As new miners join the fray and the Bitcoin network continues to grow, so too does its energy usage.
It’s easy to read the headlines and assume that bitcoin, and indeed every other cryptocurrency, must be significantly contributing to climate change. In May, Tesla CEO Elon Musk tweeted his concerns that “cryptocurrency is a good idea on many levels … but this cannot come at great cost to the environment.” Shortly after, bitcoin’s value tumbled 15%. The growing global pressure on bitcoin miners to use more renewable energy has led to the creation of initiatives like the Bitcoin Mining Council and pushed mindful investors to seek out “greener” cryptocurrencies.
As of mid-July, a single bitcoin transaction required 1719.51 kilowatt hours (kWh) – where a kWh is the amount of energy a 1,000-watt appliance uses in over an hour. To put that in perspective, that is about 59 days’ worth of power consumed by an average U.S. household. On an average day, 240,000 bitcoin transactions are sent over the network.
Often referred to as the new gold rush, it can be hard to comprehend how something with no physical manifestation can be so resource-intensive. The Bitcoin network relies on thousands of miners running energy intensive machines 24/7 to verify and add transactions to the blockchain. This system is known as “proof-of-work.”
Bitcoin’s energy usage depends on how many miners are operating on its network at any given time. These miners must compete against each other to win the right to add the next block to the blockchain and earn rewards. The competitive structure results in a lot of wasted energy as only one miner can add a new block every 10 minutes.
To maintain a competitive advantage over other miners, many larger operations are forced to scale up or upgrade their equipment. As a result, there are now dozens of mining facilities all over the world that have hundreds, if not thousands, of rigs running constantly. One of the byproducts of these industrial-scale operations is heat. Application-specific integrated circuit (ASIC) miners – the leading type of specialized computing equipment used for mining cryptocurrencies – produce a lot of heat when performing hashing functions and need to be kept cool to prevent them from becoming less efficient or burning out. Smaller operations might only need fans and a cool climate to keep temperatures in check, but large mining facilities require industrial-style cooling systems. That further increases the amount of energy consumed.
While the mining industry’s steering toward cleaner energy, a large portion of the electricity consumed by the Bitcoin network is still generated from nonrenewable sources, like coal-burning power plants. It’s well understood that burning fossil fuels like coal releases huge amounts of carbon dioxide into the atmosphere – the main driver of climate change. That means that the more mining computers that join the network, the more demand there will be to create and consume energy.
Energy demands around bitcoin have long been a concern, especially now that we have seen the network quadruple since its last peak in 2017. And the network is still maturing. At its present level, Bitcoin consumes 81.51 terawatt hours (TWh) annually. If it were a country, it would rank as number 39 for annual electricity consumption, ahead of Austria and Venezuela.
It is important to note that there is a difference between electricity consumption and environmental/carbon footprint. There is no doubt that bitcoin’s miners require large amounts of electricity. But to understand the ecological impact, there needs to be information about where miners source their energy. Bitcoin itself does not inherently produce extra carbon emissions because any source of electricity can technically power the network. As of September 2020, researchers at the Cambridge Center of Alternative Finance (CCAF) found that 62% of global miners relied on hydropower, 38% used coal, and 39% used some combination of wind, solar or geothermal energy. But it is estimated that only 39% of bitcoin’s energy consumption is carbon neutral.
While other industries need specific environments and conditions, bitcoin can capitalize on energy sources that are inaccessible to others. In the Chinese provinces of Yunnan and Sichuan, large quantities of excess hydropower were harvested to power the growing mining factories in China. During the rainy season, these provinces could be responsible for 50% of all mining operations worldwide. But in June, the Chinese government imposed restrictions on cryptocurrency mining. That has resulted in mining operations migrating to countries like Kazakhstan, which rely more heavily on fossil fuel-based electricity.
While Bitcoin’s electricity consumption may seem like a lot, it pales in comparison to the energy consumed by traditional banks. The entire bitcoin ecosystem is said to use less than half of the energy banking systems require. That is not too surprising when you take into account the sheer number of physical branches, printing facilities, ATMs, data centers, card machines and secure transport vehicles required to support the fiat currency system.
There’s been a notable push in 2021 to make bitcoin mining, and indeed other cryptocurrency mining, more sustainable and environmentally friendly. The Crypto Climate Accord advocates for the cryptocurrency industry to seek out new electricity sources and aims to provide crypto companies “an open-source toolbox of tech solutions” to help the industry achieve net-zero emissions by 2030.
Finally, there may be less reason to worry than the alarming headlines proclaim. Bitcoin’s miners are unlikely to increase at the same scale as they did a few years back. That is in part due to bitcoin halving, which is built into the Bitcoin blockchain and reduces the block rewards miners get every four years. So unless bitcoin’s value continues to rise to compensate for the drop, miners will need to shift toward more efficient equipment and cheaper sources of energy in order to maintain margins and keep large-scale mining operations viable.