy.

Fundamentally, Bitcoin cannot function without energy. The purpose of this article is not to argue that Bitcoin is not consuming energy or creating a carbon footprint: it’s to argue that the carbon footprint is significantly less than many people may think. To close out this Bitcoin-specific section, I’ll leave you with this quote from the Harvard Business Review:

“Bitcoin (like almost everything else that adds value in our society) does consume resources.” Emphasis on almost everything else that adds value in our society. Energy consumption is necessary, but if done in a sustainable way, it doesn’t have to be the evil, harmful thing that reporters sometimes make it out to be.

Traditional Finance uses (and finances) an unquantifiable amount of energy

It’s impossible to quantify exactly how much energy goes into running TradFi. Galaxy Digital produced the chart pictured below, which is a very helpful model to start with. But, when adding in the smaller details that go into TradFi that crypto erases—printing, writing, and mailing checks, building and operating brick-and-mortar banks, educating financial workers, and more—the bar we see on the chart could stretch into the stratosphere.

The banking system uses over double the energy used by Bitcoin, and gold is just a sliver less than the banking system.
Now, imagine Gold and the Banking System stacked on top of each other.

And that chart doesn’t even include the money that banks dump into fossil fuels. A study diving into the connection between big banks and the climate crisis reported that 60 of the biggest global banks put $3.8 trillion into fossil fuels between 2016 and today. Trillion. That’s money that could have gone to renewable resources. That’s money that could have built wind farms and solar panels. But instead it went to the pockets of fossil fuel companies. This sobering statistic makes Bitcoin’s energy use—much of which is renewable—look like a spec of dust on the sidewalk compared to what big banks are doing.

“The practices of the world’s largest banks are fundamentally at odds with the 2016 Paris target of limiting global warming to 1.5 degrees celsius,” wrote Jariel Arvin, reporting for Vox. This chart from the Rainforest Action Network shows how much big banks put into fossil fuels each year:

A chart of the top twelve banks that contribute the most to climate change by financing fossil fuels between 2016 and 2021. JP Morgan is at the top with $317 billion, Citi comes in at $238 billion, and Wells Fargo is at $223 billion.
Found your bank yet? Or your bank’s bank?

And, when discussing Bitcoin’s energy usage, no one addresses the extraneous pieces of TradFi that will be thrown to the wind when crypto mass adoption occurs: the energy the Fed uses to print dollars, or the energy used when checkbooks are created and shipped, or the energy used to power mail carrier trucks that take checks to their destination, or the time and energy and money used to build banks and employ bank workers and educate them in universities and keep the bathrooms in the bank clean and print those switch kits in color and mail you a new credit card or ship from China those pens on chains that you use to sign documents and……yeah. I could go on.

New consensus mechanisms will replace Proof of Work

Bitcoin will always use Proof of Work. But other chains use either Proof of Stake or a hybrid model that merges into Proof of Stake. And staking uses much, much less energy than mining.

Staking is a consensus mechanism in which validators manage a pool of coins (a stakepool), the size of which determines the number of votes they get to have in the system. The validators are randomly selected to mint blocks, and all the validators vote on whether or not the blocks should be minted (if they’re malicious or not, basically). Staking does not require the large amounts of computing power that Proof of Work does. Anyone can stake their coins. Anyone can be a validator, regardless of computing power.

The energy use implications of transitioning to a Proof of Stake model are massive. When Ethereum fully merges to a Proof of Stake model, it will use 99.95% less energy than it did on the Proof of Work model. The Ethereum Foundation used this chart to show how much energy their PoS model uses compared to Bitcoin:

If Bitcoin energy use is the Burj Khalifa (the tallest building in the world), Ethereum Proof of Work energy usage is the same as the leaning tower of Pisa, and Ethereum Proof of Stake is the same as a screw.
Handy charts from the Ethereum Foundation

Proof of Stake, 2,000x more energy efficient than Proof of Work, is now the default way for new and innovating chains to achieve consensus across a network. Proof of Work is the old model, created when Proof of Stake was far from being in use yet. And the landscape of consensus mechanisms is ever-broadening. Who knows what new, fast, trustless consensus mechanisms will be invented in the future? Just like old computers used to take up entire rooms and use tons of energy, now we have lightning fast laptops that fit into our backpacks and briefcases. Technology around energy usage and consensus mechanisms in cryptocurrencies is already changing, and the world will be better for it.

TLDR

  • Bitcoin bears the brunt of the environmental criticism because of poor understanding of energy used in the Proof of Work model, the energy-usage comparison to small countries that is popularized by the media, and the lack of investigation into the types of energy used by Bitcoin miners.
  • TradFi not only uses far more energy than Bitcoin, but the largest banks in the world actively finance fossil fuels.
  • Proof of Stake is rapidly replacing Proof of Work, meaning energy consumption will decrease by over 2,000 times.

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Samantha Marin

Samantha Marin

It’s all coordination | I write about DAOs and the humans behind them. Senior content writer at Aragon. Writer of the Quorum Newsletter.

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