Bitcoin has a climate problem.
The cryptocurrency uses huge quantities of electricity and as the price of a single Bitcoin has skyrocketed beyond $50,000, Bitcoin miners are now producing as much carbon pollution as a medium-sized nation.
- Bitcoin uses as much electricity as a medium-sized nation
- As Bitcoin’s price increases, the electricity consumed increases
- The majority of the electricity consumed by Bitcoin is powered by fossil fuels
“Bitcoin uses more electricity per transaction than any other method known to mankind,” said Microsoft founder Bill Gates, when he spoke recently on social media platform Clubhouse.
“It’s not a great climate thing.”
Bitcoin may soon be consuming over 200 terrawatt hours (TWh) of electricity, according to a new study by data scientist Alex de Vries in the journal Joule.
“This is not far from the amount of energy consumed by all data centres globally,” he wrote in reference to the infrastructure that ran the internet.
“What makes these numbers mind-blowing is that those data centres serve the most of global civilisation.
“Bitcoin serves almost no one but still manages to consume about an equal amount of electricity.”
Australians consumed 192TWh of electricity in 2020.
Inefficiency is the feature, not the bug
The vast majority of the energy used is in the “proof of work” process used to create new bitcoins, otherwise known as Bitcoin mining.
Proof of work is deliberately energy-intensive as a way of preventing hacking and maintaining value.
“There’s a lot to be said for the network security around proof of work,” said James Manning, founder of Australian Bitcoin miner Cosmos Capital.
“For the Bitcoin community, Bitcoin’s inefficiency is the feature, not the bug.”
“It’s what gives Bitcoin its value,” said cryptocurrency researcher Peter Howson from Northumbria University.
Could renewables power Bitcoin?
Sixty-one per cent of Bitcoin mining last year was estimated to have been powered by fossil fuels, according to Cambridge University’s Cambridge Centre for Alternative Finance.
The remaining 39 per cent was estimated to have been powered by renewable energy, mainly hydroelectric energy.
According to Australian Bitcoin miner Iris Energy, large institutional investors are now creating a market for renewably mined Bitcoins.
“Our unique energy strategy and ESG (environmental, social and governance) overlay means that we also satisfy investors with green and climate-related commitments,” co-founder Daniel Roberts said.
The company said its data centres used surplus hydropower in British Columbia, Canada.
“All of our operations today are powered by excess renewable energy,” Mr Roberts said.
Cosmos Capital said it was in discussions with Australian electricity companies to use cheap surplus renewable energy to power Bitcoin mines in regional Australia.
“Cosmos is actively looking to find ways to utilise Bitcoin mining in a larger scale deployment to facilitate the existing transition to renewable energy,” Mr Manning said.
He said despite Australia’s world-class renewable resources, the Australian electricity market needed more flexible rules in order to be attractive for energy-intensive industries like data centres.
“The great challenge we have in Australia is around our transmission and distribution.”
Bitcoin miners scour world for cheap power
The United States, Russia, Kazakhstan, Malaysia and Iran are other big players.
“Bitcoin miners try and hunt down the cheapest, most stranded sources of energy,” said energy analyst and commentator Ketan Joshi.
In China, miners migrate around the country chasing the cheapest power.
“You can get really cheap hydro-driven energy in China during the rainy season and then they use coal for the other half,” Mr Manning said.
“They actually physically have to pick up their mining equipment and move it around.
In Iran, Bitcoin miners have been blamed for causing blackouts earlier this year, as mining operations there used state-subsidised power plants burning low-quality oil that released high levels of sulphur dioxide.
Bitcoin miners have been given until April to cease using Inner Mongolia’s coal-fired power to help meet China’s clean air goals.
And miners have established data centres in declining industrial cities in Siberia to take advantage of cheap surplus gas and hydropower.
Will Bitcoin become more sustainable?
Renewable-powered Bitcoin mining has increased from an estimated 28 per cent to 39 per cent between 2018 and 2020, according to the Cambridge Centre for Alternate Finance.
“But the side problem there is that you actually need to have some sort of industrial or community emphasis to actually choose zero-emissions power sources for the things that you’re doing.”
Mr Joshi is worried that Bitcoin’s decentralised, trust-less structure has attracted investors with libertarian attitudes who do not necessarily prioritise resolving climate change.
“That worldview has been a very key part in opposing climate change actions, specifically, climate change actions involving some level of government regulation or subsidies for renewable energy.”
Could Bitcoin simply use less power?
Mr Howson said cryptocurrencies did not have to be so electricity hungry.
“Bitcoin was cutting edge when it started, but this is old technology,” he said.
“What we have now is other cryptocurrencies which are way more advanced and use negligible amounts of energy to secure the network.”
But he wonders what incentive there is for change while Bitcoin investors are making so much money.
“And why would you if you own 5,000 Bitcoin and each one of those Bitcoins are worth $55,000?
“You’re not going to say, ‘Hey, let’s not do Bitcoin anymore — let’s do something else.'”