Bitcoin and cryptocurrencies made the headlines earlier this year for all the wrong reasons. Not for a sudden price surge, drop, or sizable investments being made.
In our more climate-conscious age, Bitcoin made the headlines in February 2021 because data scientists at the University of Cambridge found that mining cryptocurrencies uses more electricity than Argentina.
Bitcoin mining consumes every year
According to an ongoing real-time University of Cambridge study (in collaboration with the Judge Business School and the Cambridge Centre for Alternative Finance (CCAF)), which anyone can view here, Bitcoin and cryptocurrency mining consumes 121.5 terawatt-hours (TWh) every year.
According to the Cambridge dashboard, this is currently sitting at an annualized rate of 45.54 TWh, with the theoretical upper limit expected one day to hit 305.19 TWh.
of global electricity production is consumed by those mining, verifying, and storing Bitcoin and other cryptocurrencies.
Right now, mining cryptocurrencies is costing the planet the energy consumption of a whole new country. More specifically, one the size of Argentina, with a population of 45.4 million. Currently, 0.55% of global electricity production is consumed by those mining, verifying, and storing Bitcoin and other cryptocurrencies.
Imagine if mining cryptocurrencies were to hit the theoretical upper limit; the energy equivalent of four countries the size of Argentina? Or one whole fairly large new country that would sit above Bangladesh (164.7 million), and just below Nigeria, with 206.1 million people, with regard to energy consumption.
As crypto prices keep rising and the popularity of cryptocurrencies and blockchain-based solutions keep increasing, energy usage is going to increase at the same rate. Although everyone expects this to continue, we have to ask ourselves, how accurate and nuanced is this study into cryptocurrency energy usage?
Although the headline figures are unsettling, we have to ask, is there more to this story than the eye-catching headlines?
Researchers at the Harvard Business Review have looked into this matter more closely. The next question that everyone in the crypto and blockchain-based sectors needs to consider is what can be done about this problem?
In an HBR article, the question the authors ask readers to consider is “how much energy should a monetary system consume?”
The answer comes down to how you feel about Bitcoin, cryptocurrencies, and blockchain-based solutions and apps. “Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society”, the HBR article says. It goes on to address various misconceptions about those headline-grabbing figures.
One of the main misconceptions is that energy usage equates to carbon emissions.
It doesn’t. Carbon-wise, there’s a fairly good chance that Argentina—a country with many millions of cars, trucks, buses and other carbon-emitting factories and power stations—produces higher carbon emissions than cryptocurrency mining. Over 25% of Argentina’s energy comes from renewable sources, according to the International Energy Agency (IEA).
Argentina is doing better than a lot of countries. However, compared to many countries attempting to reduce carbon emissions, there’s a long way to go before the world has done enough to counteract and reduce global warming. We are still a long way off reversing the damage of two centuries of industrialization on the climate and our planet’s ecosystems.
It’s difficult to accurately assess. In the same way data can be generated on entire countries, how much of crypto mining and storage is coming from renewable sources?
The most accurate estimates come from assessing the computational hashrate (total amount of computing power used to mine and store Bitcoin and cryptocurrencies), and then geolocating where the hardware for mining operations are based. According to the CCAF, using estimates and real-time data from mining pools, there is now a fairly accurate and anonymized dataset of miner locations.
Based on this data, one report in December 2019 estimated that 73% of crypto mining is carbon neutral. A more accurate CCAF report from September 2020 estimates that 39% of crypto mining is carbon neutral. That’s twice the renewable rate of the whole U.S. energy grid!
Interestingly, another advantage of crypto mining is that it can tap into energy sources that aren't being used to their full potential. One such example is hydroelectricity. In the Sichuan and Yunnan provinces of China, the wet season produces enormous amounts of energy that goes unused. As these are rural regions, poor battery and energy infrastructure technology means that most of this energy is wasted.
It’s perhaps no coincidence that Sichuan and Yunnan was the heartlands for crypto mining in China till the recent ban of cryptocurrency in China. These regions were responsible for 10% of global Bitcoin and crypto mining in the dry season, and up to 50% in the wet season. They were tapping into energy that no one, or very few people are capable of using; making it more renewable than many other sectors around the world.
If cryptocurrencies were a country, they would sit on a list of the top 30 energy users worldwide.
In other regions, such as North Dakota, Alberta, the Middle East, and Siberia, Bitcoin and crypto miners are making use of flared natural gas as an energy source. Oil extraction releases a significant amount of natural gas, which burns off into the atmosphere. Placing crypto mining operations next to oil and gas extraction facilities means that miners can tap into this energy source directly, thereby using a resource that would otherwise be wasted.
Estimates suggest there’s so much energy wastage in the U.S. and Canadian oil and gas sector that the whole Bitcoin network could operate on that alone. Clearly, there are numerous ways the whole cryptocurrency sector could tap into underused and otherwise wasteful energy sources, to reduce its carbon impact on the planet.
And finally, when it comes to how Bitcoin and other cryptocurrency estimates are calculated, there’s a significant flaw in the logic being applied. Once a Bitcoin or other cryptocurrency has been mined, the energy required to validate these transactions (e.g., buy, sell, or trade them) is minimal. Using cryptocurrencies does not generate nearly as much energy as mining them.
Yes, absolutely. Not only that, but the sector is actively seeking to make it more renewable and energy-friendly.
Even if the overall energy and carbon impact is being exaggerated, creating and maintaining new currencies and blockchain-based technology solutions shouldn't come at a negative energy cost for society and the environment. Inspired by the Paris Climate Agreement, there’s already a Crypto Climate Accord, pushing the sector and miners in particular to use more renewable sources of energy.
As the sector continues to evolve and grow in popularity, we can expect miners everywhere to use renewable sources, and create new solutions to ensure that cryptocurrencies can be mined and stored without this industry having a negative impact on humanity’s carbon footprint and energy usage.