How “Green” is Bitcoin?
Image by Pete Linforth from Pixabay
Elon Musk tweeted on May 12th, “We are concerned about rapidly increasing use of fossil fuels for BTC mining and transactions, especially coal, which has the worst emissions of any fuel.”
Due to his environmental concerns at the time, Musk decided to renege on his highly publicized announcement on March 24th that Tesla would be accepting BTC for payment of vehicles. The founder of Tesla tweeted that Tesla would be adding BTC as a payment method back again as soon as miners transition to using “more sustainable energy.”
Interestingly, a thorough search of all the Tesla vehicles sold for BTC after Musk’s momentous announcement on May 12th added up to...zero. So it seems the altruistic Elon was not exactly saving the world from an ice cap-melting avalanche of frenzied BTC mining, spurred on by Tesla enthusiasts worldwide, rushing to their local Tesla dealership to buy a car with their crypto.
There is a fun article in Motor Authority on how Lamborghini Newport Beach had independently started accepting BTC for cars back in 2013 and how at the time, a new Tesla Model S sold for between 70 and 100 Bitcoins. Price of BTC back then? $1,013. Lamborghini Newport Beach had sold a Tesla without any help from Musk’s Twitter feed. Hopefully, they hodled since that payment would now be worth between $2.2 and $3.2 million.
Yet we digress; let’s go back to the question at hand; how “green” is BTC? First, to be clear, Bitcoin uses the consensus mechanism called Proof of Work to validate transactions on its network. Through this system, miners are rewarded with an amount of Bitcoin to use their computer power. Yes, this computing power does necessitate using electricity in some form or another. So the question is: how much and what kind of energy does bitcoin mining require? What is it now, and what will it be in the future?
To understand all of the scary claims and predictions made about Bitcoin mining, let’s look at the primary source of most of this hysteria, based on erroneous statistics and projections that would make Neil Ferguson proud. As Mark Twain once said, “There are three kinds of lies; lies, damn lies, and statistics.” The statistics in question were drawn from faulty assumptions by people who do not understand Bitcoin mining.
Most of the environmental fear-mongering is based on an academic article published in 2018 by Nature’s Climate Change Journal titled Bitcoin emissions alone could push global warming above 2°. The report claims it would take (just) 30 to 60 years for bitcoin mining emissions to affect global temperatures. This is based on several false premises. First is the belief that the bitcoin network processes a billion transactions per day. This is not possible since the network can only process a few hundred thousand transactions daily.
Even more importantly, the report assumes that the energy required to process each individual transaction is the same as producing an entire Bitcoin block. Actually, each bitcoin block contains up to 3000 transactions, not just one. This calculation error is behind the claim that a single Bitcoin transaction uses more energy than 750,000 Visa swipes. This is a false equivalency since much more energy consumption is needed by a Visa transaction than just the swipe. The massive physical infrastructure of banks, merchants, regulatory agencies, government lobbyists, and other intermediaries all require the use of power. Besides, Visa is just a single layer of a much larger system. This centrally controlled fiat monetary system includes all the necessary energy-dependent mechanisms of the US dollar, including the military, which some say is its true source of “backing.” Bitcoin is a self-contained alternate system for the exchange of value.
The assumption that Bitcoin miners all use fossil fuels is also erroneous. Miners are financially incentivized to find the most efficient use of resources. For this reason, up to 78% of miners use renewable energy, at least in part.
Bitcoin mining may even be instrumental in accelerating the growth of green energy development since renewable energy is now proving to be less expensive than fossil fuel. The Levelized Cost Of Energy for solar and wind is down 90% and 71%, respectively, over the last ten years. Unsubsidized costs of solar and wind are 3-4 cents/kWh and 2-5 cents/kWh, respectively. The average LCOE for fossil fuels is 5-7 cents/kWh. Geothermal and hydroelectric energy are also cheap and widely used by miners between 3-5 cents/kWh.
The authors of Nature’s Climate Change Journal article assume the total energy output worldwide will triple over the next 20 years while hardware efficiency will stagnate. According to the now classic Moore’s Law, this is patently false. Add to this, much of Bitcoin’s energy use has been for mining new coins and not the actual processing of transactions. After all Bitcoins are mined, energy use will subside since validating transactions uses much less energy than mining new BTC.
Bitcoin miners are considered “buyers of last resort” for energy. Mining farms typically buy power that would otherwise be wasted. One example of this is how mining rigs often position themselves near oil wells to use the natural gas that would have been burned off or “flared” as waste, contributing to more greenhouse gas emissions. Many oil drilling rigs have no pipeline connection for natural gas, a byproduct of oil drilling. Upstream Data, Crusoe Energy, and Giga Energy lead the initiative to solve this issue. Bitcoin mining can help take advantage of more wasted energy and stop pollution caused by flared natural gas.
Looking to the future of Bitcoin mining, China’s recent ban on BTC mining will help make it even greener— as well as more decentralized, since Chinese miners have been responsible for 65% of the Bitcoin Hash rate worldwide. According to Cambridge University’s Bitcoin Electricity Consumption Index, Bitcoin’s energy consumption is already down 50% since China’s ban on mining.
Getting BTC mining out of China will help Bitcoin get greener since North American miners typically use a more comprehensive range of energy sources than Asian-Pacific miners. North American miners reported a 28% usage rate of coal-powered energy compared to a 65% usage rate by Asian-Pacific miners. Chinese miners with millions of dollars worth of equipment have packed up their gear. They are setting sails for greener pastures like Iceland and Norway, where thermal dynamic and hydroelectric power are plentiful, inexpensive, and nearly 100% renewable.
Cheap energy states like Texas are also welcoming Bitcoin miners worldwide. One of the largest mining firms in China, Shenzhen-based Bit Mining, has already announced a new crypto mining data center there, worth $25 million.
Another surprising fact: Texas has become the world leader in building renewable energy. Wood Mackenzie global research and consultancy firm, calls Texas the “center of the global corporate renewable energy market.” The report showed that in 2019, Texas “accounted for more than a quarter of all corporate renewable energy deals signed around the world.” Much of this is in solar and wind power. Back in 2010, Texas surpassed its goal of generating 10,000 megawatts of renewable capacity by 2025.
Even our whimsical car salesman, Elon Musk, may be coming back around as he has agreed to join in a public discussion on Bitcoin mining in July with Jack Dorsey, founder of Twitter and Square. Dorsey, along with Cathie Wood of Ark Investment Management, recently co-authored a white paper for The Bitcoin Clean Energy Initiative, exploring Bitcoin’s role in developing clean energy.
News happens fast here on the cutting edge of technology. We hope you join us at Beyond Enterprizes as we continue to explore and analyze developments and how they impact us in these exciting times.
