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Is Bitcoin Bad for the Environment?

And other common criticisms about bitcoin.

Jan 23 · 11 min read

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Bitcoin’s energy consumption is not wasteful.

Bitcoin is a store of value that also acts as a store of energy.

More often than not, bitcoin and cryptocurrency miners exist in places where energy would otherwise be wasted.

With the recent 2020–2021 crypto bull market, predictable criticisms of bitcoin are once again circulating and bitcoin being bad for the environment is one of the most popular misconceptions.

Common Misconceptions About Bitcoin

No, bitcoin is not money for criminals.

Data from Chainanalysis shows that just 2.1% of all cryptocurrency transaction volume was used for criminal activity in 2019.

This percentage is decreasing, rapidly.

It fell to 0.34% in 2020.

Janet Yellen, President-elect Joe Biden’s pick for Secretary of the Treasury, recently stated that cryptocurrencies are a concern when it comes to criminal activity and terrorist financing.

It was a quick statement by her that the data disputes.

Don’t read too much into her take on the issue as she likely has not spent much time and energy on cryptocurrencies compared to other topics. The data shows that bitcoin is not supporting criminal activity.

No, bitcoin is not anonymous.

All bitcoin transactions are recorded on a public ledger.

It might be difficult to pinpoint explicit owners of certain bitcoin addresses, but you can follow a trail of bitcoin, endlessly.

This is also why bitcoin is not great money for criminals. The more people realize this, the smaller that above mentioned percentage of bitcoin used for illicit activity becomes.

No, bitcoin cannot be hacked.

Bitcoin is a technology.

Individuals also are the sole proprietors of their bitcoin so long as they use a wallet with a private key.

Unlike a cryptocurrency exchange, which is typically a private company, this type of wallet cannot be hacked.

Because centralized entities, i.e. centralized cryptocurrency exchanges are just businesses with systems that can be hacked, you’ll often find helpful folks in the crypto community tracking these hacks.

This is because, as mentioned above, bitcoin is not anonymous and it is fully capable of being tracked. You can trace all transactions.

No, bitcoin is not a get rich quick scheme.

Again, bitcoin is a technology first and foremost.

It is a digital asset that markets have been created around but it’s not a Ponzi scheme or any kind of get rich quick scheme.

You won’t get rich just by “owning some bitcoin.”

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The asset has produced almost unparalleled returns since its inception, but that doesn’t mean it’s a guarantee moving forward.

Bitcoin will also continue to exist as a technology, regardless of markets and exchanges, so long as someone is supporting the network.

Bitcoin is about so much more than just money.

Also important to note is that bitcoin has a creator but we don’t know who he/she/they are. There is no hierarchy within bitcoin.

The only “rewards” given out are to bitcoin miners who expend large amounts of time, money, and effort to secure the network.

Speaking of bitcoin miners — let’s talk about the environment.

Bitcoin and the Environment

Yes, bitcoin requires energy to be created.

Like most (all?) other goods, services, technologies, etc., it does take energy to make bitcoin. It also takes energy to uphold the bitcoin network.

Resources, like gold and oil, that require extraction also require energy to come into existence — much more energy than bitcoin.

It’s difficult to discuss bitcoin and the environment without comparing it to its direct competitors. Take gold for example.

We won’t do too much more comparison but it is also important to consider fiat money as a competitor to bitcoin.

Fiat money has no value without a military to back it. Nations must defend themselves and their currency. Consider the cost of managing the military. Bitcoin is global, borderless. It needs no military.

Bitcoin has also proven useful in countries where citizens are either pushed out of their monetary system through government action or currency debasement — countries like Venezuela, Argentina, Lebanon, and Nigeria to name a few.

Let’s focus more on bitcoin and bitcoin mining for now though and tease out the conversation about bitcoin and the environment.

Bitcoin and Renewable Energy

This is a key point to emphasize. It’s also important to note that this number continues to increase since bitcoin’s inception.

We’ll dig deeper into where in the world bitcoin mining occurs in relation to renewable energy sources shortly.

Bitcoin and Electricity

Let’s talk about electricity. It’s expensive to transport.

Both electricity and hydrogen are more expensive to transport than oil or natural gas. An aging electric infrastructure is part of the problem.

Infrastructure inefficiencies are also responsible for wasted energy at the point of generation all the way through the delivery of it.

Enter, bitcoin.

When stating that most bitcoin mining uses renewable energy and energy that would otherwise be left unused, we need to zoom out and look at where the majority of bitcoin mining takes place.

Estimates vary, but the International Energy Agency asserts that between 60–70% of all bitcoin mining takes place in China.

The majority of China’s electricity comes from coal. If we stop there, we might have a problem between bitcoin and the environment… but let’s look at where bitcoin mining within China occurs.

Roughly 80% of bitcoin mining in China occurs in one region — the Sichuan Province. Electricity is extremely cheap in the region with costs as low as $0.01 USD per kilowatt-hour.

China has historically been authoritarian and averse to bitcoin.

In the Sichuan Province, however, the government may be warming up to the idea of bitcoin mining.

The city of Ya’an recently published a document to promote itself as an economic destination for bitcoin miners in lieu of the negative impacts of the global pandemic.

The city government of Ya’an published a document espousing the values of this area’s power sources for bitcoin mining.

The document claims that “Blockchain companies should construct factories near power plants that have excessive power and are integrated with the State Grid,” but that mining operations using different sources of electricity should switch to surplus hydroelectric power immediately. — Nasdaq.com

The change in tone toward bitcoin from governments, local or otherwise, is a step in the right direction for fostering bitcoin in China.

Bitcoin mining occurs where power is cheap and abundant.

Iceland, for example, “generates nearly all of its electricity from renewable geothermal sources, which also emit much lower amounts of carbon than coal- or gas-fired plants.”

We mentioned the aging infrastructure around electricity. It’s only fair to also mention the hardware and equipment associated with bitcoin mining. Even though bitcoin is just in its second decade, some of that is aging too.

Bitcoin mining, like all tech-related ventures, will improve its power consumption behaviors as more energy efficient hardware is created.

There is room for improvement but that is occurring.

Bitcoin’s Carbon Footprint

Some argue that the totality of the bitcoin network’s carbon footprint is comparable to a city the size of Hamburg, Germany.

The International Energy Agency places bitcoin’s total carbon footprint to between 0.03–0.06% of global emissions.

In 2018, coal-fired electricity generation accounted for 30% of global CO2 emissions. We’ve previously discussed how the vast majority of bitcoin mining comes from renewable energy sources.

Electricity from renewables continues to increase year over year and one could argue that bitcoin mining has the potential to encourage and further accelerate the transition away from coal and fossil fuels.

Bitcoin’s Long-Term Impact

The long-term impact of bitcoin on society is probably the biggest piece to consider when discussing its impact on the environment.

Again, it does require energy to create bitcoin and secure the bitcoin network. There will be a point at which no new bitcoin can be mined, but miners will continue to exist in order to secure the network.

This is the question you have to answer.

Because, as we’ve stated, bitcoin does have an impact on the environment — no matter if you categorize it as significant, insignificant, or potentially even assisting the acceleration away from more harmful energy sources.

Is the world better off because bitcoin exists?

We won’t go deep into comparisons between bitcoin and the legacy financial and banking systems but it should be noted that these systems both directly and indirectly require massive amounts of energy — indirectly at which may be impossible to categorize.

US dollar dominance and financial incentive could be tied to any number of significant environmental impactors — pick any industry.

We mentioned the need for nation states to defend their currencies through military might above. This topic could spur much more conversation.

Here’s a quick note from Nic Carter on the potential discount the world has received on bitcoin if it continues to thrive as an industry.

If the world deems bitcoin valuable, for whatever reason, then the majority of bitcoin already exists and was created for a very low cost.

If Bitcoin ends up being worth substantially more in the future than it is worth today (say, by an order of magnitude), then the world will actually have received a discount on its issuance.

The energy-externality of pulling those Bitcoins out of the mathematical ether will actually have been very low, due to the historical contingency of when, price-wise, those Bitcoins were actually mined.

In other words: Bitcoin’s energy expenditure may end up looking rather cheap in the final analysis. Coins only need to be issued once. And it’s better for the planet that they be issued when the coin price was low, and the electricity expended to extract them was commensurately low. — Nic Carter

Is bitcoin really a store of energy?

In the simplest sense, bitcoin is created by energy.

Bitcoin cannot be “un-created.”

Once it exists, bitcoin is here to stay.

Bitcoin’s environmental impact beyond the point of origin then turns into something that is almost entirely abstract but critical to consider when having this conversation.

Bitcoin has the potential to rival gold as a store of value.

Gold is an industry with enormous environmental impact — one where extraction only increases year over year.

When viewing bitcoin as a store of value and store of energy, you can also view is as an energy subsidy in some instances.

Bitcoin provides those building hydroelectric, wind, and other power plants that result in excess energy, the chance to pay off their initial investments much quicker by using that excess energy to mine bitcoin.

Beyond this, we have to zoom out to the long-term implications of bitcoin. Why does bitcoin matter? Does it provide value to the world?

This is an example of the long-term impacts that bitcoin makes possible.

And it all starts with bitcoin mining and energy.

Takeaways — Notes and Followups

Where does this leave us? Is bitcoin worth it?

Is bitcoin bad for the environment?

One can argue that it’s not.

To argue that bitcoin is bad for the environment simply because it requires energy, and to take the conversation no further, is to not consider the larger picture and possibilities around bitcoin.

Doing so is also a value judgement on bitcoin that you can apply to any industry or energy-related endeavor.

And to go one step further, bitcoin provides further incentive to accelerate a transition away from harmful energy sources.

Do you agree, disagree, or not care?

You probably care a bit if you’ve read this far.

We haven’t even mentioned the world’s second largest cryptocurrency — ethereum. This cryptocurrency is currently created through a proof of work consensus mechanism like bitcoin — it’s mined.

Ethereum mining, like bitcoin mining, requires a lot of energy.

Those behind ethereum have launched Ethereum 2.0. You can read more about this to learn more about ethereum mining and ETH 2.0.

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If you’re interested to read more or further consider the topic of bitcoin and the environment, checkout these resources.

There’s A LOT more out there and the topic area continues to evolve. It’s a complex space with plenty of opinions and growing sources of data. These are just a few to help continue the conversation.

The Last Word on Bitcoin’s Energy Consumption by Nic Carter — you should also checkout more of Nic’s work around bitcoin.

Bitcoin energy use — mined the gap by George Kamiya

Recognizing Revolutionary Potential, China Encourages Bitcoin Mining In Sichuan by Landon Manning

The False Narrative Of Bitcoin’s Role In Illicit Activity by Hailey Lennon — this addresses one of the common misconceptions about bitcoin that we discussed briefly but it’s timely and relevant.

Why Bitcoin Is Not an Environmental Catastrophe by Diego Zuluaga

Can Bitcoin Survive the Climate Change Revolution? by Ian Allison

The Ultimate Bitcoin 101 with Vijay Boyapatifrom the What Bitcoin Did podcast by Peter McCormack

Bitcoin Q&A: Energy Consumption by Andreas Antonopoulos

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