It’s often suggested that Bitcoin mining uses huge amounts of energy and causes massive carbon emissions. Recent headlines tell us that “Bitcoin uses more energy than Argentina” (BBC) and that Bitcoin’s “jawdropping” consumption “rivals London’s”.
But what are the facts? What’s the context?
It’s not too difficult to generate an estimate of how much energy Bitcoin mining consumes, because the nature of the blockchain means that anyone can see new blocks being created. The amount of compute power required to achieve the observed progress can then be estimated, and by taking a guess at the efficiency of the equipment miners are using, economists and modellers can generate a number for the miners’ total electricity consumption, which will have some relation to reality.
Various people and organisations do this, such as the University of Cambridge Judge Business School and economist Alex De Vries. As this article is written, De Vries puts the miners’ consumption at an estimated 79.6 terawatt-hours per year (TWh/yr). The Cambridge modellers say it’s more like 128 TWh/yr, illustrating that this is not an exact science.
However, the CIA tells us that Argentina has consumed 121 TWh/yr of electricity in recent times, so, wow – it’s true. At least by the Cambridge numbers, Bitcoin does “use more energy than Argentina”. Good old Auntie Beeb had it right.
Actually, of course, that’s wrong. The Beeb journalists, like many others, are unaware of the realities of human energy use. One of these is that we consume most of our energy not as electricity but in other forms. Ordinary consumers use many more watt-hours of gas, heating oil, motor fuel etc than of electricity. Nations and economies use much more heat energy from coal, oil, gas and so on than electricity from any source. (The Beeb did later update its headline.)
Argentina, according to the International Energy Agency (IEA), used total energy supplies of 80 megatons-of-oil-equivalent (Mtoe) in 2018, which is the same as 930 TWh. Or to put it another way, Argentina alone uses more than seven times as much energy as Bitcoin mining does. And Argentina is not an energy-hungry nation.
Tesla cars: Does buying them with Bitcoin mean they aren’t green?
But it doesn’t tell us much to look at one nation or one city. Bitcoin mining is being increasingly heavily criticised on the grounds that it increases global carbon emissions. Famous electric car firm Tesla Motors has come under fire recently, for instance, for buying $1.5bn worth of bitcoin and planning to accept the cryptocurrency as payment. It is suggested that the move undermines the firm’s green credentials.
Does it really, though?
The IEA says that the world total energy demand in 2019 was 14,385 Mtoe, which is 167,000 TWh. Bitcoin mining, then, accounts for less than one-thousandth of global energy use. If Bitcoin mining stopped tomorrow, or all Bitcoin miners shifted entirely to renewable electricity, there would be essentially no impact whatsoever on carbon emission and climate change. If Bitcoin mining used ten times as much energy as it does now, and none of that energy were renewable, it would still be a small issue in terms of carbon emissions: not something to worry about next to things like making steel and aluminium from which to build Tesla cars, for instance.
Perhaps Bitcoin prices will keep on rising, but that doesn’t mean that Bitcoin mining energy use will keep climbing along with them. Various other cryptocurrencies use Proof-of-Stake (PoS) algorithms, which are much less energy-intensive than the Proof-of-Work technology on which Bitcoin is based.
The No. 2 cryptocurrency, Ethereum, has transitioned to PoS already and there are those in the industry who believe that Bitcoin will follow suit if this proves a success. Niklas Nikolajsen, founder of Swiss crypto broker Bitcoin Suisse, has expressed this view, for instance.
There are other reasons to doubt that Bitcoin mining will ever grow to be a significant activity in energy terms. Experts point out that cryptocurrencies in general have many problems to solve before they can really scale up.
“There is no denying that cryptocurrency is going mainstream and that it’s not going away anytime soon,” Nicklas Nilsson, senior analyst at GlobalData, tells Verdict. “Yet it’s important to remember that cryptocurrency is a nascent phenomenon and numerous unresolved issues remain before it will ever become close to reshaping the main shortcomings of today’s financial systems.”
“Cryptocurrencies just don’t work”
A previous report by GlobalData Thematic Research goes into the matter in detail.
The “fundamental problem is that cryptocurrencies do not work,” the report’s authors write. They add that:
- Cryptocurrencies slow down transactions instead of speeding them up.
- Cryptocurrencies add middlemen instead of removing them.
- Cryptocurrencies add cost to transactions instead of removing it.
- There is no rational basis for the valuations of most cryptocurrencies.
“The current valuations of the different currencies are not based on their utility, nor are they any indicator of their future utility; they are based purely on speculation,” the analysts say. None of this is true of cryptocurrencies’ underlying technology, blockchains, which can be deployed to reduce all those listed problems: but the currencies themselves add nothing and have no value or backing of their own.
Summing up, Bitcoin mining uses insignificant amounts of energy. Even if Bitcoin prices keep climbing and cryptocurrencies become widely used, a shift to Proof-of-Stake seems likely to seriously reduce energy consumption. And there are good reasons to suspect that Bitcoin and other cryptocurrencies will never seriously scale up because they aren’t really any use for anything and their present value is based purely on hype and speculation.
One reliable method of sustaining hype and speculation, of course, is to suggest that the thing to be hyped is important somehow when talking about something else that is genuinely of great interest – such as climate change.
That might offer a clue as to why the Bitcoin climate angle is being raised so often in some circles of late.