A Soviet-era dam is providing energy for a distant mining operation somewhere in Siberia. However, nothing tangible is emerging from the soil. Instead, the hydroelectric power plant powers enormous machines that churn out complex mathematical answers. To put it another way, this renewable energy is being utilized to mine bitcoin. Jason Deane, a Bitcoin analyst, and self-described “hippie miner,” utilize computers that run entirely on hydropower, but this is likely the exception rather than the rule.
Deane’s job paradigm may appear to be the perfect remedy to Bitcoin’s environmental problems, but renewable energy isn’t a panacea. The yearly energy consumption of Bitcoin is presently projected to be 127.22 terawatt hours. To put that in perspective, it’s slightly over 3% of the total terawatt hours utilized in the United States in 2020. As this number continues to rise, we will need to devise ways to account for this level of consumption.
What exactly is Bitcoin?
Bitcoin’s attraction stems from the fact that it is a decentralized digital money system. Without the need for middlemen or intermediaries like large banks, anybody may sell, purchase, or trade. It also exists outside of the power of any government. Despite the growth of other coins such as Ethereum, Cardano, and the joke currency Dogecoin, Bitcoin was the first and remains the most popular cryptocurrency.
Bitcoin transactions are secured, validated, and documented using blockchain technology. Blockchains, as the name suggests, work by recording transactions in “blocks” that are then confirmed by the network’s “nodes,” or computers. That block is tied to the other blocks after it is validated, and it cannot be rolled back or reversed. As a result, a chain of data blocks is created, thus the word “blockchain.”
A blockchain may also be thought of as a digital ledger that records all of the transactions that take place on it. “Miners,” who solve hard mathematical problems as part of Bitcoin’s code, are the nodes that validate those outstanding transactions and lock them into a block. They are rewarded with bitcoin for doing so.
There are only a limited amount of bitcoins in the system—totaling 21 million. Over 18.5 million have been mined so far. To ensure that they don’t deplete the supply too rapidly, the complexity of the arithmetic problems miners must solve is always increasing. So much so that it is projected that the last bitcoin will not be mined until 2140.
Many miners are attempting to answer these math problems at the same time. However, the bitcoin reward is only given to the first miner who solves the arithmetic problem. Miners are updating and combining computers to make them more powerful as a result of the rivalry and the rising scope of the Bitcoin blockchain.
However, this means that mining will demand a growing amount of processing power—and electricity. The days of personal computers and specialized interests are long gone. Mining is a commercial enterprise.
Follow the miners if you can to get a sense of how much energy Bitcoin uses.
All of this computation necessitates the use of energy. There was a lot of it. And this is causing some individuals to become irritated.
The value of bitcoin plunged on the day when tech entrepreneur Elon Musk revealed that Tesla will no longer accept bitcoin as payment for its automobiles, wiping out hundreds of billions of dollars in value. Musk defended his decision by noting worries about Bitcoin’s growing reliance on fossil fuels for mining and transaction power.
The essence of the present controversy is this: Is Bitcoin as environmentally friendly as its proponents claim? Is the crypto-ecosystem causing havoc on the physical world’s climate?
It’s not an easy question to respond to. The energy usage of Bitcoin has been compared to that of numerous countries, ranging from Sweden to Argentina to Pakistan. Because there is no centralized source of data for bitcoin mining, most analysis is based on models, estimates from sources like the widely quoted Cambridge Bitcoin Electricity Consumption Index and Alex de Vries’ Digiconomist. These estimates vary and are difficult to conceptualize, as there is no centralized source of data for bitcoin mining.
Despite the difficulties in determining Bitcoin’s precise energy consumption, these figures are probably easier to compute for cryptocurrencies than for other high-energy-consumption businesses such as banking or gold mining—though some estimates place their usage considerably higher than Bitcoin.
“In comparison to the banking industry or other systems along similar lines, Bitcoin utilizes a little amount of power,” Deane adds. “It’s a little, tiny proportion, but people go on and on about it because there’s this entire idea of ‘Well, but do we really need Bitcoin?’” says one participant.
Analysts assess Bitcoin’s energy usage using “hash rates,” or the amount of computational and processing power needed in mining and transaction activities because Bitcoin operates in a network of anonymity. Mining equipment requires power, which must be obtained from the grid.
China accounts for about two-thirds of all bitcoin mining (although authorities there have recently started to crack down on the practice). While pinpointing the precise source of Bitcoin’s energy is difficult, experts may make educated guesses based on who is mining and where their energy comes from. Estimates are based on approximations of the grid mix and energy usage.
Benjamin Jones, an associate professor of economics at the University of New Mexico, adds, “We don’t know where each miner is situated.” “The whole point of decentralized money is that these miners are anonymous, although they may self-identify in some cases.”
It’s simpler to find “mining pools” when miners self-identify. These are sites where miners pool their resources to scale up their operations. According to Jones, these pools are prevalent in the Pacific Northwest in the United States. Most bitcoin miners’ actual location is still unknown.
Researchers must make certain assumptions without this information in order to estimate how much energy bitcoin mining consumes—and whether that energy originates from renewable or non-renewable sources.
One approach to achieve this is to construct an average power profile by looking at the overall electricity mix throughout a country. Coal-fired power, for example, provides for around 20% of all electricity generated in the United States. If a miner were to set up shop here, coal would account for 20% of total production from mining. However, averages are just that: averages and their accuracy varies based on the miner’s location, the time of year, and even the business model.
What Bitcoin’s true impact on the environment—and public health
Using energy, whether renewable or fossil-fueled, always has a price tag. Several research has attempted to quantify or nail down Bitcoin’s carbon costs or footprint. Jones, on the other hand, sought to compute additional downstream consequences.
Jones and other researchers attempted to estimate how much air pollution mining camps created in the surrounding towns, as well as the influence on climate, in a paper released in 2019. They used established economic cost measures to calculate the costs of health and climate change.
Jones explains, “We connected energy usage to emissions from fossil fuel power plants, and then we correlated those emissions to things like particulate matter, nitrogen oxides, and sulfur dioxide.” “After that, they were connected to human mortality.”
The scientists began by calculating emissions profiles for the United States and China. Then they utilized an air pollution mapping model built by Carnegie Mellon’s Center for Air, Climate, and Energy Solutions, which was created in collaboration with the Environmental Protection Agency.
According to Jones, “for every dollar value created—and this is created to the miner, it’s like my personal value from mining this to society—mining generates 49 cents in damages, which are premature mortality and climate change effects associated with carbon dioxide emissions from fossil fuel power plants.”
“So it’s really a private value trade-off: $1 in private value vs 49 cents in societal expenses that society confronts via health and the environment.”
There are no renewables in excess.
Crypto miner Jason Deane claims that miners tend to gather in areas where there is spare electricity, such as surplus hydropower created during a rainy season that would otherwise be wasted.
This surplus power is what attracts miners to areas with low electricity costs and high profit margins. For Deane and other proponents of green mining, this includes employing renewable energy. However, renewable energy now accounts for just around 20% of the US electrical supply.
“We’ll probably have a lot of surplus renewables in 30, 40 years. But, as we migrate away from fossil fuels, renewables are all being used for some reason, and if bitcoin miners or cryptocurrency miners take that renewable, it means it won’t be available for someone else to use,” Jones explains. To power an electric automobile, your house, a company, or a factory, for example.
There are slow but noticeable trends toward employing renewable resources, as there are in many other sectors. However, there will always be an opportunity cost until additional renewable energy generation is available.
“I feel that all mines have an unequivocal obligation to use renewable energy. It is without a doubt our communal obligation to do so, in my opinion. “However, we make no apologies for the amount of electricity it consumes,” Deane adds. “And I believe that is the difference because the network must employ that power. We have to be responsible in terms of where we get it and how it’s made.”
Greener consensus techniques are being pioneered.
Cryptocurrencies like Bitcoin and Ethereum, which employ “proof-of-work” consensus processes, have high power consumption built into their architecture. When there is no central authority, this “consensus” prevents digital currency from being spent twice.
Proof-of-work consumes more and more energy over time as miners compete to solve more hard mathematical problems and validate transactions. Because there is only one verified ledger of transactions that have been agreed upon by every single member in the network, this consensus process helps safeguard the network against economic assaults. It protects data from being erased or changed, but it comes at a high cost in terms of energy.
But what if there was another option?
Ethereum recently made headlines when co-founder Vitalik Buterin revealed that the virtual coin’s next incarnation, Ethereum 2.0, will switch to a proof-of-stake form of operation.
Proof-of-stake (PoS) is a consensus method in which, instead of sending every blockchain to every computer in the system, it is sent to a single miner at random who validates the transaction. Miners are required to place coins as collateral to maintain security. Miners aren’t racing to secure transitions in exchange for produced coins, thus energy usage reduces substantially.
It is not inexpensive to switch to proof-of-stake, and Ethereum is presently investing millions of dollars in this effort.
As Zaki Manian, a co-founder of iqlusion and Sommelier, points out, virtually all of the new cryptocurrencies that have entered the market have already embraced the PoS concept. Because they don’t have a historical environment like Bitcoin or Ethereum to maintain, they can be created greener from the start.
“All they have to do is build a de novo design for their coin that you can use as proof-of-stake and utilize all of this current software and technology,” Manian adds. “What if we wanted to switch Dogecoin from proof-of-stake to proof-of-work? I don’t think I’d be able to accomplish it for less than ten million dollars.”
The fundamental challenge in Manian’s research is whether these new technologies can maintain the open-entry, open-exit quality while not consuming excessive amounts of energy. The appeal of crypto is that it doesn’t require a middleman: users may come and go as they choose, and the system continues to function without them. PoS has the potential to be that happy middle. Just a lot more effort was required to get there.
“It took years, hundreds of researchers, dozens of engineers, and huge skill to develop these contemporary consensus algorithms that we employ for proof of stake,” Manian adds. “However, now that these things are operating and safeguarding tens of billions of dollars in value, we have more trust in their effectiveness.”