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The Hidden Cost of Bitcoin

Jonny Rogers explores how the recent rise of Bitcoin is contributing to climate change, and why everyone should be concerned

An aisle of computer servers in a warehouse


In less than a year, the price of Bitcoin has risen roughly tenfold, reaching a height of £36,320 per coin in mid-February to become the ninth most valuable asset in the world (surpassing even Facebook and Tesla). However, while more people, companies and banks are investing in cryptocurrency, there is a hidden cost to the growing Bitcoin mining industry: as its value continues to soar, so too will the amount of energy it consumes.


According to research from the University of Cambridge, if the Bitcoin mining industry were considered an independent country, it would be the 28th most electricity-demanding nation in the world (requiring roughly as much as Argentina, Ukraine and Norway), with 129.22 TWh consumed every year. To put this in perspective, a study from December estimated that a single transaction of Bitcoin has the same carbon footprint as 680,000 Visa transactions, or over 51,000 hours of streaming YouTube videos.



Why does it require so much energy?


Computers connected to the cryptocurrency network are rewarded for solving complex mathematical puzzles. Although it could take years for a computer to receive a single Bitcoin, ‘miners’ have set up entire warehouses filled with a large number of powerful computers to increase this probability. There is, however, a maximum of 21 million Bitcoins that can be mined, though the increasing complexity of algorithms mean that only very advanced computers are now able to make mining profitable.


As such, Bitcoin miners have a strong financial incentive to seek the cheapest sources of energy, which are often not renewable. Around 65% of Bitcoin mining occurs in China, where 66% of all electricity comes from coal plants (though this does not mean that foreign organisations are not harvesting the benefits). In addition, since Bitcoin is not tracked or controlled by any governmental body, it is impossible to determine what kind of energy is being used, and thereby hold anyone accountable.


While there have been concerns about the sustainability of Bitcoin since its birth in 2009, this did not receive considerable attention until a price rally in 2017 pushed up its energy demands. As Charles Hoskinson, CEO of the cryptography firm IOHK, explains:


“Bitcoin's energy consumption has more than quadrupled since the beginning of its last peak in 2017 and it is set to get worse because energy inefficiency is built into bitcoin's DNA [...] the more its price rises, the more competition there is for the currency and thus the more energy it consumes.”


Who will pay the price?


Non-renewable sources of energy produce an excess of carbon dioxide into the atmosphere, and thereby contribute to climate change, causing temperatures to rise, seasons to change, landscapes to collapse, wildfires, flooding, droughts and the displacement of millions of refugees.


It is most likely, however, that those who benefit greatest from Bitcoin mining are least likely to face the immediate consequences of their unsustainable practises: as research has shown, climate change disproportionately impacts nations in developing countries (predominantly those in South America, Africa and South Asia), even though the long-term consequences are global.


Elon Musk’s recent investment in Bitcoin has received criticism for undermining Tesla’s mission ‘to accelerate the world’s transition to sustainable energy’ (to quote their website). As David Gerard has pointed out, Tesla received $1.5 billion in environmental subsidies in 2020, which it then spent on the energy-intensive Bitcoin industry. Given, furthermore, the lack of traceability in Bitcoin trading, it is possible that unsustainable organisations could reduce their claimed energy demands by hiding wealth in Bitcoin, leaving other nations to deal with the environmental consequences.


Nevertheless, while some Bitcoin advocates such as Tyler Winklevoss believe that the environmental cost of cryptocurrency is justifiable, many have argued that it ought to be supported entirely by renewable energy. Another form of cryptocurrency, Ethereum, has announced plans to reduce its energy consumption by 99 percent; as founder Vitalik Buterin argues, unsustainable cryptocurrency also draws energy away from more valuable uses:


“Even if you don’t believe that pollution and carbon dioxide are an issue [...] there are real consumers — real people — whose need for electricity is being displaced by this stuff.”

Thankfully, however, renewable energy sources overtook fossil fuels to become the main source of electricity in Europe last year, and more nations are making commitments to reduce carbon dioxide emissions. If the growth of Bitcoin were to continue indefinitely – and not everyone is convinced that it will – the beneficiaries have a responsibility to ensure that the trading of cryptocurrency works to support, rather than detract from, efforts to make a more sustainable world for future generations.


 

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