According to figures from Cambridge University, Bitcoin’s annual electricity consumption is believed to be around 130 Terawatt-hours. According to the highest estimate, Bitcoin could consume up to 300TWh, as much as the United Kingdom did in 2018. So, can Bitcoin reduce its environmental impact? And what about other cryptocurrencies?
Bitcoin, the Big Polluter?
Despite the numbers given by Cambridge University, many disagree about the ecological impact of Bitcoin. There are three main reasons.
Firstly, it is very difficult to find reliable data on the energy consumption of Bitcoin transactions, their carbon footprint and the resulting e-waste pollution. Miners are discreet, spread out across the globe and we can assume that many are completely unknown.
Secondly, some recent reports show that mining is now mostly done with renewable energy, up to 73% for Coinshares’ study. Thus, while mining is objectively energy-intensive, its carbon footprint and relative environmental impact is decreasing everyday due to the use of renewable energy.
Finally, the main opponents to Bitcoin all rely on the same frightening numbers, given by the Digiconomist website. However, the founder and head of the site, Alex de Vries, is a Dutch banker known to be critical of cryptocurrencies, as well as not being a technical expert.
In any case, even if the numbers do not allow everyone to agree on its real environmental impact, nobody can dispute the fact that Bitcoin is a very energy-intensive product and will continue to be. For Jiro Olcott, CTO of Power Transition, Bitcoin “can only become artificially green”. As it was not designed with editable software and use a “close box algorithm”, changing its technology is likely impossible.
How it Works
To understand why Bitcoin is so energy-intensive, it is necessary to talk about “proof of work”. Bitcoin is a virtual, decentralised currency, which means it is not managed by a bank but a network of computers dispatched in the whole world. A shared databasis, which uses a chain of “blocks” – the famous Blockchain – to record all transactions.
A transaction that must be done enters the network of connected computers. Then, the miner – owner of the computer – solves a complex maths problem. When he or she has found the solution – called proof of work of this cryptographic puzzle – the transaction can be done, and the miner receives a reward: one (or more) Bitcoin(s).
The technology has brought a lot of innovation but was not thought out to be eco-friendly. The miners compete fiercely to find the clue, mobilising monstrous computing power and the electricity that goes with it. Moreover, the greater the demand for Bitcoins (and therefore its value), the greater the complexity of the problem is, then miners also need to have more computers, with more power, to solve the problem. Because of this competition for the proof of work, we are witnessing the development of huge mining “farms” all over the world. Probably the most shocking aspect is that the vast majority of this electricity is wasted.
Ethereum 2.0 and the Proof of Stake
A little – or big – revolution is expected to take place in a few months: Ethereum, one of the most widely used virtual currencies in the world, will move from “proof of work” (PoW) to “proof of Stake” (PoS) in June 2022. This migration to Ethereum 2.0 can be seen as a major step towards more sustainable blockchain technologies.
Why? Because proof of work will disappear and with it the competition between miners and its waste of electricity. With proof of stake, a minter – and no longer a miner – is selected at random. If he or she has created the new block within the predefined time interval, they receive their reward. If not, the algorithm will select a new minter to do the job. Since the winner is known before the transaction, competition is removed. The most relevant effect is to drastically reduce energy consumption and waste.
PoS has other advantages: less energy means fewer computers – so fewer semiconductors – and more control. The transparency of the selection process will allow the minter to be selected in the same way as any company would select its supplier, considering its production methods and its ecological impact. With this technology, it is even possible to choose one minter over another depending on the context: for example, selecting a minter in an area covered by wind turbines during a very windy period.
Towards a Greener World
Although proof of stake is undeniably a major step towards a greener system, the problem remains because the leader – Bitcoin – cannot use it and will not be able to significantly decrease its environmental impact. Nevertheless, the limit exists: no end date, but a maximum number of Bitcoins set at its creation.
Beyond Bitcoin and Ethereum, there are many cryptocurrencies on the market. According to CoinMarketCap, more than 17,400 of them in January 2022 with a market capitalisation of almost $2b. Many claim to be eco-friendly: SolarCoin (SLR), Cardano (ADA), Solana (SOL), Chia (XCH), PowerLedger (POWR), Hedera Hashgraph (HBAR), etc.
According to Jiro Olcott, these new crypto-currencies could not only be eco-friendly but even carbon-negative. Moreover, in addition to proof of stake and other likely upcoming improvements, there are at least two positive critics about cryptocurrencies and blockchain.
“It is good news that we can understand so quickly and accurately how much pollution Bitcoin is making: if you take it across the banking system, you will find a huge black hole”Jiro OLCOTT
We are all Blockchain Users
First, as Jiro Olcott said: “let’s compare what is comparable”. Yes, big cryptocurrencies are energy-intensive. But compared with what? The point is that, in 2022, no one knows what the energy use of the current international monetary system is. “It is a black hole and a huge one: no one went to the City banks or Wall Street to hold them to account for their energy costs”. On the contrary – except for bitcoin – cryptocurrencies are fully transparent about their system and figures. Also, they take climate into account and have the resources to make it change positively. For instance, imagine intelligent money, programmed to be sustainable because the part of its financial value is generated on the basis of ethical values: well, that is happening now.
Second, if Bitcoin is decried, it is undoubtedly at the origin of a major innovation: the blockchain, created by it and for it. The blockchain has become indispensable, not only for cryptocurrencies but for everybody. It offers transparency, traceability, accuracy and reliability like no other technology, which make it the best ally for ecology. It can provide new solutions to address environmental issues, such as climate change, waste reduction, biodiversity, etc. Guess how the UN will achieve its 17 Sustainable Development Goals? Thanks to the blockchain, of course.