Is Bitcoin bad for the environment? – Energy consumption in crypto =

“Crypto is bad for the environment” is one of the most common counter-arguments for the development of Bitcoin and cryptocurrency. Every bull run there are headlines with texts such as “Bitcoin transactions consume more energy than entire countries” or “Bitcoin is a climate disaster!”. But are these counterarguments valid? Is Bitcoin bad for the environment?

In this article I take you into the world of Bitcoin, mining and energy consumption. We are going to look at what “The King of Crypto” Bitcoin uses in energy and where this energy comes from.

Quick view:

 

  • Quick view:
  • What does Bitcoin use power for?
  • How Much Energy Does Bitcoin Consume?
    • The ‘halving’
  • Where does Bitcoin get its power from?
    • Surplus
    • Renewable resources
    • Carbon footprint of Bitcoin
  • Conclusion

What does Bitcoin use power for?

Before we can ask ourselves whether Bitcoin is bad for the environment, it is wise to first have an overview of what the energy is used for.

Let’s start at the beginning: Bitcoin (BTC). Bitcoin is the godfather of crypto and is the oldest crypto in existence. Bitcoin’s energy consumption is due to the type of consensus algorithm used: Proof of Work. Proof of Work is one of the ways to agree on what the correct blockchain is and to ensure that malicious parties cannot confuse the chain of blocks.
With Proof of Work, there are miners who are tasked with verifying transactions. A miner does this by bundling transactions in a block and then adding them to the blockchain. In exchange for creating those blocks, miners are rewarded with a share of the transaction costs.

Miners are also rewarded with a reward set by the Bitcoin protocol for mining a block, which takes place approximately every 10 minutes: the miner’s reward. That reward roughly halves every 4 years and is currently 6.25 Bitcoin per block. Searching for this Bitcoin takes a lot of computing power. That computing power is responsible for the energy consumption of the network.

Now you may think that it is useless to need such high computing power for searching for Bitcoin. However, this computing power is necessary to maintain the decentralized nature of Bitcoin and to guarantee the security of the network. After all, the decentralized nature of Bitcoin and the security of the network are the most important points of Bitcoin.

The difficulty of solving the math problems becomes more difficult as more miners participate. Because solving the calculations by miners is becoming increasingly difficult, it is also becoming more difficult to carry out a 51% attack on the network. The higher the Bitcoin mining difficulty, the more hashes are required to reach the target hash requirement. As a result, this process makes it very difficult and expensive for attackers to gain majority control: a 51% majority of a blockchain network.

It is important to know that energy consumption does not increase due to the number of transactions, but due to the value of Bitcoin itself. The moment Bitcoin increases in value, more miners start mining Bitcoin, which increases the difficulty of the calculations. Mining one block should take about 10 minutes at any given time.

Bitcoin’s energy consumption is not fixed. The energy consumption therefore scales with the price:

  1. High Bitcoin price
  2. Higher margin for Bitcoin miners
  3. More miners will compete for the miner’s reward
  4. More energy is used in total (= the hash rate)
  5. Increased cost of mining Bitcoin due to the increased difficulty
  6. Some miners are no longer profitable
  7. Hash rate goes down

So the hashrate follows the price: higher price = higher hashrate = higher security.

The energy consumption of Bitcoin is therefore necessary to keep the network decentralized, but above all safe. Do you want to know more about Proof of Work? In the video below from AllesOverCrypto, Matt explains what PoW is and how it works.

 

How Much Energy Does Bitcoin Consume?

The counter argument to Bitcoin, which appeals to energy consumption, has been around for a long time. This has the advantage that actual studies have been done into Bitcoin’s energy consumption. A recent and large-scale study in this area is the research of the University of Cambridge.

This has resulted in Bitcoin using around 120 TWh per year worldwide . This is comparable to the electricity consumption of countries such as the Netherlands, Argentina or Norway. Bitcoin’s electricity consumption is about 0.6% percent of the total electricity production.

Other, albeit smaller studies, show lower power consumption. This study therefore amounts to approximately 46 TWh per year. In comparison: a 2013 study showed that around 600 TWh is used worldwide for standby devices.

On the other hand, Bitcoin is a global network in which scarce value can be sent cheaply, decentrally and peer-to-peer. The question of whether Bitcoin uses too much energy depends on how much value someone sees in Bitcoin. If someone sees no value in it, then the discussion is pointless, because then no energy should be ‘wasted’ on it at all.

Nevertheless, Bitcoin miners use a lot of energy. The comparison with other countries does not exactly paint a sustainable picture.

NB! This therefore concerns electricity consumption and not energy consumption . There is an essential difference between these two.

For example, the Netherlands uses a total of around 900 TWh per year, of which approximately 12 to 14 percent is electrical energy. Headlines with juicy texts like “Bitcoin consumes more energy than Argentina” paint a distorted picture, because energy is much bigger than just electricity.

But don’t get it wrong: Bitcoin uses a lot of electricity. It’s hard to avoid that. And that use is likely to increase as the price continues to rise. However, the expectation is that energy consumption will not continue to increase exponentially as it has done over the past 10 years. That has to do with the halving.

The ‘halving’

About every four years, the miner’s reward that miners receive for mining a new block is halved. The time it takes to mine such a block is called the ‘block time’. To keep the block time constant, at about one block every 10 minutes, a difficulty level is used that becomes more difficult as more miners are mined, as mentioned earlier.

In addition, the miner’s reward is also halved every 4 years. That is called the ‘halving’. At the moment, miners can get a miner’s reward of 6.25 Bitcoin approximately every 10 minutes. That number will be halved during the next halving in 2024. The halving makes mining less profitable. Looking to the future, the incentive to mine becomes less as a result, so that the hash rate goes down and therefore less energy is used.

Bitcoin halving every 4 years (photo by Inna Rogach)

Where does Bitcoin get its power from?

The amount of power used for the Bitcoin network is not the only metric to look at. The origin of the energy is perhaps just as important. For example, you have renewable energy, also known as sustainable or green energy, which comes from natural sources that are constantly replenished. This is energy from wind, hydropower, sun, soil, outdoor air heat and biomass.

The source of the energy ultimately determines how bad something is for the environment. If Bitcoin were to run purely on solar energy, the amount of electricity would remain the same, but it would hardly be harmful to the environment.

A yardstick that is often used to see how harmful something is to the environment is the carbon footprint. In Dutch that translates to CO2 footprint.

The carbon footprint therefore depends on the type of energy sources that Bitcoin uses.

Surplus

Before looking at the source of the energy used for the Bitcoin network, it is important to note that any form of energy, and therefore electricity, always loses energy the moment it leaves the source. In the Netherlands, for example, 5.6% of energy is already lost during its transport. On a global scale that is 8%, which is good for about 2000 TWh per year!

The vast majority of the loss (70%) is due to heat loss from electricity cables and transformers. This is a physical principle that so far little can be done about it. For this reason, electricity is generated at a local level. This way you prevent the energy from having to bridge long distances, which means that even more energy is lost.

That still sounds logical and also positive. The disadvantage of this, however, is that electricity costs are calculated at a local level, which means that energy prices can differ enormously per country. For example, electricity in Denmark is about €0.31 per kWh, while in Ukraine it is only €0.04 per kWh. That is 7.5 times less expensive.

Now you may be wondering: what does this have to do with Bitcoin? The price difference between the different countries can largely be traced back to supply and demand. In Denmark there is a high demand for electricity, but little supply, and in Ukraine there is a surplus of electricity.

Those power surpluses in countries like Ukraine, China, and Iceland are perfect for, you guessed it, Bitcoin miners. Bitcoin miners are always looking for the cheapest power, because then their margin will grow. Moreover, it does not matter to miners whether their power comes from the Netherlands or Ukraine, because as soon as the power has been used by the miners, it is, as it were, converted into Bitcoins, which can be sent to the Netherlands just as easily and cheaply as to Australia. .

Moreover, miners can stand anywhere, both in the desert and in the snow plains; as long as they have a simple internet connection.

 

An additional advantage of the supply and demand game is that it ensures decentralization of the miners. All miners can never be located in one place, because then there would be too much demand for power, causing the price to rise, which in turn means that the miners have a smaller profit margin.

Hydroelectricity

In China, which controls much of the global hashrate, the wet season brought lower power prices in provinces with developed hydroelectric infrastructure. When it starts to rain in May, the rivers and dams in China fill up quite quickly. Hydroelectric power plants reach their peak capacity and produce more than local industry and households need.

That prompts authorities and utilities in provinces such as southwestern Sichuan to cut electricity rates to as little as $0.03 per kWh, boosting the consumption of cheap and green energy produced by hydropower plants.

And even with that electricity price, the local electricity grid cannot handle all the electricity produced by the hydroelectric power plants. In wet seasons, these hydroelectric plants produce up to twice as much energy as the local power grid can handle. This surplus of power is perfect for miners, because they can always use the energy and can stand anywhere, as long as they have an internet connection.

Hydroelectric power station in China (photo by Vladimir Zhoga)

Renewable resources

We now know that Bitcoin uses a lot of electricity (120TWh), but we also know that in many cases the power is a surplus of local power production. The next question we can ask is whether the electricity is also green electricity, or whether it is renewable energy.

Green electricity is electricity generated from sustainable energy sources.

Again we can refer to the research of the University of Cambridge. This results in the following figures:

Source: University of Cambridge research

This study showed that the majority, namely 76%, of the miners do use renewable energy in part, but that only 39% of the energy consumption is renewable energy.

Hydropower is mentioned in the survey as the number one source of energy. Other types of clean energy (eg wind and solar) are at the bottom, after coal and natural gas, accounting for 38% and 36% of respondents’ energy sources respectively. The distribution of this is shown below.

Source: University of Cambridge research

Flared gas

At first glance, the large percentage of gas and coal is not exactly a sustainable image. Gas and coal are not renewable energy sources. However, flared gas is not taken into account in this study. Gas flaring is the combustion of gas produced by various processes, including oil recovery. This gas is therefore a by-product of the extraction of other raw materials and is not used for anything else.

This gas released during the production of oil is often burned, due to limited pipeline capacity or because it is not economically viable to transport it. According to the IEA research, about 275 million tons of CO2 is released into the air every year by gas flaring.

Bitcoin miners can respond perfectly to this because the location of the miners does not matter, so the gas does not have to be transported. They can convert the gas into electricity on the spot to mine Bitcoin. An additional advantage of this is that the gas no longer needs to be burned, so that less CO2 is released into the air: a win-win situation .

 

Carbon footprint of Bitcoin

The energy sources above show that Bitcoin miners are always looking for the cheapest energy to increase their profit margin. As a result, they are located in places where there is a surplus of energy, or where gas is released as a by-product of oil extraction.

The exact carbon footprint of Bitcoin is very difficult to determine, because the hashrate is constantly changing, as the price is also very volatile. For example, the hash rate was a lot lower during the bear market in recent years than it is now, during the bull market.

The 2019 Carbon Footprint of Bitcoin study comes up with a carbon footprint of 22.9 megatons of CO2 . The more recent Bitcoin’s 2021 Environmental Impact study shows a higher carbon footprint of 37 megatons of CO2 . The large difference between these two studies can easily be explained. After all, the price of Bitcoin is now a lot higher than in 2019, which means that the hashrate is also higher.

Well, these numbers probably don’t mean much to you. To make a comparison: New Zealand also has a carbon footprint of 37 megatonnes. At the same time, it is “only” 20% of the CO2 footprint of the Netherlands, which is 182.5 megatons of CO2.

Conclusion

So… is Bitcoin bad for the environment? The answer to this question depends entirely on whether you find Bitcoin valuable. Some articles compare the CO2 emissions per transaction of Bitcoin with other payment systems, such as VISA. However, that is comparing apples to oranges for two reasons.

First, Bitcoin’s energy consumption does not depend on the number of transactions on the network, but depends on the value of Bitcoin.

Second, Bitcoin is much more than just the transaction. With Bitcoin you are the CEO of your own bank. There is no need to build an office and no staff need to be paid to keep everything in order.

Summarizing:

  • According to the most recent studies, Bitcoin miners use between 100 and 120 TWh of electricity per year, comparable to the Netherlands.
  • The flow is necessary for miners to verify transactions and create blocks.
  • At the same time, the flow also ensures the security and the decentralized nature of Bitcoin.
  • Power consumption for miners grows as the price of Bitcoin rises and as long as miner rewards are large enough.
  • The growth in demand for power consumption is expected to slow down in the future as miner rewards fall due to the halvings.
  • Miners can stand anywhere and for economic reasons look for sources where there is a surplus of energy, such as a hydroelectric plant that produces too much energy or gas that is a by-product of oil extraction.
  • Bitcoin mining drives innovation. Bitcoin miners who are not innovative to find the cheapest energy during a bear market are not profitable.

An unequivocal answer to the question: ‘Is Bitcoin bad for the environment?’ so there isn’t. There are many more industries that use at least as much energy as Bitcoin, such as all standby devices.

However, it is a fact that Bitcoin uses a lot of power. Bitcoin opponents will be quick to use this argument, believing that Bitcoin has no intrinsic value in the first place.

There are quite a few complicated and technical topics covered in this article. Hopefully it’s explained clearly and simply enough for you to understand. If you still have questions, we would like to invite you to throw a ball in our AllesOverCrypto Facebook group. There, AOC’ers and members of the group are always willing to answer your questions. See you there then!

 

 

​Banner image by PHOTOCREO Michal Bednarek/Shutterstock

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