Bitcoin miners consume more electricity than many countries, making the technology ultimately unsustainable as a replacement or alternative to the current global financial system, or so the argument goes.
This narrative was bolstered recently through a series of tweets from Elon Musk in which he announced that Tesla has decided to stop accepting Bitcoin payments for its cars. Tesla first announced it would accept Bitcoin as payment less than two months ago.
It’s easy to see why the argument is so convincing.
The headlines are compelling: Bitcoin miners use eight times more electricity than Google and Facebook combined. Bitcoin uses more electricity than entire countries! Ireland, Argentina, Belgium, Finland, Norway, Sweden, the Ukraine all use less electricity than the Bitcoin network.
The reason Bitcoin mining requires so much energy is because it is computationally intensive. Miners perform calculations billions of times per second as part of the protocol to secure the Bitcoin blockchain.
It’s not a big stretch from there to “Bitcoin is bad for the environment”, because much of the world’s electricity is produced with coal and gas.
Research from Our World In Data for 2020 shows that 36.7% of the world’s electricity is generated with coal and 23.5% with gas.
South Africa’s energy mix situation is particularly bad in this regard as 85% of our electricity comes from coal, 5% from nuclear 2% from oil and less than 1% from gas. Wind generates close to 3% of our electricity and solar around 2.6%.
However, the reality is far more complex than these simple electricity consumption comparisons would suggest. It is also a matter of perspective.
Is it fair to compare the energy use of Bitcoin to just one country, given that it is a global financial system? Among the users of Bitcoin are the U.S. and China which consume at least 127 times the energy that Bitcoin uses.
Furthermore, no consideration seems to be given to the source of the energy powering the Bitcoin blockchain.
As University of Pittsburg researcher Katrina Kelly-Pitou wrote back in 2018:
By talking specifically about just the consumption of energy alone, I believe many fail to understand one of the most basic benefits of renewable energy systems. Electricity production can increase while still maintaining a minimal impact on the environment. Rather than focusing on how much energy bitcoin uses, the discussion should center around who indeed is producing it – and where their power comes from.
Kelly-Pitou concedes that China’s high dependence on coal is an area of concern, but adds that there is a lack of studies that actually calculate the carbon footprint of the bitcoin process.
There are other factors to consider too. On the same University of Cambridge website that Elon Musk recently tweeted out to his followers to substantiate Tesla’s decision to stop accepting Bitcoin payments for its cars, there is a page that shows that as much as 5,000 terawatt-hours (TWh) of electricity produced is wasted every year.
Stated differently – the amount of electricity not consumed every year, and likely wasted, is enough to power the Bitcoin network at least ten times over.
The University of Cambridge also noted that the amount of electricity consumed every year by always-on but inactive home devices in the United States could power the Bitcoin network for 1.5 years.
MicroStrategy CEO Michael Saylor recently highlighted the issue of how much power the Bitcoin network consumes in the context of total global energy production (not just electricity).
Much like Elon Musk’s Tesla, MicroStrategy purchased a cache of Bitcoin for its company treasury. However, Tesla’s corporate bitcoin holdings are second to that of MicroStrategy. Not only was MicroStrategy earlier to the buffet, it invested $2.2 billion in bitcoin while Tesla invested $1.5 billion.
Saylor was speaking in an interview with Kitco News in which he was critical of a comedy bit Bill Maher did on his late-night talk show about Bitcoin.
“The world generates 160,000 terawatt-hours of energy a year. Of that 50,000 terawatt-hours of energy is wasted. Like 30%,” said Saylor.
Of that, Saylor said, only 120 terawatt-hours is used to run the entire Bitcoin network for a year.
According to Saylor, if you eliminated Bitcoin from the world it would rob billions of people of a chance at a decent life and it wouldn’t stop any waste – 50,000 terawatt-hours of energy would still be wasted every year.
“The Bitcoin network is the bidder of last resort for all energy,” he stated.
“One quarter of one percent of the wasted energy in the world offers the hope of a decent life to eight billion people, and solves an economic problem”.
There is an important discussion to be had about the relative energy consumption of proof-of-work blockchain technologies like Bitcoin and Ethereum 1.0, and the trade-offs of blockchains that use more energy-efficient consensus mechanisms such as proof-of-stake.
However, while the conversation is being hijacked by debates over the sustainability of Bitcoin’s energy usage, those discussions are not getting much attention.