You’ve often heard about how Bitcoin is harmful to the environment –, particularly Bitcoin mining. This has fueled the ongoing debate about whether cryptocurrencies consume too much energy, but what is missing from that debate is an appreciation of the societal merit of crypto.
Not knowing much about how Bitcoin works, it is no surprise that the public is likely to agree with a blanket statement like this. However, those who have studied the relationship between Bitcoin and the environment may tell you a different story.
Could Bitcoin actually turn out to be good for the environment? Let’s delve deeper into the issue.
Is Bitcoin good for the environment?
Statistics have shown that Bitcoin consumes the most energy among all the cryptocurrencies in the world. Running the Bitcoin network costs an estimated 130 terawatt-hours (TWh) of electricity per year which is comparable to the power consumption of Norway that has a 5.5 million total population.
That is an astonishing number but it is crucial to note that Bitcoin, being the world’s largest and oldest cryptocurrency, is widely used in transactions. More importantly, mining Bitcoin uses Proof of Work (PoW) validation, a computational method that gets increasingly energy-intensive the closer we get to the total supply of 21 million $BTC.
Despite such negative data, here’s why Bitcoin can still be good for the environment.
Firstly, compared to traditional banking, Bitcoin uses substantially less energy. A research report published by Michel Khazzaka, an IT engineer, cryptographer and consultant, calculates that Bitcoin payments are a “million times more efficient” than the legacy financial system. Plus, the banking sector “uses 56 times more energy than Bitcoin.”
Secondly, renewable energy makes up a large portion of the energy used to run Bitcoin. According to Bitcoin Mining Council, the worldwide Bitcoin mining sector is being powered by an estimated 58.5 per cent renewable energy in the fourth quarter of 2021 with Norway leading the way.
Bitcoin vs Traditional Banking
Rather than comparing Bitcoin energy consumption with that of countries, it is perhaps fairer to compare it against the existing banking infrastructure. The global banking infrastructure is vast. Quantifying the total energy consumption of the global financial industry is a huge undertaking and research is still in its nascent stages. Nonetheless, a few attempts have been made to estimate the industry’s energy usage.
In addition to the report mentioned above, a Galaxy Digital research report done in May 2021 has calculated the energy consumed by the Bitcoin network and then compared it to other industries, including the banking industry. It found that Bitcoin consumes 113.89 TWh per year, while the banking industry consumes 263.72 TWh per year.
The report put Bitcoin’s energy consumption into perspective by distilling some of the unique characteristics of Bitcoin and how they relate to and impact its energy consumption.
“All we can say with confidence is that the global financial sector has a significant environmental cost,” writes Forbes’ contributor Martin Rivers. “Its skyscrapers, computer systems and jet-setting bankers are not helping climate change. We can also safely assume that central banks and their money-printers are no greener.”
On the other hand, Bitcoin allows financial transactions to be carried out with much greater efficiency and potentially less cost to the environment.
With the traditional banking system, there would be numerous entities and layers involved in checking, cross-checking, and confirming transactions. With Bitcoin, all the necessary validation is computed nearly instantaneously, making it less energy-intensive as a system.
Using clean energy to mine Bitcoin
Comparing total energy consumption is important, but it is not the only metric for analysis. In our fight against climate change, it is important to look in the direction of the source of energy.
Ceteris paribus, we would naturally choose renewable or clean energy (such as wind, hydro, or solar power) over non-renewable fossil fuels.
Bitcoin is one of the world’s industry leaders in terms of green energy adoption. As of Q4 2021, close to 60% of the global Bitcoin industry ran on renewable energy, according to the Bitcoin Mining Council.
It is no surprise that Bitcoin is slowly becoming less harmful to the environment due to two reasons:
- Bitcoin mining is location-agnostic. As the work is done by computers, it’s possible to set up a mining farm next to a clean power source.
- Bitcoin mining can take place at any time of the day, which thus maximises energy efficiency.
In combination, these two factors explain why clean energy is making it economical for Bitcoin mining. Some believed that Bitcoin mining incentivizes clean energy adoption by driving up its demand and rewarding investments in renewable energy infrastructure.
Bitcoin has been unfairly vilified in popular media as an energy hog and an environmental disaster. But, in reality, this has not been the case as seen from the discussion above.
Not only is the Bitcoin network much more energy-efficient than the global financial infrastructure, but much of the power it consumes also comes from clean energy sources. Furthermore, Bitcoin can help fight climate change by incentivizing clean energy adoption.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Chain Debrief