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Is Mainstream Media Changing its Tune About Bitcoin?
These days, the environment and climate change is a top priority for many activists, governments, and private organizations. Today we’re revisiting the old question about Bitcoin’s carbon footprint. Is it really that bad?
This article recently published in One Green Planet doesn’t think so. As stated in the article, bitcoin mining uses over 50% of renewable resources. The author continues to add that “Bitcoin’s success in adopting sustainable energy practices can also serve as a model for other industries to follow.”
The Footprint and Competitors
Bitcoin’s energy use is bigger than some countries. The statistic often used for comparison is that – keeping the Bitcoin Network secure uses about the same amount of electricity as the country of Argentina. This became a big time headline in the mainstream news of 2022, with many headlines coming out about Bitcoin’s excessive power consumption.
Elon Musk cited the electrical consumption of Bitcoin as part of his reason to sell off Tesla’s reserve of Bitcoin in 2022. The University of Cambridge reports, as of writing, the Bitcoin network consumes 122.55 tw per year. That’s quite the energy footprint for a monetary network that most people don’t even consider to be useful or valuable.
It is true that Bitcoin consumes more electricity than the country of Argentina. However, to point out the fallacy in this type of comparison, I’d like to bring to attention that the entirety of North America spends more energy decorating their houses with Christmas lights every year than the entire country of Ethiopia and El Salvador consume in a whole year.
Comparing Bitcoin’s consumption of electricity to something more relevant, bitcoin uses 60 times less energy than the entire traditional banking system. In a research report authored by Michel Khazzaka, the author finds that Bitcoin is more efficient than the current banking system, and operates at a larger scale providing barrier free access to more people than traditional banking is able to reach, and is accessible 24 x 7x 365.
Layer 2 protocols like the Lightning Network only make things better for Bitcoin and improve its scalability. This is something the current banking system lacks due to top heavy administration and the barrier to entry in poorer countries.
Comparing Bitcoin’s consumption to a country’s consumption isn’t appropriate as the value produced from Bitcoin as an asset is completely different from the value produced from Argentina’s power grid. However, a banking system is a better comparison because Bitcoin and banking have a similar value scheme and aim to perform similar functions. From this angle, bitcoin is quite a bit more efficient than the legacy system.
Bitcoin’s Value Schema
Bitcoin provides an important service for many of its users. Namely, it gives users access to censorship-resistant money. This is especially important in developing nations wherein the banking infrastructure is corrupt or non-existent.
Author Alex Gladstein writes in his book – Check Your Financial Privilege, that 83% of the entire planet’s population is born outside of the currencies of the wealthiest nations, typically autocracies. As such, Bitcoin provides an important opportunity for people in developing nations to save with a censorship-resistant currency that also protects them from inflation of their government’s currency. Bitcoin, while volatile, provides a lucrative alternative for people in developing nations against double or triple digit inflation and corrupt administrations.
Bitcoin Generates Incentive for Renewables
The profit model of bitcoin mining supports the expansion of green energy, as it is renewables that will, or is already cheaper than electricity produced by burning coal. As well, energy waste can be turned into power dedicated to mining Bitcoin, thus providing a return on what was once waste flare-offs or stranded energy with no payoff.
Proof-of-work can be supported by any kind of energy. As hydropower, nuclear energy, and other, cleaner forms of energy become available for consumption, bitcoin miners’ incentives are aligned with moving to what’s more profitable. In this case, it’s moving towards consuming renewable energy to continue mining bitcoin and turning a profit. This inevitably reduces the carbon footprint of bitcoin. Although not a fan of bitcoin, Charlie Munger’s quote sums it up perfectly – “Show me the incentive and I’ll show you the outcome”.
Bitcoin Mining companies are incentivized to find the cheapest form of electricity, which in this case is renewable energy. The outcome is gaining green profits, and a secure bitcoin network.
Energy and the Future for Bitcoin
Energy will only get cheaper as green technology advances. Solar energy is now the cheapest energy available, and this is critical for Bitcoin miners who always want the cheapest energy possible.
Nuclear power, a longtime staple in France, could also prove to assist in reducing Bitcoin’s carbon footprint. As grids onboard greener sources of energy, bitcoin will inevitably utilize this energy and benefit from this “greening” effect. Additionally, as the Lightning Network gains traction, it will make bitcoin more efficient by exponentially increasing the number of transactions the network as a whole can process.
Conclusion: A Nuanced Debate
It’s important to correctly frame any comparison. In this case, Bitcoin consumes energy to convert it into money that is used by millions of people around the world, especially in developing countries.
Next time you hear Bitcoin being compared to a country’s energy comparison, be sure to point out that bitcoin still requires less energy than the entire banking system.
To end, I’ll leave you with this teaser for a documentary currently in production titled: Dirty Coin: The Controversy Behind Bitcoin Mining.
