Bitcoin’s effect on the environment has been a hotbed of discussion, dating almost all of the way back to when the cryptocurrency first launched in 2009. And now, over ten years later, researchers are still having trouble agreeing on an answer.
Stationed around the world, bitcoin miners consume a massive amount of energy to verify transactions and maintain the network. According to Digiconomist, bitcoin miners consume just under 75 TWh of energy each year – the equivalent of about 10.5 million German citizens. But Bitcoin’s massive energy consumption doesn’t necessarily mean it’s terrible for the environment. So just how bad is it?
2. It’s worse than Estonia, but better than Denmark.
Without making some comparisons, it’s difficult to gauge how severe Bitcoin’s carbon footprint is actuality. To help put things into perspective, let’s treat the data as if Bitcoin were a country.
As a country, the Bitcoin network has the 85th largest carbon footprint in the world, assuming our low-end output estimate of 22 megatons of CO2. Looking towards the upper 50 megaton output, though, it rises to within the top 60.
While Bitcoin doesn’t have as much of an impact on the environment as some developed countries (Denmark, Spain, Belgium), it does produce significantly more CO2 than others (Estonia, Guatemala, Iceland).
Traditional finance probably isn’t any greener, though.
The global financial system is massive and so is its impact on the environment. Credit card companies, treasuries, banks – every component of financial infrastructure affects the environment in some way.
Just as with Bitcoin, the complexities of traditional finance make measuring its environmental impact difficult. For instance, a VISA transaction has relatively little overhead, but the production of, say, gold or a physical currency, creates a substantial carbon output. The gold industry alone produces 126.4 megatons each year.
When looking at the overall environmental impact of financial systems, Bitcoin’s emissions aren’t as harmful as some people would have you believe. But even though its carbon output is only a drop in the ocean in comparison to traditional finance, further blockchain adoption could quickly lead to more detrimental effects.
3. Thankfully, there are some solutions.
Bitcoin’s carbon footprint is undoubtedly nothing to shrug at. And as the mining difficulty continues to increase, miners will need to expend more energy to remain profitable. If they don’t find solutions to operate more efficiently, Bitcoin’s carbon footprint will continue to grow.
As the rest of the world is moving toward renewable energy sources, bitcoin mining is evolving along with it. According to a CoinShares report from June of last year, 74.1 percent of bitcoin miners utilize renewable resources such as solar, wind, and most importantly, hydropower.
These figures put bitcoin mining at the forefront of renewable energy adoption. With a green energy adoption rate of over 74 percent, bitcoin mining is well above the 36.3 percent global average.
We can expect that, as renewables become more cost-effective, new bitcoin miners will choose them as their primary energy sources and existing miners will quickly make the switch over to remain competitive.
Carbon credits could also offset some damage.
Another opportunity for bitcoin miners to reduce their carbon footprint is through carbon credits. Carbon credits are essentially tradable certificates that allows the holder to emit a set amount of carbon.
Typically, a government body creates the specifications regarding the carbon credits and hands them out to companies within its jurisdiction. If a business produces more CO2 than their carbon credits allow, then it needs to purchase additional ones from organizations which have an excess number or otherwise face hefty fines.
Limiting bitcoin miners via carbon credits provides a financial and regulatory nudge to clean up their operations continuously .
Proof-of-Stake developments provide an alternative solution.
Some efforts to reduce Bitcoin’s carbon footprint aren’t focused on Bitcoin at all. Several cryptocurrency teams have chosen to shy away from Proof-of-Work (i.e., mining) as a method of verification, implementing other consensus mechanisms, such as Proof-of-Stake, instead.
As a quick reminder, Proof-of-Stake effectively allows you to verify transactions and maintain the blockchain network by staking your cryptocurrency. If you try to approve a transaction that the majority of other participants reject, you lose the crypto that you’ve staked. There’s no mining involved.
When you remove mining, a blockchain’s energy consumption, and therefore carbon emissions, drop significantly. As you can imagine, there are quite a few cryptocurrencies taking advantage of this fact.
Most notably, the Ethereum blockchain will soon switch to Proof-of-Stake from its current Proof-of-Work mechanism. In doing so, researchers estimate that the network will consume just one percent of the energy that it does today.
It’s possible that a cryptocurrency that utilizes Proof-of-Stake (or another non-mining consensus mechanism) could dethrone Bitcoin as the top option. If so, we’ll see a dramatic reduction in not just Bitcoin’s carbon footprint but the carbon footprint of the entire blockchain industry.
4. The future of Bitcoin’s carbon footprint looks promising.
While it’s unlikely that Bitcoin will ever switch to a Proof-of-Stake consensus mechanism, its operations should continue to become greener. Driven by profits, bitcoin miners are going to utilize whichever energy source is cheapest and most efficient. Thankfully for us and Mother Earth, renewables are trending in that direction.