Have the Environmental Impacts of Bitcoin and Proof-of-Work Mining Been Overstated?

Is it really that bad, or simply a matter of a rounding error.

Can it ever become carbon negative? 

Is it worth it? 

These are questions that everyone from the President of El Salvador to the White House is grappling with.

Depending on the cryptocurrency, its energy usage can be higher or lower. Bitcoin, which uses the Proof-of-Work standard, uses about half what the global banking sector uses, yet it only has only a fraction of the number of users.

So the environmental impact of mining Bitcoin isn’t exactly a positive one, but perhaps it could be.

There is still a lot of uncertainty over Bitcoin’s environmental impacts – all the data relies on best estimates. As the world gears up to “go green” to attempt to prevent  climate crisis – let’s take a look at what we can learn about crypto mining and the environmental footprints it leaves.

Not everyone who loves Bitcoin also recognizes its limitations or that the immense amount of energy that is required to maintain the network is by design. It’s a feature, not a bug.

Also, many of the companies operating mining facilities are likely driving up the prices of electricity, generating noise pollution and even heating up water in local lakes to cool off their mining rigs.

Summary
  • Proof-of-Work (PoW) is used to verify Bitcoin transactions and add them to the blockchain.
  • PoW is secured in part by the massive amount of energy required.
  • In recent years the amount of renewable energy used to mine crypto has actually decreased.
  • Ethereum has already switched to a more energy-friendly consensus mechanism. 
  • Comparisons to other types of banking don’t make much sense.
  • Bitcoin mining can be more eco-friendly or more destructive depending on context.

What is Crypto Mining and Proof-of-Work?

Crypto mining is a colloquial way of describing the Proof-of-Work validation system. Basically, to ensure security and integrity on the blockchain the Proof-of-Work mechanism makes it costly to cheat.

When a bunch of transactions are pulled together into one block, it needs to be added to the blockchain. A bunch of computers with specialized hardware compete to guess/solve a cryptographic hash which consists of numbers and letters. While all of these computers and servers perform work, only the computer that gets the right answer first gets to validate the block, receiving a mining reward. As times goes on, the difficulty to earn rewards increases, meaning more specialized hardware is required to stay competitive.

There are also other factors that impact the energy usage:

  • Turnover of the specialized hardware used for mining as it becomes obsolete or worn out
  • The actual extractive process of mining and manufacturing the hardware
  • Cool water or fans that need to continually keep the computers from overheating

Here are two divergent takes on the process:
(Both are technically accurate.) 

1 .

2.

The energy used by computers that don’t solve the cryptographic hash are essentially wasting energy – though this design is what secures Bitcoin and makes it expensive to hack.

In the fall of 2022, the cost to mine one BTC may exceed $30,000.  

The larger problem (in the US) is that Bitcoin mining operations often need another source of income. Their integration into the energy grid, and how it supports their operations is described later in the article.

How much energy does PoW use?

The best current estimates are documented in the Crypto Assets and Climate Report (PDF), released by the White House in September of 2022.

Keep in mind that Bitcoin accounts for between 60—77 % of all the energy usage attributed to cryptocurrencies, per the report.

It represents just over 40% of the entire crypto market cap.

This is how they summarize the energy usage:

  • In 2022, global electricity usage of crypto is estimated to be somewhere between 120 — 240 billion kWh per year72 — 184.8 billion kWh can be attributable to BitcoinThis amounts to between 0.24% and 0.693% in total energy usage
  • The US is home to a third of all the crypto-asset operations worldwide, using as much energy as the total electricity usage
  • The US share of global Bitcoin mining rose from 3.5% in 2020 to 38% today, in large part due to China’s crypto mining ban in 2021
  • Renewable energy used to power crypto mining has dropped from 42 to 25%

Why does Bitcoin require all this energy?

The electricity required to run everything is necessary to keep the Bitcoin network going smoothly and servers from catching fire or melting down.

Proof-of-Work calculations are done by specialized semiconductors with Application-Specific Integrated Circuits (ASICs). These are contained in a shell which we colloquially call a “mining rig”. Tons of these rigs are grouped together in warehouses around the world.

Here’s a breakdown of Bitcoin mining by country in 2022:

  1. United States: 35.4%
  2. Kazakhstan: 18.1%
  3. Russia: 11.23%
  4. Canada: 9.55%
  5. Ireland: 4.68%
  6. Malaysia: 4.58%
  7. Germany: 4.48%
  8. Iran: 3.1%

In many cases, Bitcoin mines are located in hot regions like Texas where they must use as much energy to cool the crypto mining hardware as they need to actually mine the Bitcoin.

All that ASIC hardware is specially built and expensive, so it makes sense to preserve it, and keep it from melting down. 

Due to a lack of regulations, transparency and the level of difficulty, there is a lot of uncertainty in energy usage resulting in wide ranges.

It also may not account for the rigs that are deployed at times when the price is high, meaning that some of the lower values may underestimate the true electricity usage.

Finding a sensible comparison?

No matter what comparison you make for Bitcoin’s energy usage, you’ll find people who  strongly disagree. 

Rather than looking at one comparison or another – let’s explore why it isn’t so simple to look at energy per individual transaction and where comparisons to other payment systems fall short.

Factors and Assumptions

Not all transactions are peer-to-peer or “final settlement” transactions. 

Some example data:

  1. There is credible evidence suggesting that half of all Bitcoin transactions are fraudulent – they exist simply to boost the price and volume of the asset. 
  2. There are about 280,000 confirmed transactions per day.
  3. Exchanges are responsible for about 75%, so maybe 25% of these are peer-to-peer.
    About 9/10 of these transactions relate to non-financial activities, such as maintaining anonymity and moving funds between wallets (according to the same analysis).
  4. We arrive at 2.5% as the estimated number of peer-to-peer transactions.
  5. This is about 7,000 transactions/day. 

Bitcoin is just the base layer of the payment – so it doesn’t show all of the transactions conducted through the Lightning network. 

Last September, the Lightning Network did a whopping 663,000 transactions in the whole month. 800,000 transactions in Feb 2022.

So that’s another 30,000 peer-to-peer transactions per day.

Now our total amount of peer-to-peer transactions per day is looking like closer to 40,000.

Comparing BTC to VISA doesn’t make sense.

The reason a lot of energy comparisons to VISA won’t work is because they don’t include the energy required to do the final settlement within the bank. There is no mining.    

VISA is more like a Lighting layer for the monetary financial system. 

Here are some things going for Bitcoin:

  1. All the energy isn’t just used for processing transactions – it also settles it on the base layer – something that VISA doesn’t do
  2. Many of the extra transactions that aren’t peer-to-peer are involved in maintaining network security – which is essential
  3. Bitcoin, unlike VISA is optimized to use more energy by its design – a question of Is it worth it?

At the end of the day, it is very difficult to make direct or sensible comparisons. 

We can throw around numbers for different industries, accuse one of being useless and wasteful, point out that Bitcoin uses less energy than dryers, or mention how airplanes also suck for the environment. That all depends on the context.

Often a person considers something a waste if they themselves are not using, or do not see the need for the resource in question. 

The impact of Bitcoin energy usage

A lot of Bitcoin mining operations are able to buy energy directly from an electricity provider. 

Bitcoin mining companies also make money by selling energy.

Riot Blockchain for example, has a sweetheart deal with the Texas energy provider meaning that they get their energy significantly cheaper – 2.5 cents/kWh compared to the 18.5 cents/kWh paid by Texans.

This deal is in place for 30 years.
Riot Blockchain announced that they made $9.5 million in power credits in July 2022 by selling energy back to the grid at spot prices during high demand caused by the summer’s record high heatwave. This is considerably more than the $5.6 million they made during the same month mining Bitcoin. 

Does it promote renewable wind and solar energy?

According to the same report, not really. 

“In most electricity grids, renewables with low fuel costs and nuclear plants are dispatched first to meet electrical loads. Flexible resources with higher fuel costs, such as natural gas or coal power plants, are then dispatched to follow load fluctuations through the day. As electricity demand increases from crypto-asset mining, more natural gas and coal power plants are dispatched by electricity system operators. These power plants generally cost more and pollute more than the  average grid electricity, with the difference between average emissions and marginal emissions widening.”

Montana, New York, Indiana and Pennsylvania have seen coal and fossil fuel plants being fired back up for Bitcoin mining.

 

Maybe Bitcoin can go carbon negative by mitigating methane gas flares?

Miners are also looking to power their rigs viably fusing methane, a greenhouse gas 25x more potent than carbon dioxide through flaring. Igniting the methane converts it into carbon dioxide and generates power—rather than completely wasting the flare, it becomes a power source for Bitcoin miners.

 

Some Bitcoiners hold that methane flaring is the way forward (in contrast to this report’s findings). They believe that it will eventually lead to Bitcoin becoming carbon negative, but  there is a long way to go to set up the infrastructure and actually get there. The report notes that methane flaring “would not likely affect CO2 emissions, since this methane would otherwise be flared and converted toCO2.”

This may or may not save energy because it would technically have to displace other Bitcoin mining for an energy reduction to result.

But what flaring does is turn this heat/energy that is otherwise wasted, into a secure and peer-to-peer digital currency. It’s hard not to see this as a net positive.

More specifically, this process turns some pollution into some Bitcoin.

 

How does this affects an energy grid in a city?

It is likely that this increase in demand on the grid will result in increased costs to consumers.

In Navarro County, Texas which is located close to Riot Blockchain’s mine – this is a concern as roughly one in six people there live in poverty. In the case of the Riot Blockchain mine, it is unclear how much water will be used for cooling capacity – but it could impact utility costs as well.

Another more general environmental problem is that mining companies don’t always do a great job of cleaning up after themselves. The Greenidge crypto mine in the Finger Lakes has caused problems in a nearby lake due to coal contamination and heating, negatively affecting fishing and wildlife. There’s no shortage of examples of this kind of thing.

Studies suggest ASICs become obsolete roughly every 1.5 years. 

Per Digiconomist, the Bitcoin network generates between eight and twelve thousand tons of electronic waste every year. This is almost similar to an entire mid-sized countries (like Canada) electronic waste output.

There are also other environmental impacts noted in the report. The sound pollution can impact human cardiovascular health and impact wildlife. In many cases, locals don’t have a say in whether these mines move into their towns or counties.

Texas electricity rates

Electricity rates change frequently based on the time of year, wholesale costs, and global consumer demand. Texas electric rates are usually steady through the spring and higher as temperatures rise.

The ChooseTexasPower marketplace lets people compare and sign up for energy plans.

If you’re interested in learning more about it check it out here:
https://www.choosetexaspower.org/electricity-rates/texas/

Technical limitations of Proof-of-Work

According to computer scientist David Rosenthal, there is an issue with scaling peer-to-peer networks that use Proof-of-Work validation. 

“Because there is no central authority controlling who can participate, decentralized consensus systems must defend against Sybil attacks, in which the attacker creates a majority of seemingly independent participants which are secretly under his control. The defense is to ensure that the reward for a successful Sybil attack is less than the cost of mounting it. 

Thus participation in a permissionless blockchain must be expensive, so miners must be reimbursed for their costly efforts. There is no central authority capable of collecting funds from users and distributing them to the miners in proportion to these efforts. Thus miners’ reimbursement must be generated organically by the blockchain itself; a permissionless blockchain needs a cryptocurrency to be secure.”

Basically, this means that miners will need to spend more and more energy to secure the network and don’t really get reimbursed for it. Only one validator per each block gets a reward and this is a problem because miners need to meet energy costs to operate. 

They need to sell the Bitcoin they earn to get some Fiat to pay these costs, or as is more common they will need to rehypothecate or get loans on their Bitcoin. As a result, the value of Bitcoin needs to go up for the network to keep functioning, or miners need to continue finding creative ways to make money.

Is it possible for Bitcoin to become more environmentally friendly? 

Other verification mechanisms like Proof-of-Stake use a lot less energy. However, many Bitcoin proponents do not want to make the switch because it diverges too much from the original Bitcoin whitepaper.

It would also make the Bitcoin network less secure and more centralized. 

A small minority believe that Proof-of-Stake is actually worse for the environment because it doesn’t have the potential to mitigate methane emissions.

https://twitter.com/Dennis_Porter_/status/1570376455347113985?s=20

The other important aspect of Proof-of-Work is that it lends itself to more decentralisation than other models which we will discuss below. 

Key to understanding Bitcoin and its energy usage is that it is considered to be a feature, and not a bug.

Ethereum and Proof-of-Stake

Ethereum has moved from Proof-of-Work to a Proof-of-Stake model of verification, immediately mitigating their carbon emissions by more than 99.98 percent. This will likely end up putting more political pressure on Bitcoin to change or may lead to the expulsion of miners, per the report, if they aren’t able to effectively mitigate emissions.

Proof-of-Work requires using a lot of energy to guess complex cryptographic hashes – through brute force.

Proof-of-Stake is more like a lottery; while that makes it more energy-efficient it also makes it less secure and more centralized. Instead of miners, Proof-of-Stake relies on validators to maintain a specific cryptocurrency.  

Validators are crypto users who lock up their cryptocurrencies to secure a blockchain network. For Ethereum, you’ll need to stake at least 32 ETH to do this. If you don’t have that much, you can delegate your ETH to a trusted validator, who combines ETH from many different wallets to act as a validator.

All the ETH acts similar to lottery tickets.

The more ETH that is staked in a single node, the higher the chance that the validator node will be chosen to handle the upcoming block in the blockchain. More ETH staked, more ETH validated, more ETH rewards.

This is a similar model, albeit with some technical differences, that is used across many other Proof-of-Stake cryptocurrencies  including BNB, Cardano, Polkadot, and Avalanche. Since only one validator is chosen for each block, it doesn’t require nearly as much energy to be wasted.

The downside is that it lends itself to centralization by people with the most ETH.

Proof-of-Work Proof-of-Stake
Hardware Requires expensive ASIC semiconductors and hardware, cooling systems, and replacements are needed approx. every 1.5—2 years. Less energy required to verify blocks if selected by a validator.No need for extra energy.

Less cooling required.

Less wear and tear on  equipment.
Security Due to energy usage, it is way more expensive to pass fraudulent transactions onto the blockchain.  With sufficient Ethereum, it is cheaper and easier to pass fraudulent transactions. It is still secure, but less so than Bitcoin.
Mining /
Staking		 Can you do it at home?

No.

 Can you do it at home?

Yes.
If you can stake, it you can make it!

 

Proof-of-Burn

Proof-of-Burn is a consensus algorithm that requires miners to burn their cryptocurrencies to be chosen to mine new blocks. The more coins you burn the higher your chances of being selected, getting the block reward in the end.

Miners can choose to burn their network’s native currency or the currency of a different chain like Bitcoin. The idea is to burn as many coins as possible to be able to have a chance to add a new block and get the reward. The reward comes in the form of the native currency of the blockchain. Basically, it’s Proof-of-Work with extra steps. There aren’t any prominent cryptocurrency (top 25 or top 50)  that use Proof-of-Burn.

There are other less popular verification mechanisms used in permissioned blockchains, a centralised form that’s often marketed to different businesses but not used for cryptocurrencies.

The Most Environmentally-friendly Cryptos

Discussions on the environmental impact of cryptocurrency mining have seen environmentally friendly cryptos enter the crypto market. Some of the eco-friendly cryptocurrencies include;

 

Nano

Launched in 2015, Nano is a lightweight and environmentally friendly crypto coin using Delegated Proof of Stake to verify transactions. The crypto coin stands out as it has no mining, minting, or printing.

At the time of writing, Nano is worth $3.69 with a 24-hour trading volume of more than 10 million U.S. dollars. The coin is currently ranked 102 with a live market cap of close to half a billion U.S. dollars.

If you are looking to invest in Nano it is available in top cryptocurrency exchanges like Binance, Huobi Global, OKEx, and HitBTC.

 

Cardano

Cardano is a proof of stake crypto project that was founded in 2017. The project started in 2015 is as a result of trying to solve some of the problems Ethereum faced with its Proof of Work consensus model.

ADA is a top ten crypto and listed on most major crypto exchanges.

Related: Cardano 101

Polkadot

Polkadot is a crypto project whose main objective is to tackle one of blockchain’s major problems, interoperability. The project has a native token called DOT, which promotes network governance and operations among other things.

Related: Polkatdot 101

You can buy DOT on almost all crypto exchanges including reputable ones like Coinbase, Kraken, FTX, Binance, and Newton.

Other environmentally friendly cryptos include:

  • Stellar (XLM)
  • IOTA
  • Chia 

As more coins continue to embrace environmentally friendly ways of conducting business more coins are bound to join this list.

Summary

Right now, anything that doesn’t lead to net zero emissions is considered an environmental impact or footprint. The better question to consider is: when is a cryptocurrency worth that cost? 

Bitcoin proponents will point out that energy-usage is a key reason that Bitcoin remains secure and many believe that it can improve an even go carbon negative. 

Comparing industries is like comparing apples-to-oranges, but it is fair to say that a lot of energy is being put into this.

The bottom line is Bitcoin mining it is comparable to the energy usage and e-waste generated by many other existing industries. The key question is whether or not we think it’s worth it.

Final Word (Mark)

Bitcoin mining uses a lot of energy, but I still think its worth it.

Right now, PoW mining uses a lot of energy and this seems wasteful to many people worried about the environmental impacts and their consequences. However, these impacts are not easily audited and the data offers only a rough estimate. To what extent the energy used for mining leads directly to negative impacts will most likely depend on a combination of factors including: location, specific mining operations, local energy grids and the environmental regulations.

Pro-Bitcoiners point out (accurately) that all this energy is used for the benefit of humanity. A secure, global, peer-to-peer digital currency is of great value to many people around the world.

In the future we’ll surely see Bitcoin mining become more and more reliant on sustainable operations and using more otherwise wasted or surplus energy. The network will also likely become more efficient over time. I know that mining gets harder and harder BUT what we also know is that things improve over time. In my personal view, there is nothing to stop Bitcoin for updating and getting more efficient in the future.

I’m optimistic and I’m biased.