Can Bitcoin Mining Be Ecologically Sustainable?

Bitcoin – to some an abstract system they cannot quite grasp let alone make use of, to others a lucrative business or enthralling gambling game. Either way, the rapid growth of Bitcoin in the last decade has sparked a fierce debate on its environmental impact. Will the Bitcoin hype inevitably take its toll on environmental health or can the digital currency be mined in a sustainable way after all? This article explores both sides of ‘the coin’.

Investors and miners who already believed in Bitcoin in the early days are most likely set for life. Today, one would have to make quite an investment to squeeze serious profit from the Bitcoin game, with the current price of one Bitcoin being over 50,000 US$.

Hen, there are those who may – even after almost thirteen years of its existence – still be wondering what Bitcoin is. Most of all, it is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Taking this definition one step further, we learn that Bitcoin is a so-called ‘cryptocurrency’, secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. As if that weren’t complicated enough, today we find ourselves in a pool of thousands of other cryptocurrencies. Nonetheless, Bitcoin remains the largest cryptocurrency by market cap in contrast to Ethereum, Binance Coin, Cardano Coin and the like

Bitcoin vs Fiat Money

How does Bitcoin differ from the money we use in our everyday lives, commonly referred to as ‘fiat money’? The table below compares the major differences between Bitcoin and fiat money as suggested by Bitpanda:

Bitcoin

… is a currency created by decentralized, distributed computing

… is governed by majority rule (network consensus)

… transactions only involve two parties – no intermediary required

… depending on network speed, transactions take minutes

… no chargeable is possible after a transaction has been made

Fiat Money

… is a currency issued by a government

… is governed by a central bank

… an intermediary such as a bank or payment provider is needed for a transaction

… local international transaction may take days

… a chargeable is possible after a transaction has been made

The Basic Principles of Bitcoin Mining

To understand where Bitcoin’s energy consumption is coming from, it is worth taking a look into the inner workings of mining. Bitcoin is based on a technology called blockchain. Basically, this is a shared database that stores information in blocks. Each block has a limited storage capacity. Once filled, it will be chained to the previously filled block – hence ‘blockchain’. Even though different types of information can be stored on a blockchain, it is most commonly used as a ledger for transactions. A blockchain’s goal is to allow digital information to be recorded and distributed, but not edited.

In the world of Bitcoin, this process is triggered by a person making a transaction in Bitcoin, thus alerting all miners within the network. Following that, the mining computers do mathematical calculations to confirm the validity of this transaction. Once a few thousand transactions have been validated, the miners group them together in a block and then race for the rights to add this block to a string of those previously made by solving a complex numerical problem. Long story short, the miner who solves it first cashes in the ultimate reward: Bitcoins.

In the end, it is Bitcoin’s decentralized structure that is responsible for its huge carbon footprint. There are, in fact, countless parties involved, all competing to package the transactions as quickly as possible and solve a small mathematical problem. This ‘Proof of Work’ system, which will be discussed in more detail later, is significantly more energy intensive than verifying transactions on centralized networks.

Balancing Reward and Price

Such a reward may, as people like to say, only come to those who wait. Unfortunately, though, Bitcoin mining also comes at a price: energy. While in 2009, we could mine Bitcoins in a living room using a simple computer setup, nowadays, we would need a room full of specialized machines worth thousands of dollars. The amount of household electricity required to mine one coin was a few seconds’ worth back in 2009. Today, the amount of household electricity required is nine years’ worth. Therefore, it comes as no surprise that the global need for energy to mine has skyrocketed in the last decade.

With that, critical voices are growing louder, drawing attention to Bitcoin’s threatening impact on our climate. New approaches and concepts to mine Bitcoin in a more ecologically sustainable manner aim to alleviate this threat. Whether these are fruitful or not is hotly debated. As we dig deeper into the topic, we will be weighing supportive arguments against contrary views.

Main Concerns about the Ecological Sustainability of Bitcoin Mining

The ability to make the highest profit from Bitcoin mining is directly linked to highest computation power. Therefore, Bitcoin mining creates a demand for extremely powerful computers as well as a need to provide energy for them. Consequently, the issues with the ecological sustainability of Bitcoin mining boil down to two main problems: a high demand for low-cost electricity and large amounts of electronic waste (e-waste).

High Energy Consumption

In the earlier days of Bitcoin, regular computers with GPU’s (Graphical processing units) were still competitive for Bitcoin mining. However, in today’s standards, more powerful computers are required. The faster computers one’s competitors have, the more miners need to invest in more powerful gear in order to stay in the game – and that means rising energy demand.

In fact, it’s estimated that Bitcoin mining in 2021 needs 66 times more electricity today than just six years ago and as the competition grows and more Bitcoins enter circulation, the energy demand will continue to rise. This year, Bitcoin energy consumption was projected to exceed 177,43 terawatt hours, which is more than Finland needs to power the whole country.

As the energy consumption keeps rising, so does the need for cheap electricity in order to keep mining profitable. Which is why mining operations have been located in countries like China and Russia where energy is cheap and usually powered with coal or other fossil fuels. However, as China has recently placed strict bans on cryptomining, the epicenter of Bitcoin mining is swiftly moving to the US and creating hope for Bitcoin that will be less dependent on cheap fossil fuels.

However, it is important to note that even though mining in China is rapidly decreasing, it is still far from being over. Therefore, its environmental impact can’t be ignored. Just a few years ago, China accounted for 48% of global Bitcoin mining and the change is not going to happen overnight. In fact, according to a study by Nature Communications, the Carbon emissions from Bitcoin mining in China are predicted to release the same amount of CO₂ as all of Italy by the year 2024.

So what are the future implications of this shift away from Chinese coal power? Is there a chance for Bitcoin mining to become more sustainable? Many find it hard to believe in the green future Bitcoin because its economy is built around finding the cheapest electricity. It is possible that mining from China is just going to move to other countries that can provide cheap electricity. However, there are some aspects that speak for the green side of the coin.

Bitcoin as a Solution for Intermittency Issues

Even though the prospects of Bitcoin and crypto-mining in general being sustainable or even useful for a greener future look grim, there are signals in the market that suggest a shift in approach – at least on a few levels. Bitcoin mining has resulted in revivals of coal mines in China but simultaneously large amounts of clean energy stay unused every year in Sichuan and Yunnan during the wet season. Therefore, thoughts arose of shifting mining to those areas for those particular seasons in order to reduce the usage of unsustainable energy. Miners have already built collaborations with the hydropower industry. The US and Canada have been following a similar approach, using excess energy for crypto mining.

The Bitcoin Clean Energy Initiative presented Bitcoin mining as a solution for common issues renewable energy production is facing, such as grid congestion and intermittent power supply. Intermittency has been the biggest factor limiting the growth of renewable energy as it cannot be produced at all hours of the day. While mining itself cannot store unused energy, which is an issue the people in authority have been trying to solve for years, they suggest that miners as a flexible load option could help solve intermittency and congestion problems. The general idea is that mining could possibly allow grids to deploy substantially more renewable energy without a change in electricity prices due to the generation technologies likely falling down the cost curve, bringing them closer to zero marginal cost energy production. This is supposed to encourage investments in solar systems, therefore enabling renewables to generate a higher percentage of grid power.

The actual feasibility of the idea still remains questionable as Bitcoin using stranded or wasted energy is not a reality. Especially in the U.S. a lot of electricity that is produced never reaches the consumer, and while Bitcoin could help foster the development of spinning reserves and flexible baseload facilities, it has also been responsible for the revival of a gas plant in the US.

Northern Countries as “Green Havens”

While hydroelectricity is a more environmentally friendly way of producing energy that the crypto mining field and Bitcoin have tapped into, it still isn’t entirely green. Iceland, for example, has high amounts of electricity at inexpensive rates, the energy comes from hydroelectric dams and geothermal power plants. Therefore the electricity is created without carbon emission. The underlying issue is the dams as they sink untouched land under water and, as a consequence, alter rivers and waterfalls. Picking up on the issue of Bitcoin needing more energy every year, the region’s energy supply has been nearly exhausted and the local energy firm HS Orka is expanding its capacity with a hydroelectric dam in the remote Tungufljot river, near the Great Geysir hot spring tourist attraction. Even the future of “Green havens” in the Nordic countries which earlier seemed like the promised land for green Bitcoin mining seem uncertain. It’s predicted that the amount of excess energy that was previously used for Bitcoin mining could rapidly decrease because climate issues have evoked the thirst of renewable energy in other growing sectors.

Mining vs. Regular Banking

The investment company Galaxy Digital estimated in a recent report that Bitcoin consumes half as much energy as traditional financial industries. On a critical note, though, the results are not based on official figures, for the traditional banking system and gold industries do not publicly disclose their energy footprints in contrast to Bitcoin. De Vries views this comparison from an inherently different perspective, suggesting that the average carbon footprint per Bitcoin transaction would range from 233.4 to 363.5 kilograms of CO₂, while the average carbon footprint for a VISA transaction equates to 0.4 g of CO₂. If one is looking for an answer, one will most likely find multiple depending heavily on what aspects and figures were considered in the respective research studies.

Bitcoin mining is neither becoming more efficient, nor does it encourage investments in clean energy. Another issue is that even though 76 percent of miners use some kind of renewable energy, it eventually doesn’t matter how clean the creation of an individual Bitcoin is. The moment it is used in transactions, it will inevitably be processed by other miners, regardless of how the individual electricity is produced. A “green” Bitcoin therefore easily turns into an unsustainable one.

Large Amounts of Electronic Waste

Even if the issue with large demand of cheap electricity could be solved by completely switching to renewable energy, there’s still a major carbon footprint produced while creating the mining machinery as well as environmental footprint from machines that no longer can be used.

As previously mentioned, regular computers are too slow for mining profitably and more powerful technology is needed. Application Specific Integrated Circuits (ASIC) are one common solution to this. They have much higher computing power than regular computers and are able to mine Bitcoin at very high speed. However, their lifespan is only around 3-5 years after which it becomes electronic waste. If maintained poorly and exposed to unfavorable conditions such as poor ventilation and humidity, its lifespan can be as short as a few months. Most Bitcoin mining machinery have short lifespans that contribute to the e-waste problem. In fact, as of May 2021, the estimated annual e-waste from Bitcoin mining adds up to 30.7 metric kilotons.

Even though these numbers are staggering, it’s problematic to understand this data unless we can compare it to the amount of e-waste that regular banking produces. Unfortunately such data from the banking sector, as mentioned, ceases to exist and thus relative comparisons can’t be made. Nevertheless, it’s important to keep in mind that the massive energy consumption is not the only issue that Bitcoin needs to solve in order to be sustainable.

Environmentally Friendly Crypto?

This raises the question if there is an existing environmentally friendly crypto. Bitcoin still relies heavily on fossil fuels but there are smaller cryptocurrencies which have a smaller carbon footprint. One could assume that this is a result of fewer transactions made with these currencies but there are in fact currencies which are more energy efficient. According to Lacey, the three most energy efficient currencies are IOTA, XRP and Chia. Lacey also suggests that new initiatives on how cryptocurrencies can be made more sustainable are constantly growing and it is expected that there will be even more sustainable cryptocurrencies on the market in the near future.

To get a better grasp at the overall energy consumption of cryptomining, the following overview by the University of Cambridge helps to demonstrate what types of energy are used to mine across four global regions. According to their research 76 percent of cryptomining is relying on renewable energy to some degree, yet the percentage of using renewable energy from the total energy consumption of cryptomining is just 39 percent. Note that the chart is not supposed to add to 100 percent because the electricity one uses can come from several energy sources.

While this is a trend that can be advocated, pointing to any currency as being “greener” than another is still difficult, according to Matthews, as there are multiple parameters at play. Some cryptocurrencies are inherently more energy efficient than Bitcoin, some, as mentioned, simply involve fewer daily transactions. The issue behind Bitcoins massive energy need is that it relies on so-called “Proof of Work”, meaning that producing a single token involves large amounts of calculations and subsequently processing power. Currencies that use “Proof of Storage” or “Proof of Stake” on the other hand use far less energy.

“Proof of Stake” protocols don’t need specialised computer equipment and don’t require additional energy to prove trustworthiness. The protocol can be run off of a laptop. Researchers believe that energy consumption of “Proof of Stake” is 99.99 percent lower than “Proof of Work”. Cardano, for example, is amongst the largest cryptocurrencies in the world and uses “Proof of Stake”. To join the network users buy tokens, which saves a large amount of energy.

In general, both ways of mining can be differentiated by the way the reward is distributed. While with “Proof of Work” every miner involved calculates and the fastest one earns the reward, “Proof of Stake” depends on the miner with the highest processing power and the reward is distributed by the amount of stake share in the process. This has caused several discussions amongst crypto-experts: Supporters of Bitcoin argue that Proof of Work is expensive and therefore secure, whereas Proof of Stake allows the creation of a monopoly. On the contrary, Ether-supporters consider Proof of Work a waste of energy and time. “Proof of Stake”, however, guarantees fast coins with little energy consumption. On a related note, one of Bitcoin’s biggest competitors Ethereum is currently working on switching from “Proof of Work” to “Proof of Stake”, making it more sustainable in the process.

Final Remarks

Be it electric cars, smartphones, or Bitcoins: Today, electrification and digitization are omnipresent. The global ambition to drive this transformation forward is partly fueled by the goal to slow down climate change. With that, the global energy demand keeps rising, which presents us with another major challenge: extracting and producing enough – and ideally clean – energy to meet this demand.

Easier said than done, especially in the controversial case of Bitcoin. Since, as described above, Bitcoin is mined using vast amounts of computation power, miners try to compensate for that with cheap electricity. Otherwise, mining would hardly be profitable. The amount of e-waste being produced along the way only exacerbates Bitcoin’s negative environmental impact. Thus, many experts doubt that the digital currency could ever be sustainable.

Many ambitious projects and ideas suggest that there are indeed ways to alleviate Bitcoin’s threat to the environment. These include, for example, using renewable energy to mine, or even proposing Bitcoin as a potential solution to intermittency and congestion problems in the production of clean energy. While some measures, like the first one, are already used in practice, others like the latter only exist in theory and thus still leak feasibility. Either way, we are faced by the hard truth that neither of them can guarantee the ultimate solution to Bitcoin’s sustainability problem. Who would have thought a ‘green’ Bitcoin initially produced with clean energy could so quickly be tainted when processed by other miners? This is only one of the previously addressed examples indicating that the sustainability problem is far more complex than what is reflected in present concepts advocating green Bitcoin mining.

In whatever way these concepts and ideas may unfold, they will certainly incentivize Bitcoin researchers and experts to do further studies in the pursuit of greener Bitcoin mining. As pointed out before, we are already witnessing a number of initiatives towards a more sustainable future of Bitcoin – or other cryptocurrencies, for that matter. In fact, fundamentally more sustainable currencies like IOTA, XRP, and Chia, or cryptocurrencies using ‘Proof of Storage’ and ‘Proof of Stake’ systems may not be very common at the moment, but could be, such as Cardano, central alternatives in the future. At any rate, one indisputable fact remains: If we want to keep harvesting Bitcoin’s enormous economic potential, there is an equally big need to restore and maintain the balance between its price and reward – for the sake of the environment.

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