Bitcoin Is Red Hot. Can It Ever Be Green?
(Bloomberg) -- Can you love Bitcoin and the environment at the same time? The digital currency depends on so-called miners whose high-powered computers run day and night, soaking up electricity to perform the calculations used to verify transactions. Since almost two-thirds of mining takes place in China, where coal is the biggest source of electricity, that means more emissions. Supporters argue that Bitcoin’s carbon output is a drop in the global bucket, and that a switch to pollution-free power sources is already underway and likely to accelerate.
1. How much power is involved?
That’s hard to say. In 2018, BloombergNEF pegged the amount consumed by activities related to Bitcoin at 20.5 terawatt-hours of electricity a year. At about the same time, Morgan Stanley was estimating as much as 140 terawatt-hours. The Cambridge Centre for Alternative Finance keeps a running estimate of annualized use: It jumped from 6.6 terawatt-hours at the start of 2017 to 67 terawatt-hours in October 2020 to 121.9 in early February as prices surged. One estimate, by Digiconomist, puts Bitcoin’s annualized emissions at 37 million tons of carbon dioxide, which is on par with New Zealand.
2. Is all Bitcoin mining like that?
Much like electric cars or data servers or really anything that runs off electric power, it depends on where you plug it in. Sure, the miners in the Xinjiang province of China may be raising emissions due to the region’s heavy reliance on coal-fired electricity. But plenty of other miners have flocked to places like upstate New York, the U.S. Pacific Northwest, Texas and parts of Europe where emissions-free hydro and wind power are so plentiful that homes and businesses have a hard time soaking it all up. In general, miners just go where the power’s cheap.
3. Why is Bitcoin so electricity-intensive?
The calculations performed by miners are used to verify transactions within the network, and their difficulty grows along with the number of miners at work. The software that controls the currency is designed to stop minting new ones when the amount in circulation reaches 21 million. Since at the end of 2020 there were almost 19 million coins out in the world, the system is now reaching the highest levels of difficulty, meaning miners are constantly enlisting more computing power.
4. Are all cryptocurrencies like that?
No. Some cryptocurrencies don’t use miners at all but rely on systems like “staking” -- rewarding coin owners for holding on to their currency and approving or invalidating transactions. Bitcoin miners use expensive, custom-designed computer chips. Miners of other cryptocurrencies typically use cheaper, general purpose graphics cards that were initially designed for high-end gaming. But electricity remains the biggest raw material for all coins, and they burn through a lot of it.
5. What do critics say?
A growing number of environmentalists see Bitcoin as a giant waste of resources and a driver of climate change. They find it hard to justify more coal plants in China powering giant server halls so wealthy people on the other side of the world can buy Bitcoin. For countries with unstable power systems, miners can also increase the risk of blackouts -- some recent outages in Iran were blamed on increased mining activity. And while use of renewable sources for electricity is growing, Bitcoin miners will be competing for green power with other sectors looking to decarbonize, including transportation, heating and industrial processes.
6. How do supporters respond?
While it uses lots of power, Bitcoin sucks up a tiny fraction of the electricity generated around the world. Even as prices have been going crazy, it’s hardly made a ripple in power markets, according to analysts at BloombergNEF, although in Iran, government officials pointed to Bitcoin miners as one cause of a rash of blackouts when cold weather strained the country’s power grid. As a result, its carbon footprint is pretty negligible compared to cars, power plants and factories. For sake of context, a 2018 analysis estimated that video gaming in the U.S. alone accounts for about 12 million tons of CO2 a year -- one-third the emissions produced globally by Bitcoin.
7. Is anyone trying to cut mining emissions?
Yes, though the moves may be driven more by a search for cheap power than environmental concerns. Some Bitcoin miners use surplus natural gas that would otherwise be “flared,” or burnt just to dispose of it, to generate power for mining. A chunk of production has been moved away from China into regions with abundant hydroelectric supplies like Iceland, Norway, Canada and parts of Russia. China’s share of Bitcoin’s monthly hash-rate was down 10 percentage points to 65% in the second quarter of 2020, compared to the third quarter of 2019, according to the Cambridge Bitcoin Electricity Consumption Index. “Certainly some Bitcoin is mined with coal. But if you look at other provinces, where there is a lot of Bitcoin mining activity, in those places, there’s a lot of hydropower that was overbuilt,” Nic Carter, co-founder of researcher Coin Metrics, said of Chinese miners during an interview with Bloomberg Television. “That’s hydropower that would otherwise be curtailed.”
8. Has this impacted the crypto markets?
It has. In February 2021, Tesla Inc. said it had invested $1.5 billion in Bitcoin and would begin accepting the cryptocurrency as a form of payment. The dual move was a key catalyst for a rally in the digital currency. But in May, Tesla Chief Executive Officer Elon Musk announced a stunning about-face, suspending acceptance of the token citing environmental concerns. The decision sparked a plunge in Bitcoin that spilled over to many other digital currencies. Some strategists argue environmental worries are a major threat to Bitcoin’s value in the long term.
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