Bitcoin’s Energy Consumption Problem: Will it Come Back to Byte Us?

Just this year in 2021, Bitcoin slammed its way into the news again after Elon Musk announced Tesla would no longer accept Bitcoins as a payment option due to reasons related to climate change, citing the “rapidly increasing use of fossil fuels for bitcoin mining”. This has spurred a news cycle about Bitcoin’s impact on the environment, particularly via carbon emissions, with The Financial Times even calling it a “dirty currency”.

Most doubt this fact was exactly news to someone like Musk. But it was certainly news to many. And the realization about just how much blockchain technologies use on a regular basis was truly shocking to many in the general public.

Whether you personally believe in the technology, blockchain-based cryptocurrencies like Bitcoin and Ethereum are increasingly popular among speculative investors, and the underlying technology is also an important innovation that can make data verification more reliable and transparent.

But its high usage and massive mining operations to “farm” cryptocurrencies has many experts worried about its environmental impact, and many are calling for solutions to be brought forth right now – especially solutions using renewable energy to power blockchain.

So let us discuss why blockchain technologies like Bitcoin use this much energy, why it is a problem, and what is being done to make it more sustainable.

Bitcoin’s High-Energy Diet Explained

Infamously, a report by the University of Cambridge released in February 2021 estimated that Bitcoin uses more electricity in a year than the whole of Argentina. To put that figure into perspective, that’s enough juice to power every kettle in the United Kingdom for 27 years, and we all know how much this country uses electric kettles to boil water for their tea.

To briefly explain why Bitcoin and cryptocurrencies like it use so much electricity, Bitcoin uses a technology called blockchain. Blockchains facilitate retrieval of data and verify the process using what is called a proof-of-work algorithm, and this data verification method is especially energy-guzzling.

Given this use of proof-of-work algorithms and the current popularity of cryptocurrencies fuelled by money-making opportunities, it is unlikely that we will see blockchain’s electricity usage do anything but increase in the near future.

Facing the Facts

However, we need to establish an important fact: is Bitcoin’s energy consumption actually a problem?

Some of Bitcoin’s defenders and believers cite a study which claims 74% of Bitcoin is mined with renewable energy, so Bitcoin’s impact on carbon emissions is not as high as people think. However, there are a few reasons to be sceptical of this figure’s validity.

First, there is a sizable amount of Bitcoin which is mined off the electrical grid, meaning it is virtually impossible to track its energy source. While this means it could be powered by renewable energy like solar or hydroelectric, it could just as easily be powered by coal mines. And there is very good reason to believe it is the latter; over 75% of Bitcoin is estimated to be mined in China, where most of the country’s energy comes from fossil fuels like coal, meaning it is hardly likely that as much as 74% of all the world’s Bitcoin is mined using renewable energy.

Bitcoin mining has even kickstarted a cottage industry of re-opening abandoned fossil fuel power plants, which provide a relatively cheap source of energy for miners. For a recent example, a power plant in New York ramped up activity to mine Bitcoin and is estimated to put out over 1 million tons of carbon dioxide by 2022, when it is supposed to reach full capacity.

Next, an important event can give us insight on Bitcoin’s primary source of power; an April 2021 power shut-down in Xinjiang, China caused by a flood in a coal mine led to 1/3 of the entire Bitcoin network going offline. Doing some simple math, this leaves roughly 66% of the remaining Bitcoin infrastructure unaffected. Not only does this yet again contradict the claim that 74% of Bitcoin mined is powered by renewable energy, it begs the question: if the flooding of a single coal mine took so much of the Bitcoin infrastructure offline, just how much of the rest of Bitcoin is powered by fossil fuels?

Finally, the study cited was conducted by CoinShares, a company that offers investment products and digital asset management services for Bitcoin and other cryptocurrencies, so this research claiming Bitcoin is powered by renewable energy hardly comes from an unbiased source.

Given the facts, it is difficult to believe Bitcoin and other blockchain-based cryptocurrencies are remotely clean, which means its high energy consumption is a major cause for concern.

This calls for solutions. Solutions that, fortunately, we now have.

Making Blockchain More Sustainable

There are three avenues to solve the current energy crisis blockchain technologies like Bitcoin are bringing to the table:

- Reduce the usage of blockchain.

- Make blockchain more energy-efficient.

- Find more sustainable methods to fuel blockchain.

Given the popularity of cryptocurrencies right now, the first option is simply not happening. Plus, there are good reasons for blockchains to exist – from usage in data verifications to the decentralization of currencies, there are practical and philosophical reasons to keep cryptocurrencies around. Fortunately, the other methods of addressing the issue are much more feasible and exciting.

Research is still ongoing on alternative methods to implement blockchain technology to make it more energy-efficient, such as Ethereum’s current move to proof-of-stake models which would reduce its energy consumption by up to 99% compared to the current proof-of-work algorithms being used today.

Additionally, new computing hardware from chip makers including Intel, AMD, and Nvidia have become much more power-efficient, which miners can use to reduce their energy footprint. In fact, these new processors have been so popular with cryptocurrency miners, it is a part of the reason why the world is facing a major shortage in computer chips.

Last but not least, renewable energy has been creeping into the world of data centers and networks, and there is no reason to believe the same will not happen for use in building blockchain infrastructure. Not only is this method most within our control, this gives the world yet another reason to switch over to renewable energy solutions such as solar and wind, and we are seeing ways this is already starting to happen.

For example, the biggest data center in the world that relies 100% on renewable energy is owned by Google in Iowa, generating a massive 407 megawatts. And in Singapore, an example of a country in Asia scaling up its renewable infrastructure, companies like Microsoft and Facebook have committed to using solar energy from providers such as Sunseap.

In the world of blockchain, a cryptocurrency mining operation in the desert powered by solar energy has shown to be profitable, with 25 computing rigs earning roughly $18 per day, and plans to scale up to include 1,000 computers.

What gives us a final ray of hope is the undeniable boom that the green sector has seen in financing. The Wall Street Journal reports that now, trillions of dollars are pouring in to green finance as the world is transitioning to clean energy. This means many more attempts to install renewable energy solutions will appear as more renewable energy businesses get funded by investments, making it more feasible for blockchain operations hosted on data centers to be powered by solar, wind, and other sources of renewable energy.

But as we wait for these renewable energy businesses to hit scale and transform the power sector, blockchain technologies like Bitcoin and Ethereum continue to gobble up their share of our globe’s power output. So next time you think about investing another chunk of your salary in Dogecoin after seeing Elon Musk’s tweets, think about where that coin was mined, and whether you would rather wait for 74% of the world’s cryptocurrencies to be powered by renewable energy before investing – for real, this time.

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