How does Bitcoin affect the environment?
Arguments for and against bitcoin mining!
Now that Elon Musk and Tesla have back-tracked from their position about Bitcoin and declared their concern about the environmental impact of the cryptocurrency, the old debate is back. Adding to the plight, the latest crackdown by the Chinese government has worsened the situation for digital currency proponents.
The year 2021 has been a
roller-coaster for the cryptocurrency world. It was looking like finally
the intangible digital currency idea is being officially embraced. Many
companies in the world today accept cryptocurrency as a form of digital
payment. Tesla was the latest to announce their will to accept bitcoin as a
payment for their electric vehicles. It is widely known that Tesla’s
internet-star CEO Elon Musk has been a great cryptocurrency enthusiast.
Elon Musk has always been vocal
and supportive of cryptocurrency. His regular tweets about cryptocurrencies
like bitcoin and dogecoin have caused the digital currency's prices to go up. He even tweeted a
video to sell as an NFT which received a bid of $5 million; Musk later retreated
from it. However, his commitment towards bitcoin or cryptocurrency was thought
to be unwavering till now. Tesla even bought 1.5 billion worth of bitcoin,
which they still hold as a reserve.
So Musk's retreat came as a shock
to the crypto enthusiasts. Musk said, “Cryptocurrency is a good idea on many
levels and we believe it has a promising future, but this cannot come at great
cost to the environment.” His comment wasn’t well-received by the crypto
community but welcomed by the environmentalists.
This recent chain of events has
caused the crypto market to go through up and down. Bitcoin is infamously known
for its volatility, so its price will have an impact due to such incidents.
Last week, Bitcoin and most other popular cryptocurrencies lost a
significant amount of their market value. Bitcoin had lost around $70 billion
of its market value within 24 hours.
All these fusses have stirred the debate
about the environmental damage caused by bitcoin and other similar
cryptocurrencies. However, this issue isn’t new.
So, does bitcoin really leave a significant carbon foot-print we need to worry about?
Well, Bitcoin certainly consumes
plenty of energy, and that’s where the criticism starts. Critics have been
raising their concern about the access energy consumed by the bitcoin network from
the very beginning.
However, every time the topic of
environmental impact is raised, we see divided opinions between the two groups
– the environmentalists and the crypto enthusiasts. Advocates of cryptocurrency
come up with their own arguments to make their case.
If you are wondering how harmful
bitcoin or cryptocurrencies are for the environment, let's dive with us.
What is Bitcoin anyway?
You have to live under a rock to
not come across the terms – bitcoin and cryptocurrency. Bitcoin is a
cryptocurrency that uses a peer-to-peer network with no central authority. The
digital currency was invented by an anonymous person (or a group) under the
pseudonym ‘Satoshi Nakamoto’ in 2008.
The minds behind Bitcoin had the
vision to liberate the global financial system through creating a decentralized
network that will be free of central authority dictating who owns what or how.
It is an online replacement for physical money.
Bitcoin is about creating a libertarian society where financial freedom will be earned.
How Bitcoin hurts the environment?
Bitcoin is energy-consuming; this
fact is undeniable. You just don’t burn a country’s worth amount of electricity
and have no carbon footprint. The key criticisms of bitcoin and similar
cryptocurrencies surround around following points:
· 1. Mining Operation
· 2. Equipment
· 3. Energy Source
· 4. Comparative Data
Mining:
Bitcoin stands on two key aspects
– the democratization of the monetary system and the creation of a highly secure network. Bitcoin
works on a process called mining. Miners must go through complex work to
create a new bitcoin, and mining new coins take a lot of computing power. This
enormous computing comes with a cost – an enormous amount of energy; miners have a
huge monetary motivation to burn an awful amount of energy and that’s the
problem.
This design of the process is
called the proof-of-work algorithm. This mechanism is used to reach a consensus among
the nodes in the network to secure the Bitcoin Blockchain. There will be no new
bitcoin without the miners. Bitcoin has a limited stock of 21 million coins and
18.5 million bitcoins have been already mined since its inception. However, due
to the complexity of the system, the last bitcoin won’t be mined before the
year 2140.
Proof-of-work algorithm requires
all the nodes in the network to solve a cryptographic puzzle. Miners solve the
puzzle, and the first one to reach the solution receives a reward. Currently,
miners receive 6.25 BTC, which equals around $200,000 today. This process
takes around 10 minutes.
Effectively, what bitcoin does
every 10 minutes is that the whole network holds a lottery. Miners enter the
game by solving a very hard puzzle on their computers. This puzzle or
calculation is termed useless by the critics of cryptocurrency. The only
reason you are solving this complex puzzle is to prove that you have created
something rare – a proof-of-work.
The first reward is what most people
think of when they start bitcoin mining – it’s financial. The second reward is
very crucial on the network. The miners earn the ability to verify every
transaction that occurred in the network. This is exactly how the bitcoin network
was designed to work. Now, you have plenty of people working on solving those
puzzles to mine new coins. And, this is where the problems start.
This extremely competitive game
requires miners to equip themselves with powerful computing machines. In the
earlier times of the cryptocurrency, you could do bitcoin mining with a regular
home desktop. The scale of the game has gone extremely up lately. The bitcoin
winners are often the one who is equipped with a heavy machine – roughly in
proportion to the amount of energy they burn.
Now, hold your horses. If you are
thinking that these miners are individuals working from home with their
personal computers, you couldn’t be any more wrong. There are many gigantic
mining facilities in the world, where hundreds and thousands of miners are running
their operation.
These mining facilities use very
powerful machines for their operation. For obvious reasons, they require
massive storage and cooling facilities too.
So, these are the following
issues related to bitcoin mining:
- - Proof of work concept
- - It is designed to be complex
- - Massive mining operations
- - Massive amount of equipment
- - Huge amount of storage
- - A large amount of cooling
Even miners seek cheap resources:
How does bitcoin manage this
access amount of energy?
Bitcoin miners themselves seek cheaper options to minimize the cost. They tend to gather in places where
they can find affordable electricity. They also opt for places that have very
cold weather, so that they won’t have to spend a big sum of money to cool their computers. However, the bitcoin network still consumes roughly $41 million’s
worth of electricity per day. That’s always going to be considered as a very
high amount of electricity consumption.
Now, the energy source is another
looming problem. Since miners seek affordability, they move to the cheapest
options available. That’s why China holds 3/4th of the total bitcoin
mining operation. The problem with that is a very high percentage of their
electricity comes from Coal-based power plants – 62.2%. It could also be as
cheap as 3 cents per KWh, which, inevitably, attracts bitcoin miners from all
over the world. Coal is known as the dirtiest source of electricity.
How does bitcoin’s energy consumption compare in numbers?
The biggest criticism of bitcoin
circles around its comparative energy usage. We are talking about a network
that consumes around $300,000 every 10 minutes. That whole network was built
like that. Currently, the network consumes around 121 TWh of electricity per
year. That is roughly two and half times the electricity used by big
corporations like Amazon, Facebook, Microsoft, Google, and Apple combined. This
is definitely going to leave a massive carbon footprint on the environment.
The amount consumed by bitcoin is also big enough to compare it to the annual electricity consumption of whole countries. Currently, the bitcoin network consumes more electricity than the entire country of the Netherland. It actually holds 33rd place in the annual consumption index just behind Pakistan (125.8 TWh). It is half of what Australia consumes in a year.
- Here are some of the interesting facts about it:
- - It produces 57.8 Mt of CO2; equal to the carbon
footprint of Libya
-S- A single bitcoin transaction requires 1308 kWh;
this can easily power an average US household for over 44 days
- - Single bitcoin transaction produces 621 kg of
CO2; this is equal to the carbon footprint of 1.4 million Visa transactions
- - 103,500 hours of Youtube videos can be watched
with the amount of electricity required for 1 single transaction
- - Bitcoin uses 0.55% of total global energy
according to the study of Cambridge Center for Alternative Finance (CCAF).
- - Total electricity consumption has increased by more than 50% since the beginning of 2021
- - Both bitcoin and NFTs generate huge volumes of carbon emissions. Creating an average NFT will generate around 200 kg of carbon.
This gigantic amount of energy consumed by the bitcoin network, effectively, leaves a significant carbon footprint in the environment, and, therefore, impacts it negatively. The energy usage is going to use with time as it seems. In 2014, we had 300,000 transactions. It increased to 25 million transactions in 2019. It is equivalent to power 7 million US houses. The amount could increase to 1 million transactions per day.
So, how could this impact the climate?
That’s the scariest part. This energy-devouring nature of the bitcoin network and the subsequent carbon emission
could become devastating to nature. According to the reports, we could
reach 2 degrees of global warming by 2033. This will bring huge catastrophe to not only the humans but also to the animals, and the fauna and flora of the world.
Defenses and arguments:
The cryptocurrency community throws few arguments to defend bitcoin that suggest it’s not as bad as it seems. Here
are the top arguments:
- - A lot of electricity comes from renewable
sources
- - Stranded generation
- - It’s worth it
It’s not as bad as it seems:
The cryptocurrency community argues
that a big chunk of electricity that bitcoin uses comes from renewable sources.
This information is not completely wrong. A study from the Cambridge University
showed that about 39% of the electricity used by bitcoin is renewable. That’s a
commendable statistic. In fact, there are very few industries in the world that
have reached that amount of renewable energy. However, that means still 61% of
the electricity comes from sources that use fossil fuels.
The other problem, critics argue,
is that this energy could be used for other things. Fossil fuel industries are
also keen to leveraging their resources to install generations for bitcoin
mining rigs. For instance, Norwegian energy giant Equinor proposed to install
generation on the natural gas (methane) flares. They aim to reduce their
flaring from oil operations through bitcoin mining. Big firms like Upstream
Data and Greenidge Generation are already using a similar method. Gas flares are
undesirable for the environment. Miners and oil drillers seem to bond on this
subject. Oil and natural gas come from the same wells. However, crude oil drillers,
currently, have no way to process that gas to sell in the market. They tend to burn
it as flaring or emit on to the environment directly as methane.
Now, they are offering these gas flares to the bitcoin miners sometimes for free and sometimes for money. It is cheaper, hence, miners are moving their rigs to these oil fields. Mining operation company EZ Blockchain has a partnership with oil and gas service company Silver Energy to use stranded gas. It gave the latter an option to monetize their wasted energy. 10 large-scale mining operations in
North America run on stranded gas.
It means that they are also
making money from emitting carbon. Another problem with the idea is that it,
effectively, keeps them away from finding alternative solutions to avoid
emitting that hazardous gas.
Stranded Generation:
Second defense bitcoin
enthusiasts use is that some of the resources they use are stranded generation.
It means these resources wouldn’t be in use even if bitcoin doesn’t exist. According
to them, bitcoin runs on stranded generation and it acts as a global battery.
Without bitcoin, these generation sources would be wasted. It provides a method
to commercialize clean and renewable energy, and it reduces capital damage.
According to bitcoin
supporters, many of these renewable facilities are poorly located and
underused. Bitcoin mining is the only working solution to keep them running.
Otherwise, these facilities would have been shut down. For example – in China,
provinces like Sichuan and Yunnan have big hydropower electricity facilities.
Plenty of produced energy over there is wasted, especially in wet seasons.
Bitcoin mining actually uses that wasted energy.
However, bitcoin critics don’t
agree with this line of argument. If you are paying someone for their stranded
asset, you are, effectively, paying to keep it stranded. You would want
electricity to be connected to the grid so that it can be used for more
productive purposes. If you use them for a singular purpose, it means that now
they have become dedicated energy sources for bitcoin. It is difficult to look
at that and agree that it is a great idea.
It’s worth it:
The final argument rejects the
entire debate of electricity consumption. It is a fact that the Bitcoin network is
energy devouring. It consumes as much electricity as Sweden or Netherland, but
how much should a monetary system consume?
Bitcoin defenders argue that we
shouldn’t be talking about its energy consumption because the return value is
worth it. It’s an opportunity for 8 billion people to liberate themselves from
financial repression. There shouldn’t be any policing regarding it. After all, electricity
is used for lots of things. It is used for leisure activities, sports, and
entertainment. How productive are these activities? But, we don’t talk about
it.
However, bitcoin doesn’t just use
electricity. It uses 0.55% of the total global electricity. There is definitely
a scale mismatch when they bring this argument. People use electricity for
various purposes, but the amount of electricity consumed by bitcoin is
astronomically high. Bitcoin handles only seven transactions per second. Visa,
a bank card provider, can handle thousands of transactions per second. It is
equivalent to driving a car for more than 500 miles. Unless, we find we working
solution that unprecedentedly reduces the power consumption of the network, or
significantly increases the efficiency, we can’t agree that it could be a
dependable financial system.
What are the alternatives?
Talks about bitcoin’s energy
usage have always been there. Proof of work mechanism seems to be the biggest
cause of that consumption. People have often tried to propose alternative
solutions to it. Proof of stake is one of them. Like proof-of-work,
proof-of-stake also runs on algorithms, but it works differently. This method
proposes that instead of letting all users compete for mining, use a selective
pool of users. The user will be chosen from a pool of users, who already have a
stake in the cryptocurrency.
In this method, a user can mine
or validate transactions in proportion to the coins he holds. It means a miner
with more coin, would have more power. The stake could be compared to a security
deposit. It keeps the user checked while validating transactions. Validators
will lose part of their stake if they approve fraudulent transactions.
This method is also useful
against the 51% attack. In bitcoin Blockchain, 51% attack means when a miner or
group of miners captures 51% of the computational power. This, currently, makes
it very difficult to hack or gain 51% power. However, in the future of point time
when the number of miners reduces due to little reward, it may become vulnerable
to 51% attack. Fraudulent transactions may be registered if that ever happens.
In the proof of stake concept, it makes it useless for a minter to attack the network
since they hold a majority of the share over there.
Conclusion:
Bitcoin is a novel financial
system and we have to support that. It is an undeniable fact that the network
consumes plenty of energy. It is up to the cryptocurrency community to work in good
faith and come up with an affordable solution to reduce the environmental impact
caused by the bitcoin network.
The original vision with which the cryptocurrency was invented can truly change the world if it succeeds. With a fast-paced changing time, we don’t know how the future will take shape. Cryptocurrency might become a big part of that unforeseeable future. It could
become truly liberating like it was envisioned when it was invented. However,
it needs to acknowledge the subsequent environmental concerns too.
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