The price of bitcoin fell from $64k to nearly $30k in a matter of one month. Just a couple of weeks back- everyone started viewing bitcoin as a store of value akin to gold that can be used to diversify investment portfolios in times of economic crisis. The biggest electronic automaker, Tesla, announces its investment of $1.5 billion and supports bitcoin payment systems for all users. This move from Tesla sure had a huge impact on the market, but many Wall Street giants like Morgan Stanly and Goldman Sachs were starting to offer crypto exposure for their wealthy clients.
So, Why is everyone panicking now? The huge sell-off happened mainly because of the concerns raised by Elon Musk and other government bodies in China about the environmental impact and energy consumption. Many people in this crypto industry feel responsible for initiating conversations around bitcoin mining activities and at what environmental cost we are developing the most decentralized and secure ecosystem. So, in this article, we will address this energy consumption narrative that everyone is so focused on, while ignoring the fact that it is not the biggest problem with bitcoin mining.
Bitcoin’s transition to renewable energy is harder than you think
If there is one thing that is certain, it is that resources like fossil fuels will come to an end. That is why we cannot support bitcoin miners to use most of their electricity supply coming from fossil fuels. It is also important to understand- miners have a constant energy requirement. If an energy source is not available throughout the year, it is not feasible to run the bitcoin grid. This is the biggest obstacle for bitcoin miners to make a transition to renewable energy resources.
If we want miners to use wind or hydropower, we must make a strong case that it will be their biggest leverage to their profit margins. Right now, the cheapest and most efficient way to maximize the number of hashes (volume) per kW of electricity is to use solar energy and hydroelectric. But wait- can this solve bitcoin’s sustainability problem? No, we are not at that level yet.
Here’s a simple example to support this: In China, bitcoin miners relocate to Sichuan in the months from April to September, which is a wet season. The cost of electricity drops significantly when using hydroelectricity. Few data also reports highlight that miners use 95% of renewables during those months, and only 5% of mining activities are done through fossil fuels. The same can be said about solar and battery energy. A similar thesis is highlighted on Twitter by Square Crypto:
Every single of these alternatives performs exceptionally well when they are stable and are available on any given day. But that is not the case right now. Battery technologies are not advanced enough to provide energy during the nighttime on a large scale. The same applies to solar energy- it cannot be charged without a light source.
You might say- it is still a greener alternative for bitcoin mining, right? No, we cannot have fluctuations in electricity supply, as it will impact the overall GHG emissions. That is why the carbon emission factor in Sichuan ranges anywhere between 265 and 579 g CO2/kWh. We may only generate 4g CO2/kWh using hydropower, but we still let natural gas emit 469 g CO2/kWh. So, this problem surrounding bitcoin’s mining activities is not excessive energy consumption, but it is more about fossil fuels generating huge amounts of carbon footprint.
Carbon Footprint Comparison
The energy consumption has nearly tripled in the last three years and according to some reports, it could even supply energy for all data centers globally and even some small countries. While many people fixate on this information, they forget the actual problem- carbon footprint. The main focus should always remain reduction of carbon footprint.
An even more surprising fact about bitcoin’s energy intensive network is that- one of the early contributors to the bitcoin project knew that- if bitcoin implementation is to be done on a large scale, we have to find a way to reduce carbon footprint or CO2 emission.
If we just compare the per transaction effect on the carbon footprint, you will see how big of a difference it makes when deployed in masses. Here, we have included a comparison between a VISA transaction and one bitcoin mining transaction.
In another example, if we compare bitcoin mining footprint with that of gold, then we can see the following :
The energy consumption remains to be uncertain as of now, but the carbon footprint continues to increase. That is why countries like China are trying to pass strict policies and regulations to meet their carbon-neutral goal. So this narrative of energy consumption is an obstacle to bitcoin’s sustainability is not 100% correct. We have to consider the state of affairs taking place in China, as they are responsible for 75% of bitcoin mining activities. We also found out that 40% of China’s bitcoin mines were powered by coal.
This needs to change to make bitcoin more reliable, but energy consumption should not drive the environmental impact narrative. That is why Elon’s statements on Tesla not accepting bitcoin payments were incorrect.
China is doubling down on net-zero carbon goal
All the China FUD spreading across media outlets is creating chaos in the crypto markets. They claim to ban cryptocurrency services and mining activities using fossil fuels because they focus on reaching their five-year economic goal.
If the mining activities continued at the same rate with the same fossil fuel usage, China is likely to hit 130 million tonnes in carbon emissions by 2024. That nearly accounts for 5.4% of the carbon emissions from generating electricity in the country. The energy consumption will also nearly double to 297 terawatt-hours of energy.
Bitcoin miners in Beijing or other parts of northern China are very likely to be using electricity from coal-powered plants. Mining in southern provinces – especially Guizhou, Yunnan and Sichuan – is largely powered by hydroelectricity, says Guan Dabo, professor of climate change at Tsinghua University.
China banning mining activities or stopping banks from providing cryptocurrency services might not solve the whole problem. It may help limit the total amount of energy consumption, but it will not stop the carbon footprint from growing. If we just check the simulation period for carbon emissions, we will observe that the carbon footprint per GDP can reach a maximum of 10.77 kg per USD by 2026. That is why countries contributing to major mining activities are doubling down on taxation policies for miners using fossil fuels. Right now, it is nothing but FUD, and we should only focus on how China deals with reducing the carbon emission intensity of the Bitcoin blockchain.
With rising carbon footprint- Can Bitcoin achieve wide implementation and operational sustainability?
There is no question that- Bitcoin has the best trust mechanism with its consensus algorithm and decentralized transaction characteristics. We have also seen blockchain adoption in multiple industries, including supply chain, smart contract, and even manufacturing operations.
The only roadblock for its large-scale implementation would be its carbon and energy-intensive protocol. This eventually leads us to the high emission patterns provided by blockchain operations in China. That is why newly initiated cryptocurrencies are using a greener alternative for mining and block generation purposes. If Ethereum succeeds in integrating the proof-of-stake model, we can expect more miners to shift to that blockchain network, as it requires less computing power.
In a recent blog written by Ethereum Foundation, we can see that successful integration of the POS model could potentially reduce energy use by 99.95%. Now, that is promising for many people, but if you are a bitcoin believer, you should only see how much mining activities are done using renewable energy.
Green bitcoin mining is only possible when industries expand their renewable energy capacity. And it is even more important for them to realize that this opportunity can incentivize their utility companies.
Go Beyond Bitcoin
There are a lot of things we overlook in the mining process of bitcoin. Yes, the carbon footprint should be addressed immediately, but what’s more concerning in the short term is electronic waste.
As bitcoin follows ASIC mining, it only needs the hardware to do one task and nothing else. Once that task is done, the machines become electronic waste. If we just take into account the data from 2018, we can see that 5,973 metric tons of mining equipment were removed. Even though we cannot say they were disposed of immediately, they will be at some point in time.
In a 1.5-year bitcoin cycle, the average amount of e-waste generated would be 16,000 metric tons. This cannot be compared to other industries like banks, but it is safe to say that the VISA payment system will not have generated such amounts of e-waste.
Bitcoin’s sustainability depends on how well the governments regulate the network and control carbon emissions, but the one thing we have no control of is hardware efficiency. Miners will continue to look for better hardware, which results in the dumping of older hardware.
The limitations for bitcoin will always be there, and there will always be a trade-off to achieve something impossible. Uniting renewable energy may not be the complete answer to solving bitcoin’s environmental impact. Still, carbon taxation and other regulatory policies are the things that could potentially change the landscape for bitcoin miners. So, the main thing to take away- energy consumption is not the bigger problem for bitcoin mining. It is a carbon footprint. The first step to solving a problem is recognizing one, so government bodies should focus on this existing carbon footprint.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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