What's The Real Environmental Impact Of Bitcoin Mining?

March 4, 2021 04:00 PM
Crypto and Bitcoin Market Cap Story of Day

Crypto and Bitcoin Market Cap Story of Day

 

CRYPTO MOVERS AND PRICES

 

This morning, crypto was broadly selling off with the exception of UniSwap’s UNI token among the major coins. In the Top 10, Cardano (ADA) saw the steepest losses after setting record highs over the weekend. 

Crypto Story of the Day

Over the past several weeks, BTC’s rally has drawn scrutiny of the ecological footprint of the asset’s mining. While that footprint is significant, BTC critics on this front simplify the issue, fail to draw comparisons to other commodities, and overlook the asset’s potential contribution to sustainability. 

In mid-February, Financial Times wrote that there’s “one hitch” to Tesla’s investment of USD 1.5 billion in BTC: “it’s hard to square this new enthusiasm for crypto with environmentalism. For bitcoin isn’t environmentally neutral — it’s carbon-tastic idiocy.”

Those scrutinizing BTC mining’s ecological footprint often express the blockchain’s energy use in terawatt-hours (TWh) or kilowatt-hours (KWh), a quantification of energy usage across time widespread in industry. Furthermore, when considering power sources for BTC mining, researchers are able to extrapolate the carbon intensity of each KWh (i.e. 480-500g of CO2 per KWh). This allows for comparing BTC’s mining’s energy consumption, along with the carbon required to generate the power, to other industries or even countries. 

For example, according to the Cambridge Centre for Alternative Finance, the BTC network uses 130.9 TWh per year, or 0.6% of global electricity consumption. This puts the network’s electricity consumption on par with that of Ukraine or Sweden. If the BTC network were a country, it would be ranked 28th in terms of electricity consumption. 

When compared to other technologies, a January 2020 estimate put global data center energy consumption at 651 TWh per year (this estimate should include formal BTC mining facilities). Specifically, Netflix is estimated to consume 94 TWh per year in a report by the International Energy Agency. 

Another commonly-referenced estimate puts the BTC network’s carbon footprint at 36.95 mt annualized, roughly equivalent to that of New Zealand. The same source puts the carbon footprint of 1 BTC transaction equal to “728,674 Visa transactions or 54,795 hours of watching Youtube.”

A 2019 report by crypto investment firm Coinshares concluded that the carbon reliance of the BTC network is overestimated, and that renewable energy sources account for 73% of the power consumed by the network. According to that report, BTC mining is “more renewables-driven than almost every other large-scale industry in the world.” 

The mainstreaming of BTC has naturally brought greater visibility and critique to aspects of the asset class. Having said that, criticisms of BTC’s interaction with the environment have painted this as a challenge faced by the coin itself. In reality, the expansion of other virtual technologies, like video streaming, has also been accompanied by their growing ecological footprint. 

At the same time, BTC’s environmentally helpful elements have been overlooked.  For example, excess gas released at remote oil fields is being used to mine BTC, reducing carbon waste. 

In the future, BTC can be mined during experimentation with new clean energy sources before such facilities are integrated with power grids, or even allow remote and impoverished communities to harness otherwise unused local solar, wind, and other resources. 

Should BTC become an ubiquitous store of value, it would provide an alternative to more environmentally costly defensive assets such as gold or real estate. We feel that BTC’s environmental aspects are oversimplified and its potential benefits largely underexplored at this time.

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About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote