Bitcoin mining usually looks for areas with excess electricity supply and converts the excess energy into value without increasing net emissions.
As Bitcoin becomes more mainstream, investors and the public naturally have questions about how it works. One of these issues is about the potential environmental impact caused by Bitcoin mining.
First, we want to talk about a basic fact: Bitcoin mining is an energy-intensive process. This is not controversial. As the price of Bitcoin rises, new miners are incentivized to participate, thereby increasing the energy consumption of the entire mining industry.
However, to understand the actual impact of this energy consumption on the environment, it involves many aspects and is complicated. In this article, we will explore some of the main misunderstandings that are often controversial and understand the truthfulness of them.
Myth 1: Bitcoin is an important factor leading to climate change
According to the best scientific explanation, this is simply not true. Although Bitcoin consumes a lot of energy, it does not automatically equate to it being an important driving force for climate change. To understand the reason, it will be helpful to understand the working principle of mining.
Mining is the process by which Bitcoin and some other cryptocurrencies are used to generate new coins and verify new transactions. A huge decentralized computer network around the world protects the blockchain (a virtual ledger that records cryptocurrency transactions). In return for contributing their processing power, miners will receive new coins as a reward. This is a virtuous circle: miners maintain and protect the blockchain, and the blockchain grants them new coins, and these rewards provide motivation for the miners to maintain the blockchain.
In April, a series of headlines warned that carbon emissions from China’s Bitcoin mining industry could cause global warming to run out of control. But the reports on which these articles are based have serious flaws. These figures come from the mixed fuel used in China as a whole, not the energy actually used by the miners. Since most of the grid is powered by coal, these researchers believe that Bitcoin must also rely on coal. This is why it is incorrect:
Miners are motivated to find the cheapest energy. This usually means that these energy sources come from excess electricity (electricity that will be wasted if not used) and/or sustainable energy sources whose prices are plummeting.
Half of the world’s Bitcoin mining takes place in Sichuan, China, where excess hydroelectric power can make 95% of the mining energy consumption as renewable energy.
75% of miners already use renewable energy as part of their energy mix.
Most importantly, the researchers behind the Cambridge Bitcoin Power Consumption Index concluded that: “At present, Bitcoin’s environmental impact is still insignificant.”
Myth 2: Bitcoin is not compatible with the healthy environment
With the maturity of cryptocurrency technology and green energy technology, the opposite seems more likely. Incentivize Bitcoin miners to go where the electricity is the cheapest. Although this may mean the use of certain fossil fuels, the best way for miners to maximize profits is to look for excess supply. In fact, Bitcoin has unique advantages that can make it cheaper and easier for everyone to obtain renewable energy:
Renewable energy is often over-supply. When the grid cannot support the energy supply, this electricity is wasted.
Natural gas producers use a process called “combustion” to simply burn excess products, harming the environment, and no one benefits. Bitcoin can convert this excess energy into value without increasing net emissions.
By placing mining operations as a source of green energy, utilities can monetize their excess energy supply. In fact, at least one publicly traded power company has explored direct participation in mining to obtain value from excess supply that can be used to establish sustainable energy operations.
By ensuring a viable market for renewable energy, Bitcoin incentivizes companies to build more green infrastructure, thereby further reducing the price of clean energy. This virtuous circle can actually contribute to the fight against climate change.
Myth 3: Bitcoin is inherently less efficient than traditional financial systems
Many of the most shocking headlines came from a basic lack of understanding of how Bitcoin works. You may hear some surprising statements, such as “There are 1 billion credit card transactions every day, and Bitcoin processing this 1 day transaction requires 14 times the world’s total electricity.” These numbers often come from Bitcoin The energy costs of mining are confused with transaction costs.
Bitcoin energy consumption mainly comes from mining blocks on the blockchain, not transactions. (The “mining” process achieves multiple goals, including generating new bitcoins and validating new transactions. However, as the name suggests, the main function of mining is to generate new bitcoins.)
Due to the existence of “halving”, it is estimated that the energy required to mine a block will be reduced every 4 years, and the new bitcoin issuance will be reduced by half.
It is every block that consumes energy, not every transaction. As various tools (such as batch processing, Segregated Witness, and Lightning Network) allow parties to aggregate more transactions on each block, the energy cost of each transaction will decrease.
Myth 4: Bitcoin consumes “too much” energy
Because Bitcoin is relatively short-lived, it seems shocking to hear that it consumes as much energy as a country like Norway. But think about it: Norway’s GDP is about US$400 billion. The total economic value (its market value) guaranteed by Bitcoin is as high as $1 trillion. It is not easy to make direct comparisons, but the important thing to remember is that everything in the world consumes energy. Whether the use of energy is reasonable depends to a large extent on the value of resource utilization. In this way, Bitcoin uses resources much more efficiently than many industries. Here are some points:
In the United States alone, the energy wasted every year due to inactive household equipment can provide power for Bitcoin mining for 1.5 years.
It was found that Bitcoin’s energy consumption is far less than other financial systems: only half of the gold mining industry, and not one-fifth of the energy consumption of bank branches and ATMs.
Myth 5: The cryptocurrency field cannot solve the environmental impact
As the largest cryptocurrency, Bitcoin is often regarded as synonymous with the entire crypto field. This ignores the current ongoing upgrade of Ethereum, the second largest cryptocurrency. The Ethereum 2.0 upgrade aims to make a wider range of economic activities (from loans and savings to minting NFTs) greener, cheaper and faster.
Similarly, newer cryptocurrencies like Cardano are designed from the bottom up and focus on sustainability.
In terms of mining, the main stakeholders in this field are actively encouraging sustainable energy procurement in various ways, including the “Encrypted Climate Agreement” launched earlier this year, aiming to achieve 100% sustainability by 2025 through the following methods Energy production:
Elon Musk recently tweeted that Tesla will suspend accepting Bitcoin as payment due to fossil fuel issues. He met with the largest mining company in North America (including the Argo area) on May 23. Blockchain, Hive Blockchain and Riot Blockchain). These mining companies announced the formation of the Bitcoin Mining Council (Bitcoin Mining Council), which aims to accelerate the use of sustainable energy for mining on a global scale.
Ethereum is currently undergoing an upgrade to move the second-largest cryptocurrency by market value from a mining-based system (PoW) to a more energy-efficient system called Proof of Stake (PoS). PoS has been used by many cryptocurrencies.
Square recently announced a $10 million Bitcoin clean energy investment plan to promote the use of clean energy in Bitcoin mining.
Just in the past week or so, several large mining companies announced green initiatives: Greenidge Generation Holdings stated that its New York Bitcoin mining business will be carbon neutral on June 1. Argo Blockchain announced that its new business in Canada will mainly use hydropower.
Argo also recently joined the Cryptocurrency Climate Agreement (CCA) with mining company DMG Blockchain. CCA is an initiative initiated by the private sector, promising to help the mining industry achieve 100% sustainable energy production by 2025 and achieve zero net carbon emissions by 2040.
Coinbase Ventures recently invested in Crusoe Energy, a company that uses excess “burning” energy from natural gas producers for crypto mining and other production purposes.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.