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Digital Asset Digest: Could Bitcoin green the planet?
- Bitcoin has been criticized for its high energy consumption and CO2 emissions
- However, recent evidence shows that Bitcoin could be in a position to help green the planet by driving the shift towards renewable energy
- Bitcoin’s carbon emissions are around a third of the CO2 emitted by the banking sector and a tiny fraction of global emissions
- Bitcoin miners can use surplus energy from renewable energy sources that would otherwise have been wasted
- Bitcoin could also help solve the problem of flaring – the burning of waste gas during oil production – by using it for energy instead
The energy consumption and CO2 emissions associated with Bitcoin mining have been a fiercely controversial topic for years. While some advocate for the Bitcoin network to be banned altogether to protect the environment, citing the high emissions from mining activities, others see great benefits that far outweigh the drawbacks. Recently, proponents of Bitcoin have argued that the digital currency is in fact in a position to help green the planet by driving the shift towards renewable energy.
Is the power consumption of the Bitcoin network still acceptable and how does it compare to other investment assets and industries? Far from destroying the climate, could Bitcoin have the power to green the planet? We take a look at both sides of the argument.
Bitcoin’s energy consumption
Bitcoin’s energy consumption has sometimes been compared to that of some countries, for example Argentina. As such, it is often criticized for contributing to global warming through high CO2 emissions. However, before condemning Bitcoin, we must first agree on what we are comparing.
Bitcoin is a permissionless, globally operating monetary system. It allows anyone with an internet connection to store their own assets and send them all over the world. In contrast, no country functions as a global payment system. Consequently, comparing Bitcoin's energy consumption to that of a country may make a good headline, but it can be somewhat misleading.
Arguably, the global banking system (payments and savings), the global gold industry (gold as a non-state store of value), and competing blockchain networks provide far better comparisons. Below are some interesting metrics that put things into perspective.
- According to CoinsShares, the Bitcoin network uses approximately 0.05% of the total energy consumed worldwide, with an annual consumption of 89 terawatt hours (TWh).
- The global banking system's electricity consumption is estimated at 238.92 TWh per year, 2.3 times that of Bitcoin, according to a report by Galaxy Digital.
- Ethereum, a competing blockchain, is set to shift from a proof-of-work to a proof-of-stake consensus mechanism, which will reduce the network's energy consumption by 99.95%.
- Global carbon emissions totaled 49,360 megatons (Mt) of CO2 in 2020.
- It is estimated that the gold industry generates between 100 and 145 Mt of CO2 emissions annually.
- The power consumption of the global banking system causes an estimated 130 Mt of CO2 emissions per year.
- In comparison, the Bitcoin mining network emitted 41 Mt of CO2 in 2021 (all data according to CoinShares).
Clearly, there is no question that Bitcoin’s proof-of-work network consumes a large amount of energy compared to proof-of-stake networks. However, since proof-of-work is a more secure system, this demonstrates that security is Bitcoin's greatest value proposition.
In addition, Bitcoin’s carbon emissions are around a third of the CO2 emitted by the banking sector. This is despite the fact that, theoretically, everyone in the world can have access to the open network, while 1.7 billion people across the globe remain unbanked.
Bitcoin, the money battery
Further, Bitcoin could have a pivotal role to play in driving the shift towards renewable energy sources. Throughout history, innovations have enabled humans to convert energy into heat, light and motion. These innovations have been the driving force behind the development of our society. However, the production and consumption of energy has the disadvantage that, to this day, the location and amount of production cannot be adjusted to meet demand. Renewable energy sources in particular tend to produce large amounts of surplus energy.
Today’s Bitcoin mining essentially allows electrical energy to be converted into monetary energy, and due to the decentralized nature of Bitcoin mining, this excess energy can be used on demand, anywhere in the world. Since Bitcoin mining is highly competitive, miners tend to seek out the cheapest possible energy sources, such as excess energy from renewable sources.
Consequently, Bitcoin mining could have the function of driving the transition to renewable energy, as it is a way to monetize energy that could not otherwise be monetized. In turn, this could eventually fund the building of new sustainable infrastructure.
Bitcoin's function as a money battery is already finding other fascinating applications - it is being used to solve the problem of flaring. Oil production and exploration produces dry natural gas as a waste product. The waste gas would normally have to be burned in a process known as flaring, as this gas cannot be brought to market due to the lack of pipeline infrastructure. Regrettably, about 5% of the world's total gas consumption is used up this way.
To address this shortcoming, Bitcoin miners are developing creative solutions to offset carbon emissions. One example is Crusoe Energy, which builds modular Bitcoin mining centers inside shipping containers, which are shipped to locations where the gas is flared. Instead of being wasted, this gas is used to mine BTC.
This operation illustrates the power of technology that can create a product that is stored in a decentralized database and produced wherever there is excess energy. Not only would the energy otherwise have been wasted, this process also reduces the carbon footprint of oil production.
The bottom line
In 2010, Satoshi Nakamoto was confronted with the claim that Bitcoin was unsustainable. The response was: “The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste."
Today, views on the value of Bitcoin still vary. For some, the energy-intensive network does not justify its carbon emissions, while others believe that the access it provides to financial infrastructure is worth the cost.
It is a fact that global energy consumption is continuously increasing. And like almost all innovations, the Bitcoin network is energy intensive. Yet perhaps the focus of this debate should be on Bitcoin’s potential to drive the transition to renewable energy by creating perfect use cases for intermittent and excess energy. As more and more companies work on solutions to reduce Bitcoin’s carbon footprint, it is exciting to see what the future will hold.
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