Is Bitcoin Really Polluting The World? Nah…

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ICONIUM

9 min readMay 14, 2021

Elon Musk is a hero for many people in the World, a visionary, and without any doubt one of the geniuses of our times.

But he has now caused an uproar in the crypto community with his recent standings. Let’s remember that Musk has over 55 million followers and has a strong influence on Media and can, effectively, set a direction for entire markets. A few years ago was forbidden to tweet about the price of Tesla by the US watchdogs. Then he discovered an unregulated space where he can step in and manipulate markets at his will without incurring any sanction from US bodies: Bitcoin and the Crypto Industry.

The main questions are:

Is he doing what he does for Ego, self-promotion, megalomania, or is he doing this with a lucrative purpose?
Does he really believe that Bitcoin is bad for the environment?
Didn’t have these informations when he bought 1.5B in Bitcoin?
Has this something to do with the fact that Tesla is entering into the carbon credit business, heavily subsidized by the Biden Administration?
Is Elon Musk financially involved with Dogecoin? Is he becoming the owner of this Cryptocurrency? How much trust would derive from a currency owned or effectively controlled by a single man?

Many believe that -being the 2nd richest man in the World- Elon would not take advantage of his position to make additional money, and he is in good faith. I believed this too, but now I start having serious doubts: the size of the crypto market is big, his following huge, and potential gains are in the order of tens of billions of dollars on a weekly basis.

Let’s start from the beginning:

Last fall Elon started promoting Bitcoin (price increase)
He also starts promoting Dogecoin a ‘joke’ coin launched many years ago (market cap in December 400M)
Then he announced that Tesla bought 1.5 Billion dollars worth of Bitcoin. It will also accept bitcoin for Tesla purchases immediately after that Bitcoin reaches an ATH of 64k
After that, he gets really serious on Dogecoin and starts pushing it continuously, even on national Television when hosted at SNL. Dogecoin starts a run that has not ended yet and it is now worth $60B (150x) from December.

5. Last: Elon Musk comes out with a tweet accusing Bitcoin of not being environmentally friendly and consuming too much energy. Meanwhile, he says that he will accept Dogecoin to purchase tesla and will finance a new mission to Mars with Dogecoin. last tweets refer to him “working with doge devs to improve system transaction efficiency”

End Game (?): Dogecoin is now the 4th cryptocurrency in market cap and Bitcoin has plunged over 20% in the last 3 days recovering to 50K more recently. Together with the rest of the market.

Before I proceed with our story, I want to state upfront that I am aware that Bitcoin is often criticized for its electricity consumption.

Bitcoin, and the mining industry, do consume a significant amount of energy. It is a design choice made by Satoshi Nakamoto that allows issuing new monetary units in a fair manner.

Still, I believe that Bitcoin is a solution rather than a problem.

According to a Whitepaper entitled “Bitcoin as key to an abundant, clean energy future” released by Jack Dorsey’s digital payment services firm Square, and global asset management business ARK Invest, “bitcoin miners are unique energy buyers.”

Let’s deep dive into this concept.

Energy is a local phenomenon and is not globally fungible. Electricity decays as it leaves its point of origin; it’s expensive to transport. Globally, about 8 percent of electricity is lost in transit.

Now we know that most of the Bitcoin mining activities take place in China in particular in regions like Xinjiang, Sichuan, and Inner Mongolia.

Source: https://cbeci.org/mining_map

The map above is provided by the Cambridge researchers in cooperation with many of the major mining pools. The dataset they created is able to geolocate the IPs of a sizeable fraction of active miners, giving us new insight into Bitcoin’s energy mix. And the results are revealing: Sichuan, second only in the hash power rankings to Xinjiang, is a province characterized by a massive overbuild of hydroelectric power in the last decade.

As we know, a miner uses electricity and is compensated with bitcoins. As a consequence, mining companies must reduce their costs in order to maximize profits. The funders of mining operations will insist on using the cheapest energy and so by definition, it will be electricity that has the least cost.

In essence, Bitcoin miners are using energy that otherwise would have been wasted. If your local energy cost is effectively zero but you cannot sell your energy anywhere, the existence of a global buyer (bitcoin miners) for energy is a godsend.

Bitcoin then acts like an economic battery and what otherwise is of little value locally (energy), is turned into an economic asset that can be used globally (bitcoin).

Extremely flexible demand from miners can optimise the local supply and demand for electricity, which may accelerate the energy transition by improving the economics for new renewable projects.

The transition is already underway.

In December 2019, one report suggested that 73% of Bitcoin’s energy consumption was carbon neutral, largely due to the abundance of hydropower in major mining hubs such as Southwest China and Scandinavia. On the other hand, the CCAF estimated in September 2020 that the figure is closer to 39%. It is difficult to understand which of the two numbers is the more truthful, however, it is certain that the transition to “green” mining is taking place.

This data also leaves us a further message. Although Bitcoin is consuming an enormous amount of energy (according to the CBECI, Bitcoin consumes around 149 TWh per year), understanding how much carbon emissions is producing is extremely complex. Please note, energy consumption is not equivalent to carbon emissions.

Now understanding whether this energy consumption is high, low, or correct is a completely different problem.

Knowing how to answer these questions has become an obligation in this historical moment in which most of the world’s organizations are trying to reduce and limit CO2 emissions into the atmosphere. But understanding if “something” consumes too much is a complex job that must be associated with what is a priority for our society.

Understanding what should be prioritized is mostly subjective, and determining what can be useful to society is tied to our values. Answering this question, therefore, depends a lot on the sentiment we have towards Bitcoin.

If you believe that Bitcoin is a mere speculative tool used to finance terrorists and promote money laundering, it is natural to believe that the consumption of energy dedicated to maintaining the network is excessive and useless.

Conversely, if you are an individual who uses Bitcoin to escape from financial terrorism, hyperinflation, or capital control you will think that the energy spent to make Bitcoin work is very well used.

Following the first line of thinking, one might argue that several industries “waste” an immeasurable amount of energy. A Twitter user shared a statistic (also from the Cambridge Center for Alternative Finance) that suggests that the amount of electricity consumed each year by always-on -but INACTIVE- home devices (in the US ONLY) could power the Bitcoin network for 1.5 years.

We could go on with the electric consumption of Christmas lights (a man’s whim for a period of holidays), washing machines (a privilege, why don’t we wash all our clothes by hand?), or the consumption of world gaming consoles and other industries (in the U.S., video game consoles make up about 0.25% of energy consumption, while construction, commercial cooling, commercial ventilation and commercial lighting range from 2% to 3%).

As you can see many of the data shown above come from the U.S. alone. On the other side, energy use for bitcoin mining is spread among multiple countries, which means it’s useless to compare the cryptocurrency’s consumption to that of countries like many critics love to do.

And if we take into consideration the rockets of the worried Elon?

One SpaceX Rocket launch consumes ~3200 lbs fuel EACH SECOND. 3200 lbs of fuel equal 477 gallons. 477 gallons can produce 6,814 MWh Annually (x31536000) this makes 214TWh. As mentioned, Bitcoin consumes 149TWh annually.

What is more useful? A decentralized global monetary network or the launch of one rocket in the space? For me, the answer is simple…

But let’s try to compare apples with apples.

Bitcoin is a monetary network so a common comparison is with the VISA network. But again, this is very inaccurate and misleading.

Bitcoin and VISA are two completely different systems. Bitcoin is a complete and autonomous monetary system.

According to Nic Carter, partner at Castle Island Ventures and the person who wrote the most regarding the Bitcoin Energy Debate, Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve, and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.

VISA is therefore a small part of the traditional monetary system while Bitcoin is a full-stack monetary and payments system.

If we were to compare the energy consumption of Bitcoin then, we should take into consideration all the elements indicated above with the various externalities that accompany them, such as the extraction of oil to cover the US dollar.

The problem is that calculating the consumption of Bitcoin (given its transparency) is a fairly simple thing. Calculating the consumption of the traditional financial system (as a whole) on the contrary is an almost impossible mission. However common sense tells us that Bitcoin’s energy consumption represents a very tiny fraction of the consumption of the traditional financial system as a whole.

So, are Musk’s concerns well-founded?

In short? No.

Musk’s statements demonstrate the misunderstanding of the Proof of Work mechanism underlying Bitcoin.

Not to mention that Elon Musk seems not to have taken available data into consideration. As we have seen, Bitcoin mining is moving towards green options and other studies show that solar energy, wind, and batteries are also alternatives that are being explored for the foreseeable future.

It is difficult to understand what level of consumption bitcoin will approach if used on a global scale. It is certain that at the moment bitcoin does not pose a threat to our planet. As Michael Saylor explains in this video, the world produces around 160,000 TWh every year. 50,000 TWh is wasted. As mentioned above, Bitcoin uses 150 TWh.

In addition, as Nic Carter explains, miners spend energy to produce new bitcoins and not to process more transactions (which is a common misconception). Constructing a Bitcoin transaction, and getting the network to accept it, costs virtually no energy whatsoever. What costs energy is finding valid blocks to issue new bitcoins. Miners do this because they are compensated primarily with the reward of 6.25 BTC per block, which is defined in the protocol and is equal to around $45 million a day (900 bitcoins per day in 144 blocks).

The protocol is designed to halve the block reward every 210,000 blocks (approximately 4 years) and it is therefore unthinkable that the energy used to produce bitcoin will continue to grow at the actual rate (unless the price of bitcoin continues to double every 4 years, forever!).

Because most coins have been issued already, Bitcoin’s future carbon outlay is likely to shrink.

But then why would Musk make these statements? Difficult to say but the reasons could be various. As stated above, Musk has a lot of influence and knows he can manipulate the markets. According to a Reuters article published just yesterday, Tesla seeks entry into U.S. renewable fuel credit market. Accepting bitcoin energy devourers could prevent his company from getting newly printed government’s money.

We could make several speculations about the reasons for Musk’s tweet, the certain thing is that bitcoin will not overheat our planet as many want us to believe.

SOURCES

Much of the content expressed in this article is taken from external sources. If you want to learn more about the Bitcoin Energy Debate, here are the sources used:

Is Bitcoin Really Polluting The World? Nah…

The transition is already underway.

So, are Musk’s concerns well-founded?

Written by Fabio Pezzotti