How much power does bitcoin consume? It is a question that has been debated for years, especially when the price rises. The recent surge to a new high of $58,354 has certainly reinvigorated the debate. The question usually arrives with a slurry of other perennial criticisms: it’s a scam, it’s too volatile for a store of value, it’s failed as a payment vehicle, it’s used for illicit activity, it’s not backed by anything, the dog ate my bitcoin wallet…
There is no new news in this market – a study of the introduction of coin and paper currencies over the past 5,000 years of history will deliver evidence of similar gripes – it is human nature to gripe.
Detractors claim the bitcoin mining industry is enormously energy-intensive and damaging, currently at 120 TWh (Terawatt hours per year), the equivalent of a small country. Supporters contend that bitcoin’s Proof of Work (PoW) public consensus mechanism, which facilitates the conversion of energy to hashes (for which it takes 2.7 quadrillion hashes calculated to generate one BTC), is a work of unparalleled genius.
So, who’s right?
How Wasteful Is bitcoin?
Naturally, there is a political element to the bitcoin energy debate. There are reasons why some people may wish to highlight or even exaggerate bitcoin’s power consumption, just as there are ideological reasons people wish to robustly defend it. To settle this debate, we must discount the emotive rhetoric and examine the facts using rational arguments and a data-driven approach to get at the truth, a process which looks seemingly out of fashion in our post-truth culture.
Any objective case about bitcoin’s energy usage must necessarily feature an addendum that puts such consumption in context and lists the broader benefits of the asset. After all, it’s not a zero-sum game. Countless technologies and systems contribute to environmental harm yet when set against their advantages – to the economy, financial inclusion, or human health, for instance – the matter doesn’t seem so cut and dry.
The Cambridge Bitcoin Electricity Consumption Index (CBECI) attempts to “provide an unbiased and objective ground for helping independently assess the magnitude of bitcoin’s electricity consumption and compare it to other uses of electricity.” A division of the Cambridge Centre for Alternative Finance, the department estimates the crypto’s annualized energy consumption to be around 127.48 terawatt-hours (TWh). A handy comparison page shows that bitcoin represents 0.51 percent of global electricity production and 0.59 percent of total electricity consumption.
For bitcoin proponents, this energy expenditure is a small price to pay for a censorship-resistant digital bearer asset, one that lets citizens of the world escape a broken centralized monetary system. According to The Crypto Voices’ latest release on the global monetary base, bitcoin is the sixth largest base money on Earth (excluding gold and silver), with only the Eurozone, Japan, the US, China, and the UK ahead of it. Such exalted status necessarily requires a tremendous amount of energy as miners add new blocks of transactions to the ever-expanding bitcoin blockchain.
When compared to the electrical output of nation states, bitcoin’s consumption is less than that of 28 countries: in the league table it sits sandwiched between Ukraine (27th) and Argentina (29th). While it is logical to ask whether the energy required by bitcoin should rival that of an entire nation, doing so must take into account value. The GDP of Ukraine, for example, is around $150 billion. The value of all mined bitcoin is $940 billion – greater than the combined GDP of Ukraine and the next biggest energy consumer, Sweden, with a GDP of $530 billion.
Bitcoin versus Gold
Bitcoin isn’t competing with countries, however, it is competing with rival assets such as the fiat currencies issued by central banks or more comparatively as a store of value, with gold, a precious metal that is mined on an industrial scale every year.
An analysis by Simone Brunozzi, Operating Partner at tech investment firm Cota Capital, suggests that gold-mining is 50 times more expensive than mining bitcoins and running the bitcoin network. Producing gold for the wedding band on your finger alone generates 20 tons of waste.
DigitalMint COO Don Wyper, meanwhile, points out that the gold-mining industry – which produces between 2,500 to 3,000 tons of new gold every year – consumes 475 million gigajoules of electricity: equal to around 131.9 TWh. It is much more difficult to scrutinize the energy output of the banking system which encompasses brick-and-mortar branches, printing facilities, computer servers, ATMs, and transportation, though one analysis puts the figure at 140 TWh.
Gold-mining, of course, relies heavily on grid power and direct fossil fuel-generated electricity. Last year, a World Gold Council (WGC) report suggested gold sector emissions must be reduced by 80 percent by 2050 to be aligned with the ‘well-below’ two degree Celcius scenario outlined in the Paris Agreement.
In comparison, the latest Global Cryptoasset Benchmarking Study shows that 39 percent of Proof of Work mining is powered by renewables, primarily hydroelectric energy. More than three-quarters of hashers also use renewable energies as part of their energy mix. Reflecting the growing trend of clean mining, a bill submitted in the Kentucky Senate recently sought to offer crypto miners the same incentives awarded to clean-energy facilities.
To slander crypto-mining as an inherently dirty business appears intellectually dishonest.
Needless to say, gold has many more use cases at present – not just as coinage but in electronics and manufacturing. The market capitalization of all mined gold is also over 10x that of the cryptocurrency many have taken to calling “digital gold” due to comparable properties such as provable scarcity.
It must also be pointed out that the modern banking system, which is likely more energy-intensive, serves billions of people. According to the latest research on the matter, there are around 100 million people worldwide who own bitcoin and other cryptocurrencies.
The anonymous founder of Pylon Finance, a large mining operation in the United States, believes crypto mining is far more efficient than detractors appreciate. He says, “Companies often rely on miners to utilize unused electricity – especially during the pandemic.
“Hydro companies in Washington and Canada, for example, practically give away electricity due to excess production and low utilization, in addition to not being in a favorable location for retail; miners, however, set up in front of power plants, saving transmission costs.
“Energy companies strive to produce electricity based on demand but miners can utilize 100 percent of overproduction as they are continually seeking cheap energy.”
What About bitcoin’s Utility?
Debates around energy consumption must take into account value.
Consider, as an example, the humble air conditioning unit. This marvelous invention has undoubtedly increased factory, workplace, and classroom productivity throughout the world, yet its environmental impact is considerable. The United States alone uses as much electricity for air conditioning each year as the United Kingdom uses in total, and there are over a billion single-room air conditioning units on the planet – one for every eight people.
Whether it’s gold mining, global banking, air conditioning, the fashion industry or anything else, tradeoffs must be made when it comes to energy output. So perhaps it’s worthwhile looking at the sort of people who are benefiting from using bitcoin in their day-to-day lives.
Away from the rampant speculation of the markets, bitcoin is making life easier for many. Last year, Nigerian startup Yellow Card said it processed over $165 million in volume, with Nigerians flocking to alternative investments due to the devaluation of the naira. Last year, Nigeria ranked third – behind the US and Russia – for crypto trade volumes, generating over $400m worth of transactions.
Like many citizens of Third World countries, Nigerians use bitcoin for remittance – sending funds to impoverished family members. Estimates from the World Bank’s Migration and Development Brief suggest that the amount of fiat currency migrant workers send home will decline 14 percent this year compared to the pre COVID-19 levels in 2019.
Increasingly, crypto-based remittances are favored due to low fees and fast confirmation times. Let’s face it, if you want to make every penny count, you could do without exorbitant foreign currency exchange rates, high commission and daily exchange limits.
Cryptocurrencies like bitcoin enable users to seamlessly transfer value, wherever they are in the world. And there are benefits over and above helping poor people keep more of their earnings. The ability to circumvent geopolitical conflicts, for example, or evade capital controls.
A Cuban migrant working in the U.S., for example, would find it much easier to send bitcoin or a dollar-backed stablecoin like USD Coin (USDC) over a distributed digital ledger than sending cash via Western Union. The same could be said for countless Latin American countries, from Mexico and Chile to Venezuela and Brazil.
Last year, Venezuelan presidential candidate Juan Guaidó worked with crypto firm Circle to deliver aid to the country’s medical workers using USDC. Speaking of Venezuela, its notorious hyperinflation is but one driver of bitcoin use in the region. For many, bitcoin is not just censorship-proof but corruption-proof. And unlike fiat currency, it cannot readily be seized – a feature especially appealing to those living under a dictatorship.
Simon Chamorro, a Venezuelan-born entrepreneur, co-founded Valiu, a Colombian startup that is focused on crypto remittances for Venezuelans. Seven million people have left the country since the protests against the Maduro government started, creating a massive diaspora, many of whom are in Colombia, and almost all of whom send money home to family members trapped in the country.
With central bankers now warning of rising inflation in the West, all the more reason seek protection from any reduction in value of Purchasing Power Parity (PPP) on foreign exchanges.
The bottom line is this: as renewable energies become cheaper, bitcoin will become greener – and so will everything else. There is no question that bitcoin, the blockchain, cryptographic currencies, and DLT protocols all have room to lower their energy consumption and reduce their carbon footprints - but we all do: central banks, financial institutions, the mining sector... and you and me.
Don’t expect the bitcoin energy debate to die down. Those fiercely opposed to the cryptocurrency will continue to highlight its environmental impact without putting the case in context. Defenders, meanwhile, will go to bat for bitcoin like their lives depended on it. Ultimately, the market is the arbiter whether bitcoin is ‘worth it.’
Debate is not the arbiter of truth. In this debate, you’ll have to make your own mind up.
If you are interested in engaging in the debate in the global community of digitalists and policy makers, I suggest you use reliable facts to make your case. It is perfectly acceptable to come down on either side of the debate but make an informed case. Spouting rhetoric from the last thing you read in social media or the gutter press, or from the last talking head your listened to in media land, is not submissible evidence in this global forum, and makes you look like a Luddite.
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