In 2009, when Satoshi Nakamoto launched Bitcoin materializing Wei Dai’s B-money, who would have thought the digital asset would hold the potential to transform and revolutionize the financial systems around the world?
Okay, maybe Satoshi pictured individuals, corporations, and even governments getting attracted to the decentralized and disintermediated digital asset class in the future. What he might have fallen short to see is that mining Bitcoin and its likes might pose harm to the environment.
Mining is the process via which new bitcoins are created. Miners compete to solve a complex mathematical puzzle to validate the transactions using energy-intensive ASICs and, in return, get rewarded in newly mined bitcoins.
According to the Cambridge Bitcoin Electricity Consumption Index released in 2020, Bitcoin utilizes 143 terawatts per hour (TWh) of electricity annually for mining. While Norway consumes 124 TWh and Bangladesh consumes 71 kWh annually. Well, Satoshi cannot be blamed for everything.
Is the Opportunity Cost of Environmental Health Worth It?
Sure, Bitcoin and other cryptocurrencies with their high volatility, transparency, next to no regulations, and user anonymity, have swept the world into envisioning an era of financial independence and censorship resistance. But we cannot draw a blind on the staggering energy consumption of the world’s largest blockchain technologies, Ethereum and Bitcoin, which is more than the energy consumption of a few countries annually.
The Crypto community feels immensely pressured and obligated to reduce the carbon footprints left by mining and the utilization of non-renewable sources of energy. Earlier, when Bitcoin was in its infancy miners could use a mining software on their computers to seal the deal. But, now when the demand for cryptocurrencies is on the rise, the miners require bigger equipment, rendering the cryptocurrencies highly energy-intensive.
Even Elon Musk back in 2021 suspended transactions using Bitcoin owing to the harmful carbon emissions during mining. However, he has revised his declaration and opened Tesla to trade Bitcoin again.
A thing to note is, that although mining consumes a lot of energy, mining Bitcoin is similar to the transaction methodology at banks – the validity of money is checked, transfers are made and a fee is charged. However, banks are centralized bodies, while Bitcoin’s proceedings are decentralized and independent from the government or the central bank.
So, What’s the Solution?
Maybe, if the cryptocurrencies go green pressure from the critiques and environmentalists will be lifted. Is it possible for the crypto to shift from carbon costly mining to eco-friendly mining? The answer would be yes.
Recently, we have seen several crypto platforms, such as Chia, Nano, Cardano, Iota, Bitgreen, etc., opting for renewable energy resources, using energy-efficient consensus mechanisms such as the PoS, DPoS consensus, or pledging zero carbon footprint. Ethereum (ETC) blockchain, in its Ethereum 2.0 avatar, will improve the network’s efficiency to save 99.95% energy consumption.
How Green is Bitcoin?
A lot has happened since the Cambridge findings cast one-sided aspersions on Bitcoin mining in isolation and complete disregard for other factors. In May 2021, China banned crypto mining, ceasing the hydro farms. This made the miners shift to cheap, easily accessible renewable energy sources in the US. It also significantly cut through the computing power used for mining. As a result, Bitcoin’s use of renewable energy sources had notably dropped to an average of 25% in August 2021, compared to 42% in 2020.
One major distinction to draw here is the volume of energy consumption in mining and usage of the bitcoin network. Once the mining is over, usage of the network won’t draw as much energy. This can make the grounds for future bitcoin transactions more solid in the aspect of energy-sustainable transactions through crypto.
The Crypto Climate Accord (CCA) pushes initiatives to make cryptocurrencies entirely green. The non-profit organization aims to extinguish carbon emissions the crypto industry produces by 2030. And by 2040, Crypto Climate Accord will reach net-zero emissions from crypto mining.
Jesse Morris, the chief commercial officer at Energy Web said, “We recognize that crypto does use a lot of energy, so let’s make it 100% green.” Energy Web has launched Green Hashrate, an open-source software solution that will verify and track green Bitcoin mining to help keen check the environment friendliness of Bitcoin.
Bitcoin is Actually Relatively Eco-friendly
According to the Galaxy Digital report, the banking industry consumes 263.72 TWh per year, gold consumes 240.61 TWh, and Bitcoin consumes around 113.89 TWh per year. Now, these are jarring numbers to look at.
All across the globe, around 2205 TWh of energy is wasted annually, which is approximately 19.4 times the energy utilized by the Bitcoin ecosystem. Bitcoin seems innocent when we consider all these stats. However, the numbers banks serve, and Bitcoin caters to are day and night.
Oil fields provide roughly 40% of energy in the world. Methane, a byproduct of oil extraction, is a major greenhouse gas that is 25 times more degenerating to the ozone layer than carbon dioxide produced in Bitcoin mining.
As the Galaxy Digital report mentions, “Bitcoin mining offers a solution; companies like Great American Mining, Upstream Data, and Crusoe Energy Systems are building infrastructure to capture this methane at the wellhead and use the otherwise-wasted gas to mine bitcoin. This means that oil producers can ensure a 24x reduction in emissions compared to venting that methane into the atmosphere.”
A report published by Michel Khazaka, a cryptographer and an IT engineer, stated, “We demonstrate that Bitcoin consumes 56 times less energy than the classical systems and that even at the signed transaction level, PoW transaction proves to be 1 to 5 times more energy-efficient.”
Understanding the physics behind the transactions, he said, “When Bitcoin Lightning Layer is compared to Instant Payment Scheme, Bitcoin gains exponentially in scalability and efficiency, proving to be up to a million times more energy efficient per transaction than Instant Payments.”
In conclusion, Bitcoin has revolutionized the financial system to a new level. Sure it has its downsides but they are backed up with positive aspects as well. If organisations like CCA and projects like Green Hashrate work together, they can reduce the environmental hazards posed by Bitcoin which is admittedly less than the banking sector. Hopefully, there will be a parlay in the fight between digitalization and environmental welfare.
