News | 02 Jul 2021

Environmentalists mark concerns on Bitcoin's consequence on climate change

In February, Tesla revealed that it had bought 1.5-billion-dollars worth of Bitcoin, 10% of its total valuation, while also accepting Bitcoin as payment. As a result, its price has skyrocketed, 20 percent increased since the announcement, reaching an all-time high. After a few months, Tesla CEO Elon Musk tweets that he revoked his previous announcement due to environmental concerns. His statement has raised some eyebrows. Skeptics question his motive to be self-centered, not others, since his declaration supporting cryptocurrencies might upset the government where Tesla generated most of its revenues. His action raised the question: Is Bitcoin destroying the planet? Or is it merely an act of self-defense by Tesla's Founder?

Photo by Michael Förtsch / Unsplash

What is Bitcoin, and how does it work?

Bitcoin operates similar to regular banks where people stored their assets, but it works with digital currency instead of fiat. Each user will need a Bitcoin wallet as an account to deposit and receive the token via a wallet address, consisting of arrays of meaningless characters. Consequently, the owner of each address could not be easily identified, which makes Bitcoin hard to regulate and control. Mining or a distributed consensus system, the transaction confirmation process, is one of the pillars of Bitcoin. This process consumes most of the energy through the technique called "Proof of Work." The method was created to prevent the 'double-spending problem,' which occurs when users can spend the same Bitcoin twice simultaneously. It works by miners who are similar to auditors in a fiat system. These miners will check for the discrepancy in  Bitcoin transactions and be the first to solve a computation problem to earn rewards in bitcoin for each 'block' they committed, thus the origin of 'Proof of Work.' The latter is energy-intensive; therefore led to the problem Bitcoin is facing.

How much energy did it consume?

Bitcoin consumes about 100 Terawatt-Hours annually, according to the Cambridge Center for Alternative Finance (CCAF), less than half a percent of worldwide power production or similar to the yearly energy consumption of small countries like the Philippines and the Netherland.According to one analysis, Bitcoin's carbon energy usage may soon equal or exceed all data centers combined. Although it's difficult to quantify the number of carbon footprints made by cryptocurrency because it mostly depends on the miner's location, it is expected to match the city of London's, said Alex De Vries, the cryptocurrency economist.

Average carbon footprint of the electricity used (Sources : CCAF)

"Bitcoin runs mostly on fossil fuels," said Franck Leroy, Crypto Lucid article writer. He claims that more than 60 percent of the mining occurs in China, where most of the energy comes from either coal or hydropower. Investigating more closely, Leroy found that the average carbon footprints from mining Bitcoin are 837g CO2 per kWh, 55 percent more than the United States. Additionally, he states that to reduce climate change, turning to renewable is not the answer, but to reduce overall energy consumption.

Banking vs. gold mining vs. crypto mining

Crypto mining is more efficient than a conventional banking system as it uses half the energy, a new study revealed. After Tesla ditching Bitcoin as a payment for climate concerns, Galaxy Digital Research published research comparing traditional banking systems, gold mining, and Bitcoin mining. The study shows Bitcoin mining gobble the least resources. According to the report, critics quickly pointed out that, although being ten times larger than Bitcoin, the gold mining and banking businesses consume barely twice as much energy. This question the survivability of Bitcoin.

Final Thought

Bitcoin has many utilities, but its Achilles' heel is its method of verifying the transactions. Proof of Work consumes too much energy and ineffectively. For some time, the problem had already been spotted—introducing Proof of Stake, another method of confirming the transactions. The recent process required fractions of the energy compared to the previous method. For Bitcoin to survive, electricity consumed in the mining process must come from renewables to mitigate its carbon emission.

Peer-to-peer energy trading could become popular soon as cryptocurrency adoption becomes widespread. Service such as the Gideon trading platform might become more popular, providing alternative electricity sources other than from the grid. It is where excess renewable energy is traded—less emission and waste.

References

https://www.bbc.com/news/technology-56508568

https://www.bbc.com/news/business-57096305

https://www.cnbc.com/2021/05/18/tesla-electric-vehicle-regulatory-credits-explained.html

https://bitcoin.org/en/how-it-works

https://www.investopedia.com/tech/how-does-bitcoin-mining-work/

https://cbeci.org/cbeci/comparisons

https://www.cbsnews.com/news/bitcoin-carbon-footprint-is-skyrocketing-along-with-its-price/

https://medium.com/crypto-lucid/enough-with-bitcoins-greenwashing-bitcoin-uses-mainly-fossil-energy-b83256d693bc

https://www.independent.co.uk/life-style/gadgets-and-tech/bitcoin-mining-environment-climate-crypto-b1849211.html

https://docsend.com/view/adwmdeeyfvqwecj2

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