When it comes to thinking about which economic sectors and industry niches that consume the most energy, cryptocurrencies may not immediately come to mind. But for some of these crypto companies, their energy and carbon footprints are not just considerable, they’re massive. The most famous example, Bitcoin, has an annual energy footprint slightly larger than the entire nation of Switzerland. The company’s current energy consumption can be tracked here.
Last year, the University of Cambridge created an online tool that allows users to compare the boggling energy consumption of Bitcoin to other entities. At the time that this platform debuted, the tool estimated that “Bitcoin is using around seven gigawatts of electricity, equal to 0.21% of the world's supply,” according to a BBC report. This shocking figure translates to “as much power as would be generated by seven Dungeness nuclear power plants at once.”
How can one company that doesn’t even produce a tangible product consume so much energy? It has to do with the process of “mining” bitcoin, in which “computers known as mining machines are connected to the crypto-currency network.” These machines have to do complex computational work to verify Bitcoin transactions that are made extra secure but also extra labor-intensive by blockchain technology. “To make as much money from this process as possible, people often connect large numbers of miners to the network - even entire warehouses full of them,” writes the BBC. “That uses lots of electricity because the miners are more or less constantly working.”
While Bitcoin has been out of the headlines recently, greatly overshadowed by global pandemics and murder hornets, among other news cycle bogarts, cryptocurrency is far from yesterday’s news, especially as we head into what will probably be a yearslong recession in which inflation and market volatility can be expected--the bread and butter of cryptocurrency companies.
Now, just this week, CoinDesk columnist Nic Carter brought Bitcoin’s energy footprint back into the public conversation when he published “The Last Word on Bitcoin’s Energy Consumption.” Carter contends that while “much ink has been spilled on the question of Bitcoin’s energy footprint,” (guilty as charged), there remain significant gaps in the conversation about this cryptocurrency’s energy and carbon footprint. “Amid the clarifying details and the energy mix calculations,” he writes, “we have lost sight of the most important questions. Anyone who wades into this muddy debate must consider the fundamentals before making a final assessment.” Related: Oil May Never Fully Recover From This Crisis
According to Carter, these essentials are, in a nutshell, “to understand is that energy is not globally fungible,” to avoid falsely equating energy footprint with carbon footprint, and the promising “changing nature of Bitcoin security spend.” By addressing these points, he says that we can finally put the Bitcoin energy debate to bed and mine with a clear conscience.
While some critics of Bitcoin’s massive energy consumption have wondered aloud whether Bitcoin may be driving up energy prices with its high demand or “presume that someone, somewhere is being deprived of electricity because of this rapacious asset,” research by the Cambridge Center for Alternative Finance has shown that the location of these Bitcoin mining centers (which are mostly in China, with hotspots including Xinjiang, Sichuan and Inner Mongolia) are in places that have energy and grid capacity to spare, argues Carter. In fact, he contends that this energy, if not used for Bitcoin, would otherwise have gone to more environmentally harmful industries or have gone to waste. “Part of the reason Bitcoin consumes so much electricity is because China lowered the clearing price of energy by overbuilding hydro capacity due to sloppy central planning,” Carter finger-points. “In a non-Bitcoin world, this excess energy would either have been used to smelt aluminum or would simply have been wasted.” While this may be a bit of an exaggeration to pin the entirety of a private company’s energy usage on China and “poor planning”, there is certainly truth to the argument that many energy-sucking industries are a lot dirtier than cryptocurrency mining.
While it is not arguable that Bitcoin eats up an ungodly amount of energy, it is important to not confuse or conflate these figures with greenhouse gas emissions. This all depends on the energy mix that is powering the Switzerland-sized nation-state of Bitcoin. An energy mix that is, well, mixed. It all depends on who is doing the data mining and where. In some parts of China, this may come from clean hydropower. In others, from the dirtiest coal. This certainly does not exonerate Bitcoin, but complicates any blanket statements about the company’s climate impact. Related: The Relatively Of Money And Happiness
And then there are what Carter refers to as Bitcoin’s “silver linings.” “If Bitcoin ends up being worth substantially more in the future than it is worth today (say, by an order of magnitude), then the world will actually have received a discount on its issuance. The energy-externality of pulling those Bitcoins out of the mathematical ether will actually have been very low, due to the historical contingency of when, price-wise, those Bitcoins were actually mined,” Carter writes. In layman’s terms, this means that “Bitcoin’s energy expenditure may end up looking rather cheap in the final analysis. Coins only need to be issued once. And it’s better for the planet that they be issued when the coin price was low, and the electricity expended to extract them was commensurately low.”
While Carter makes some compelling points, it’s extremely doubtful that his column is anywhere close to “The Last Word on Bitcoin’s Energy Consumption.” These points are an interesting contribution to the conversation but are not conclusive, and in many cases seem more persuasive than scientific. And then there’s the fact that this is being published by CoinDesk, not the BBC. is BitCoin evil? No. Is energy consumption inherently evil? No. But being energy efficient and climate smart should not be dismissed or discounted, and it is certain that Bitcoin could stand to improve on both fronts.
By Haley Zaremba via Safehaven.com
More Top Reads From Oilprice.com:
- Downside Risks Remain Despite Oil Price Rebound
- Europe Set To Unveil Its $500 Billion 'Green Deal'
- U.S. Shale Scrambles To Innovate Its Way Out Of Crisis