As Bitcoin gains prominence and edges closer to becoming a mainstream currency, the value, popularity, and ecological footprint of the cryptocurrency are skyrocketing. For all of the positive media attention and new adoptees that Bitcoin has received, providing a needed boost to its perceived legitimacy, the crypto-asset is also receiving more and more criticism from high-profile dissenters. One of the most common critiques of the cryptocurrency is that its massive energy consumption and carbon footprint are fundamentally at odds with the fight against climate change and therefore pose a direct threat to the direction in which the economy needs to be headed.
Bitcoin’s incredible hunger for energy comes from the mining process, in which supercomputers solve complex puzzles to establish “proof-of-work,” the entries that make up the blockchain (the digital ledger on which Bitcoin is built). As a reward for performing these complex calculations, Bitcoin “miners” are rewarded small fractions of Bitcoin. The whole process requires a whole lot of computing power, and therefore a whole lot of energy.
At present, Bitcoin operations around the world are using more energy than the entire country of Argentina. According to the University of Cambridge, which has created a special online tool for the sole purpose of tracking Bitcoin’s energy consumption day by day, the crypto asset’s energy usage currently ranks between the Netherlands (110.68 Terawatt hours per year) and the United Arab Emirates (119.45 Terawatt hours per year). Around the world, Bitcoin miners are collectively eating up a whopping 112.57 Terawatt hours annually, which is equivalent to an incredible 0.52% of the entire world’s energy consumption.
While a fair amount of Bitcoin’s energy comes from renewable resources -- an estimated 39% -- much of Bitcoin’s operations are powered with dirty, emissions-heavy fossil fuels, most notably coal. About three-quarters of all Bitcoin mining in the world takes place in China, where coal still dominates the domestic energy mix. Due to the cryptocurrency’s staggering energy consumption and its mixed sources, Bitcoin mining’s total carbon dioxide emissions have skyrocketed to 60 million tons (the equivalent of the exhaust produced by approximately 9 million cars). This number has tripled in the last two years alone.
Because of Bitcoin’s undeniably problematic negative environmental externalities, which will only continue to grow as it gains more and more crypto-devotees, Bitcoin has been making headlines for all the wrong reasons in recent months. Bank of America released an extremely damning report earlier this year titled “Bitcoin’s dirty little secrets,” which tore apart the cryptocurrency’s validity as well as its environmental impact, saying that “the main argument for Bitcoin is not diversification, stable returns, or inflation protection, but sheer price appreciation.” Bill Gates gave a lengthy and much-shared interview to the New York Times calling himself a “Bitcoin skeptic” and saying that "Bitcoin uses more electricity per transaction than any other method known to mankind.” Even Elon Musk and Tesla, arguably Bitcoin’s most influential fans, finally pulled their support for the cryptocurrency earlier this month thanks to mounting pressure over environmental concerns.
And now, at long last, some of Bitcoin’s biggest proponents are finally getting serious about cleaning up its act. Just this week, Bitcoin announced the creation of a new Bitcoin Mining Council tasked with improving the cryptocurrency’s sustainability following a meeting of prominent North American Bitcoin miners and Elon Musk. One of the first and most important measures to be taken by the council is to heavily promote a much greater degree of energy usage transparency and a campaign to encourage miners to switch to renewable energy sources.
Critics, however, point out that a council led by North American Bitcoin miners will ultimately be low in impact, as the vast majority of mining takes place in China, where a change in energy sourcing and usage is, therefore, most essential. What’s more, the recommendations of a council will likely fall on deaf ears, as much of the crypto world’s appeal is a complete lack of governance and oversight. “If anything represents free-market capitalism in its most naked form, it is Bitcoin,” the BBC remarked this week. “So the idea now being promoted by Elon Musk of a Bitcoin Mining Council to promote sustainable energy use in the cryptocurrency's processes seems a touch bizarre.”
By Hayley Zaremba for Oilprice.com
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