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Is Bitcoin bad for the environment?DownloadSubscribe
Is Bitcoin bad for the environment?

Is Bitcoin bad for the environment?

If you’re already familiar with Bitcoin’s Proof of Work (POW) consensus mechanism, please skip to the next section. Otherwise, here is a brief overview of how the Bitcoin security model works.

ASICs are a special type of computer that perform complex math problems which secure the Bitcoin network. When an ASIC solves the math problem it wins the Bitcoin block reward, a 6.25 BTC prize worth $300,000 at today’s prices.

It’s hard to know for sure but there are roughly 1 million ASICs mining BTC. These ASICs use a lot of electricity, hence why some people are concerned about the Bitcoin environmental impact.


    Bitcoin’s Demand for Electricity: What the Skeptics Say

    The primary argument that skeptics make is that the Bitcoin environmental impact is way too high. Those critical of Bitcoin argue that it doesn’t make any sense to have a million computers performing math problems to secure a digital network.

    In a time of climate change and the ever-growing threat of global warming, Bitcoin skeptics argue that it doesn’t make any sense to have a digital currency that consumes as much energy as a small country. Are they correct? Let’s dive into the data and see what it can tell us about the Bitcoin environmental impact.


    The Truth about energy use on the Bitcoin Network

    A lot of people have asked how much electricity does Bitcoin use? Well the truth is that the Bitcoin network uses quite a bit of electricity. If Bitcoin were its own country it would be the 29th largest consumer of electricity in the world. However, those statistics don’t really tell the full story. To understand the Bitcoin energy consumption index you have to look at where the electricity comes from.

    The Bitcoin environmental impact is actually lower than it seems because a large amount of the electricity that’s used to support the Bitcoin network comes from renewable energy sources.

    According to a 2020 report by the University of Cambridge; “a significant majority of hashers [miners] (76%) use renewable energies as part of their energy mix.” Furthermore, the report found that a green energy source powers 39% of all crypto mining across the world.  

    Another rarely discussed aspect of the Bitcoin energy consumption index is that miners are sometimes located next to sources of “trapped energy.” The problem with electricity is that it’s impractical to transport over long distances (the World Bank estimates that globally 8% of all energy is lost in transit).

    The difficulties inherent in transporting electricity can result in power stations with more supply than demand. When supply outstrips demand a Bitcoin miner can locate next to the power plant and use the excess energy. Even though it appears like a Bitcoin miner is having a negative environmental impact, in reality they’re just using energy that would have been wasted anyway.


    How Bitcoin Incentivizes Renewable Energy

    It was Charlie Munger, Warren Buffet’s right hand man, who said; “Show me the incentive and I will show you the outcome.”

    In terms of the Bitcoin network, miners are incentivized to locate next to the cheapest source of electricity. Traditionally that energy has been located in China, which has an overabundance of cheap hydro-power. However, one way that Bitcoin climate change can be a positive is for crypto mining to incentivize the development of new power generation technologies.

    For example, a company which develops a solar panel that makes Bitcoin mining economically viable could sell billions of dollars’ worth of panels to miners. Power plant operators are also incentivized to build new plants even if they’re not sure that there will be enough electricity demand in the surrounding area. Bitcoin mining can soak up excess demand thus guaranteeing that the plant remains profitable. Ukraine provides a great example of how this can work.

    What’s unique about Bitcoin mining is that it’s highly mobile and a small to medium-sized mining operation can be set up in just several weeks. Mike Colyer, the CEO of Foundry, a blockchain financing provider, had this to say about crypto mining and the solar power industry:

    “It [crypto mining] allows for a faster payback on solar projects or wind projects… because they would [otherwise] produce too much energy for the grid in that area”

    Every year the Bitcoin environmental impact is going down as more miners switch to green energy sources.


    The Lasting Benefit

    The truth is that yes, Bitcoin uses energy. However, that doesn’t mean that Bitcoin is a bad thing. Just about everything in our modern world uses energy. Global trade is enabled by container ships that burn tens of thousands of gallons of oil. We enjoy air conditioning, air travel and swimming pools. As a society we collectively agree that even though these things consume energy, they’re worth the trade off. Even minting coins uses quite a bit of energy.

    It’s too simple to argue that Bitcoin uses energy, therefore it’s bad for the environment. What we really need to ask is: is it worth it? Is humanity getting a good return on its investment in the Bitcoin network?

    Everyone will have their own answer to that question but we believe the answer is yes. Bitcoin may be the only way for tens of millions or even hundreds of millions of people to escape financial repression and to preserve the purchasing power of their money.

    The Bitcoin network is a way for humanity to store its wealth in an asset that’s outside the control of central banks and corrupt governments. Bitcoin is financial freedom for humans worldwide and that benefit more than outweighs the electricity required to keep the Bitcoin network going.


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    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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