The Environmental Impacts of Bitcoin
Wait, how can digital currency affect the environment?
Despite being called a hoax by figures such as Jamie Dimon, Bitcoin has continued to grow to over $18000. On top of being feared as a bubble or a tool for criminals, the cryptocurrency has also generated considerable concern for environmentalists. Despite its virtual nature, Bitcoin mining requires a massive amount of processing power and in turn, energy.
According to Digiconomist, Bitcoin’s estimated annual electricity consumption as of December 18th was 34.86 TWh. To put that into perspective, if Bitcoin’s network were a country, it would rank 60th in terms of global energy consumption, on par with the nation of Bulgaria. The energy used by a single Bitcoin transaction could power the average U.S. household for eight days.
This daily consumption of power translates to 118.36 kg of CO2 being emitted per transaction, or 11083 kilotons annually. If we follow the EPA’s estimate that the average car emits 4.7 metric tons of CO2 each year, then Bitcoin has the same environmental impact as approximately 2.358 million cars annually. These statistics have caused many environmentalists to fear the rise of bitcoin and other cryptocurrencies, as they are creating emissions and hindering the fight against global climate change.
Concerns going forward
It is clear that the current processes are not sustainable, and they will only get worse. To put it simply, as more and more bitcoins is mined, the mathematical problems that computers must solve to generate more bitcoin will get increasingly difficult, requiring even more processing power as a result. (To learn more about how mining works, check out fellow WCT members Derek and Andy W.’s presentation here!)
On top of the amount of energy required to mine bitcoin, the way it is sourced only threatens the environment further. A growing concern is the fact that the majority of bitcoin being mined in China, where electricity is super cheap but is generated by dirty coal power plants. Despite the Chinese government’s focus on increasing the implementation of renewable energy systems, it will be challenging to persuade miners to switch over from the inexpensive power of which they currently take advantage.
What are the alternatives?
With the recent rapid growth of cryptocurrency in general, you might be wondering, what alternatives exist? Are there rival cryptocurrencies that are a greener alternative to bitcoin? The potential solutions to the environmental problem can be separated into two camps, one that deals with the way cryptocurrency is mined and transactions are verified, and another that deals with renewable energy powered mining operations.
Proof of Stake
Bitcoin’s main competitor in the crypto world, Ethereum, which processes three times the amount of daily transactions as Bitcoin, is moving towards what is known as a proof of stake model. While proof of work relies on using absurd amounts of processing power to solve mathematical problems by brute force, proof of stake (PoS) relies on users “staking” their coins to verify transactions. PoS’ algorithm determines which user gets to verify a transaction based off of how much each user has put at stake from their own coin wallet. The coins put at stake are lost if the user chosen user verifies an incorrect or fake transaction. (To learn more about the difference between PoW and PoS, check out this video) PoS offers an alternative that requires nowhere near the amount of electricity or mining equipment to operate.
Geothermal and Hydro Power
Another way to resolve the energy problem that Bitcoin presents is to power mining operations with renewable energy. Several mining operations have already been taking advantage of renewable energy in places where it is abundant and fairly inexpensive. The cloud mining operation, Genesis Mining, takes advantage of Iceland’s plentiful geothermal energy near the country’s capital. Another interesting approach is that of HydroMiner; a mining company set up in the mountains of Austria that harnesses geothermal energy to mine crypto. They claim that the cost of their power is 85% lower than the European average and that running their operation is carbon neutral.
Solar and Wind Power
Two other promising sources of renewable energy for mining are solar power and wind power. Some smaller more socially responsible operations such as Harvest and NastyMining have successfully used wind and solar/wind power respectively, but these mediums have yet to achieve mainstream adoption. Solar especially seems quite promising, as solar energy in states like California and Texas is incredibly cheap or even negative. Negative pricing occurs when a grid’s generation assets can’t all be switched off when solar production ramps up, as some baseload must constantly be run. At this point, solar energy producers pay consumers up to 2 cents per kilowatt-hour to use the energy. Lower energy prices offer higher margins for miners (or added revenue if the price of power is negative) and the added benefit of a lower negative environmental impact.
As Bitcoin and the rest of the crypto space continue to grow, it is important that developers, miners, and users recognize the environmental implications of the technology. For Bitcoin to become mainstream, it needs to become more sustainable, whether it be through implementing proof of stake or through incentivizing miners to switch to more sustainable power sources. Crypto has the potential to change the world, but not if it exhausts the planet’s resources.