Earlier this week, Elon Musk announced that Tesla has suspended accepting Bitcoin for its vehicle purchases triggering a sharp fall in the cryptocurrency’s price. Musk cited concerns about “rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal” for his decision. It is hard to believe Musk realised this only now having begun to accept Bitcoin as payment for his products only earlier this year. But this piece is about how exactly energy intensive is Bitcoin? This is unlikely to be an entirely unbiased view given the author of the piece has been vocal about his support for crypto but given the previous Norges piece, this provides some balance. Nic Carter was formerly Fidelity’s first cryptoasset analyst and currently runs a crypto fund.
“According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.”
Nic provides three arguments in defence of this energy intensity:
First, he says energy intensity doesn’t necessarily mean high carbon emissions:
“…you cannot extrapolate the associated carbon emissions without knowing the precise energy mix — that is, the makeup of different energy sources used by the computers mining Bitcoin. For example, one unit of hydro energy will have much less environmental impact than the same unit of coal-powered energy.
…estimates for what percentage of Bitcoin mining uses renewable energy vary widely. In December 2019, one report suggested that 73% of Bitcoin’s energy consumption was carbon neutral, largely due to the abundance of hydro power in major mining hubs such as Southwest China and Scandinavia. On the other hand, the CCAF estimated in September 2020 that the figure is closer to 39%.”
Second, Bitcoin can use energy that other industries can’t:
“…Bitcoin can be mined anywhere. Almost all of the energy used worldwide must be produced relatively close to its end users — but Bitcoin has no such limitation, enabling miners to utilize power sources that are inaccessible for most other applications.
Hydro is the most well-known example of this. In the wet season in Sichuan and Yunnan, enormous quantities of renewable hydro energy are wasted every year. In these areas, production capacity massively outpaces local demand, and battery technology is far from advanced enough to make it worthwhile to store and transport energy from these rural regions into the urban centers that need it. These regions most likely represent the single largest stranded energy resource on the planet, and as such it’s no coincidence that these provinces are the heartlands of mining in China, responsible for almost 10% of global Bitcoin mining in the dry season and 50% in the wet season.”
Third, it is Bitcoin mining which is energy intensive and not so much transactions in it. Therefore, as most bitcoins get mined, energy intensity should fall:
“Many journalists and academics talk about Bitcoin’s high “per-transaction energy cost,” but this metric is misleading. The vast majority of Bitcoin’s energy consumption happens during the mining process. Once coins have been issued, the energy required to validate transactions is minimal. As such, simply looking at Bitcoin’s total energy draw to date and dividing that by the number of transactions doesn’t make sense — most of that energy was used to mine Bitcoins, not to support transactions.”
In conclusion, he writes:
“That means that when we ask, “Is Bitcoin worth its environmental impact,” the actual negative impact we’re talking about is likely a lot less alarming than you might think. But there’s no denying that Bitcoin (like almost everything else that adds value in our society) does consume resources. As with every other energy-consuming industry, it’s up to the crypto community to acknowledge and address these environmental concerns, work in good faith to reduce Bitcoin’s carbon footprint, and ultimately demonstrate that the societal value Bitcoin provides is worth the resources needed to sustain it.”
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