Bitcoin and cryptocurrency emissions
Updated: May 26, 2022
Did you know that bitcoin alone accounts for over 135 TWh in electricity usage annually? If that were a country, it would be the 28th biggest country by electricity consumption. A single bitcoin transaction is equivalent to 2.4 mn transactions on the VISA network and is enough to power an average US household for 78 days.
What to expect today:
Understanding bitcoin emissions
On Mar 9th 2022, White House officials opened a request for information on the energy and climate implications of digital assets such as bitcoin, other cryptocurrencies and NFTs. In this section we explore particularly what are the environmental implications of bitcoin.
Environmental impact of Bitcoin? Aren’t these “digital” ?
Yes. Bitcoin, in spite of being a digital asset, is not so great for the climate. Bitcoin’s environmental impact is driven primarily by the design of how Bitcoin is structured. Unlike physical currency mints, bitcoins are digitally “mined” through a process called “proof-of-work” where miners rush to solve complicated math problems - think extremely large server farms racing against each other to find a solution. This requires a tremendous amount of energy to run the computing units which in turn require large scale cooling solutions to ensure they can run optimally. (Check out our edition on data center emissions to know more about electricity usage in servers, data centers)
How much is the impact?
Currently, bitcoin alone accounts for over 135 TWh in electricity usage annually and if that were a country, it would be the 28th biggest country by electricity consumption. A single bitcoin transaction is equivalent to 2.4 mn transactions on the VISA network and is enough to power an average US household for 78 days.
Can we reduce the energy footprint?
It’s complicated. The next story discusses two solutions which are being discussed to reduce the energy usage but since the bitcoin network is completely decentralized, there is no central organization which can implement the change. Any change will have to be voted on by all participants in the network and big organizations which have invested millions of dollars to set up large farms to “mine” bitcoin the traditional way might not want to vote for anything that changes the paradigm unless they recoup their investment. In addition, the “proof-of-work” protocol is very fundamental to the bitcoin protocol and bitcoin loyalists may not approve of any changes to the algorithm.
Two approaches for a solution
Solution 1: Powering operations through renewables
Some miners are using surplus natural gas that would otherwise be “flared,” or burnt just to dispose of it, to generate power for mining. Others have put solar panels on top of their server halls or struck up deals to source low-carbon nuclear power. Many have set up shop in places like upstate New York, Canada, Iceland and Norway where there’s an abundance of emissions-free hydro or wind power, although that might be motivated as much by self-interest as concern for the climate -- renewable power tends to be cheaper than other sources anyway.
TeraWulf Inc. is one such company in the US which operates its bitcoin mining rigs completely on renewable energy and aims to be the biggest sustainable crypto-mining company in the US by 2025.
Solution 2: Fundamental changes to “proof-of-work”
Bitcoin’s “proof-of-work” (PoW) system used to verify transactions on its digital ledger, or blockchain, was never designed to underpin what’s now a trillion-dollar asset. Researchers and experts have proposed another protocol called “proof-of-stake” instead of PoW in which instead of verifying transaction through computing power, the network will verify transactions based on how much stake they have in the network. Kind of like shares in companies if you think about it. Bitcoin’s biggest alternate Ethereum is already expected to switch to “proof-of-stake” in mid-2022, slashing its estimated energy consumption by as much as 99%.
Of course bitcoin is just one of the cryptocurrencies out there but it's the biggest. There are newer blockchain protocols and crypto currencies that are better for the environment, for example, Solana and Cardano, use variations of “proof-of-stake,” an alternative process that consumes less electricity.
It's sometimes difficult to fathom for us to just think about the amount of electricity used for bitcoin and other crypto-currencies. Even if bitcoin miners use sustainable electricity to power their operations, we are not adding new renewable sources and instead taking existing renewable power which would have been otherwise used to power homes and businesses. The move towards “proof-of-stake” by Ethereum is a welcome step and we hope bitcoin can move to a different consensus algorithm as well which does not require so much energy usage.
Recommendations from the team
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Youtube - Why is Bitcoin bad for the planet (5 min video)