Bitcoin (BTCUSD)

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FACT CHECK: Is Bitcoin mining environmentally unfriendly?
Coinbase
May 24 · 6 min read

As Bitcoin has become increasingly mainstream, questions about how it works have naturally arisen among both investors and the general public. One of those questions is about the potential environmental impact of mining, which is the process the blockchain uses to generate new bitcoin and verify transactions.

First, a basic fact: Bitcoin mining is an energy-intensive process. There’s no debate about that. As prices climb, new miners are incentivized to participate, which drives up energy usage (at least until the next halving, when the amount of new bitcoin issued will be reduced by half).

But teasing out the actual environmental impacts of that energy use is, like a lot of things, complicated. In this post we’ll look at some of the major concerns that are often raised, and see how much truth there is to them.

Myth: Bitcoin is a significant contributor to climate change

According to the best available science, this simply isn’t true. While Bitcoin’s energy consumption is significant, that doesn’t automatically equate to it being a meaningful driver of climate change. To understand why, it helps to know a little about how mining works.

Mining is the process that Bitcoin and some other cryptocurrencies use to generate new coins and verify new transactions. Vast, decentralized networks of computers around the world secure blockchains (the virtual ledgers that document cryptocurrency transactions). In return for contributing their processing power, miners are rewarded with new coins. It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, and the coins provide an incentive for the miners to maintain the blockchain.

In April, there was a flurry of headlines warning that emissions from Bitcoin mining in China could push global warming out of control. But the report these articles were based on was deeply flawed. The numbers were derived from the mix of fuels used by China as a whole — not the actual energy mix used by miners. Because much of China’s electric grid is powered by coal, these researchers then assumed that Bitcoin must be equally coal-dependent. Here’s why that’s inaccurate:

The Facts:

* Miners are incentivized to find the cheapest energy sources
available. That generally means excess power (electricity that would
otherwise be wasted) and/or sustainable energy, which is plummeting
in price.

* Half of global mining takes place in Sichuan, China, where excess
hydroelectric power allows mining to be fueled by 95% renewable
energy.

* 75% of miners already use renewable energy as part of their energy
mix.

* Most important of all, the researchers behind the Cambridge Bitcoin
Electricity Consumption Index have concluded that “Bitcoin’s
environmental footprint currently remains marginal at best.”

Myth: Bitcoin is incompatible with a healthy environment

As both crypto and green-energy technology mature, the reverse scenario is seeming more likely. Bitcoin miners are incentivized to go where power is cheapest. While that can mean some use of fossil fuels, the best way for miners to maximize profits is to find places with excess supply. In fact, Bitcoin is uniquely well-positioned to help make renewable energy cheaper and more accessible for everyone:

The Facts:

* Renewable energy sources tend to have excess supply. When the grid
can’t support that power supply, the power goes to waste.

* Natural gas producers use a process called “flaring” to simply burn
excess production, harming the environment and benefiting nobody.
Bitcoin can convert this excess energy into value with no net
increase in emissions.

* By placing mining operations at the source of green energy,
utilities can monetize their excess supply. In fact, at least one
publicly-traded power company has explored participating directly in
mining to capture value from excess supply that can be used to build
out sustainable-energy operations.

* By ensuring viable markets for renewable energy, Bitcoin
incentivizes companies to build more green infrastructure, which
further drives down the price of clean power. This virtuous cycle
can actually contribute to the fight against climate change.

Myth: Bitcoin is inherently less efficient than traditional financial systems

Many of the most alarming headlines come from a basic lack of understanding around how Bitcoin works. You might hear startling claims like, “Bitcoin would require 14x the world’s total electricity just to process the 1 billion credit card transactions that take place every day.” These numbers tend to come from conflating the energy cost of mining Bitcoin with the cost of transactions.

The Facts:

* Energy consumption comes primarily from mining blocks on the
blockchain, not from transactions. (The “mining” process
accomplishes multiple goals — including both the generation of new
bitcoin and the verification of new transactions. But the primary
function of mining, as the name suggests, is generating new
bitcoin.)

* The energy required to mine a block is expected to decrease every 4
years due to a process known as the halving, where new Bitcoin
issuance is cut in half.

* The energy spent is per block, not per transaction. As tools (like
batching, Segwit, and the Lightning Network) allow parties to
aggregate more transactions per block, energy costs per transaction
will decrease.

Myth: Bitcoin uses “too much” energy
Because Bitcoin is relatively new, the idea that it consumes as much energy as a country like Norway can seem shocking. But consider this: Norway’s GDP is around $400 billion. The total economic value that Bitcoin secures (its market capitalization) has been as high as $1 trillion. It’s not easy to make a direct comparison, but the important thing to remember is that everything uses energy. Whether that use of energy is considered justified or not depends in large part on the value that’s derived from the use of resources. And by that measure, Bitcoin is a substantially more efficient user of resources than many industries. Here’s some perspective:

The Facts:

* The energy wasted by on-but-inactive household devices each year in
the US alone could power bitcoin mining for 1.5 years.

* Bitcoin has been found to consume far less than other financial
systems: half that of the gold mining industry and less than one
fifth of bank branches and ATMs.

Myth: The crypto space isn’t addressing environmental impacts

As the biggest cryptocurrency, Bitcoin is often treated as a stand-in for the entire crypto space. This ignores the upgrade being currently made by the second-biggest cryptocurrency, Ethereum. The ETH2 upgrade is designed to make a vast range of economic activity — from lending and saving to minting NFTs — greener, cheaper, and faster.

Similarly, newer cryptocurrencies like Cardano are designed from the bottom up with sustainability in mind.

And when it comes to mining, the major stakeholders in the space are actively incentivizing the sustainable sourcing of energy in a variety of ways — including the launch earlier this year of the Crypto Climate Accord, which aims to reach 100% sustainable-energy production by 2025.

The Facts:

* Elon Musk, who recently tweeted that Tesla would suspend accepting
bitcoin as payment over fossil-fuel concerns, met with the biggest
North American mining companies (including Argo Blockchain, Hive
Blockchain, and Riot Blockchain) on May 23. Following the meeting,
the mining firms announced the formation of the Bitcoin Mining
Council — a consortium that aims to accelerate the adoption of
sustainable-energy mining worldwide.

* Ethereum is currently undergoing an upgrade which is moving the
second-biggest cryptocurrency by market cap from a mining-based
system to a more energy-efficient system called proof of stake.
Proof of stake is already used by many cryptocurrencies.

* Square recently announced a $10 million Bitcoin Clean Energy
Investment Initiative to promote the use of clean energy in the
mining of Bitcoin.

* Just in the last week or so, several major mining firms announced
green initiatives: Greenidge Generation Holdings said its New York
Bitcoin mining operation would become carbon neutral on June 1. And
Argo Blockchain announced new operations in Canada using mostly
hydroelectric power.

* Argo also recently joined mining firm DMG Blockchain in the Crypto
Climate Accord (CCA). The CCA is an initiative launched by the
private sector that pledges to help the mining industry to
transition to 100% sustainable-energy production by 2025 and net-
zero carbon emissions by 2040.

* Coinbase Ventures recently invested in Crusoe Energy — a firm that
harnesses natural gas producers’ excess “flare” energy for crypto
mining and other productive uses

https://blog.coinbase.com/fact-check-is-bitcoin-mining-environmentally-unfriendly-3559823af6f1