Bitcoin’s Climate Change Impact

Will the carbon footprint of the first cryptocurrency mining become a barrier in its path?

“Bitcoin uses more electricity per transaction than any other method known to mankind,” Bill Gates told The New York Times, adding that “it’s not a big climate thing.”

Since Bitcoin mining can provide a solid stream of income, people around the world are very willing to run power-hungry computing equipment in order to receive rewards. In addition, the operation of this equipment is accompanied by the release of heat and therefore, additional energy costs for cooling are required.

Over the years, this has resulted in the total energy consumption of the Bitcoin network growing to colossal proportions as the price of the cryptocurrency rises.

The entire Bitcoin mining network now uses more energy than a number of countries. According to the research platform Digiconomist, the annual energy consumption of the Bitcoin network is about 79.63 terawatt-hours (TWh) and if Bitcoin were a country, then its rating would be as shown below.

According to other studies conducted by scientists at the University of Cambridge, the Bitcoin network consumes about 127.7 terawatt-hours (TWh) of electricity annually. This is more than the energy consumption of all Argentina.

However, it should be noted that if the total hashrate of the Bitcoin network can be easily calculated, then it is impossible to make the same calculation for its energy consumption, since there is no exact data on the energy consumption of all mining equipment, both computing and auxiliary, including cooling.

But Bitcoin’s biggest problem is perhaps not even its huge energy consumption, but the fact that a significant proportion of mining enterprises are located in regions (mainly in China) that rely heavily on coal energy. Simply put, according to energy researcher at the Technical University of Munich, Christian Stoll, “coal is fueling bitcoin.”

This leads to a large carbon footprint — the release of carbon dioxide into the Earth’s atmosphere. Which significantly affects climate change due to the creation of the so-called. “Greenhouse gas”.

Currently (March 2021), the carbon footprint of the Bitcoin network is already estimated at 37.82 million tons of CO2. Which is comparable to the carbon dioxide emissions of a country like Slovakia.

Another study, the results of which were released in October 2018, said that the energy costs of mining Bitcoin alone could generate as much CO2 emissions as possible to raise the temperature of our planet by more than 2 ° C in less than three decades. …

It is important to understand that energy consumption is not necessarily equivalent to carbon dioxide emissions and environmental pollution. For example, one kilowatt-hour (kWh) of electricity from a coal-fired power plant has a significantly different environmental impact than 1 kWh of electricity from a solar park.

To determine the carbon footprint of the Bitcoin network and therefore its real impact on the environment, it is necessary to take a closer look at the actual energy balance (i.e. all sources of energy used to generate electricity).

Bitcoin’s carbon footprint issues

The Bitcoin network requires high energy costs and, therefore, creates a significant carbon footprint.

In one hand, companies are increasingly using bitcoin, allowing customers to conduct transactions on their platforms using cryptocurrency or by investing directly in it.

On the other hand, companies and investors are also paying more and more attention to climate change. And just as shareholders are pushing companies to cut their carbon emissions, they are voicing similar concerns about Bitcoin.

Energy costs of Bitcoin in comparison with other payment systems

Bitcoin’s energy consumption does not depend on the number of transactions in its network. Actually, high energy costs are not so much about maintaining the performance of the Bitcoin network as its protection from reorganization attacks, attempts to seize control and establish control. In other words, it is the protection of funds located at the addresses of users and ensuring the reliability and security of the entire system.

Bitcoin is not an ordinary global payment network: unlike traditional payment systems such as Visa and Mastercard, PayPal, Webmoney, etc., Bitcoin is designed to function as an open censorship-resistant value transfer system that anyone can access, without asking for permission. Achieving these special and unique properties of the payment system requires various trade-offs, which inevitably lead to huge energy costs and inefficiencies.

Possible Solutions for Bitcoin’s Carbon Footprint

Proof-of-Work was the first consensus algorithm that managed to prove its reliability, but it is not the only known consensus algorithm. In recent years, more energy efficient algorithms have been developed, such as Proof-of-Stake (PoS). In this consensus algorithm, the blocks are created by the owners of coins located in the so-called steak, not miners. Thus, no power-consuming computing equipment is required. Therefore, the energy consumption of PoS is significantly less compared to PoW.

Bitcoin could potentially switch to such a consensus algorithm, which would significantly improve environmental sustainability. The only obstacle so far is that among the many different options for implementing the Proof-of-Stake algorithm, none of them has yet fully proven itself and has not shown reliability comparable to Bitcoin’s PoW. Nevertheless, work on improving PoS algorithms offers good hopes for the future.

Another way is the transition of miners to the so-called Green energy — renewable energy sources such as wind, sun and water. But due to the unpredictability and cyclical nature of these sources, it is also necessary to resolve the issue of reliable and efficient energy storage.

The third way is to reduce the energy consumption of mining equipment through the use of new technologies. In other words, more efficient miner chips will reduce energy consumption.

Bitcoin is a constantly evolving engineering and technological system. For 12 years, he has overcome many barriers in his path. I hope he will overcome this environmental obstacle as well.

References:

1. The Carbon Footprint of Bitcoin, Christian Stoll, Lena Klaaßen,
   Ulrich Gallersdörfer.
2. Español, E. (2021, March 10). Bill Gates Slams bitcoin’s impact on environment. Retrieved March 23, 2021, from https://www.entrepreneur.com/article/366892#:~:text=%22Bitcoin%20uses%20more%20electricity%20per,he%20would%20change%20his%20mind.