The booming virtual currency is having a serious impact on the real world.
In little over a decade, Bitcoin has risen from a fringe technology popular with only the most hardened computer fans, to the world’s ninth most valuable asset. The cryptocurrency promises to be the ‘money of the future’, with everyone from Apple and Amazon to Starbucks and Etsy accepting it as payment for goods and services.
The idea of a virtual currency seems, in theory, to spell good news for the environment – no raw materials or energy is being used to create physical coins and notes, after all. But researchers are increasingly warning that Bitcoin could prove devastating for the climate because of the energy-intensive way it is ‘mined’ (created virtually). Some estimates suggest Bitcoin mining uses as much energy every year as the entire country of Argentina.
What is Bitcoin?
Bitcoin is often described as a cryptocurrency, a virtual currency or a digital currency. It’s a type of money that’s completely virtual, like an online version of cash.
Each Bitcoin – which is assigned a value based on market movements (at the time of writing one Bitcoin was worth £32,471) – is essentially a computer file stored in a digital wallet app on a smartphone or computer. Users can send Bitcoins (or part of one) to other people, as well as spend them on goods and services with companies that accept them. Every single transaction is recorded in a public list called the blockchain – this means people are unable to make copies, undo transactions or spend coins they don’t own.
Bitcoin was created in 2009 by Satoshi Nakamoto – a name that is largely presumed to be an alias. This person authored a whitepaper detailing the benefits of such a cryptocurrency, championing the fact that it’s not controlled by the government or banks, which is a big draw for many Bitcoin fans.
How is Bitcoin mined?
There are three ways of obtaining Bitcoins:
- You can buy Bitcoins with ‘real’ money
- You can accept Bitcoin for goods and services
- You can create Bitcoin using a computer – a process known as ‘mining’
Because the Bitcoin system is not regulated by a bank or government, the Bitcoin community must process and account for transactions itself using a decentralised network – a blockchain. Miners compete to register the latest ‘block’ of transactions (1MB worth) by solving cryptographic puzzles – a new one is released every 10 minutes. The first one to the solution is rewarded with new Bitcoin, which generates more currency for the network.
In Bitcoin’s early days, you could mine Bitcoin on an average computer. But because there is a finite number of Bitcoins available (21 million), the more that are mined, the more complex the algorithms that must be solved become.
Now that over 18.5m Bitcoin have been mined, the average computer can no longer handle the process. Instead, mining now requires special computer equipment that can handle the intense processing power needed to get Bitcoin, and these computers require a huge amount of energy to run.
More than 150 quintillion attempts at solving each puzzle are now carried every second all around the world, with sprawling aircraft hangars filled with computers working 24-hours a day far from uncommon.
How much energy does Bitcoin use?
Bitcoin's energy consumption has more than quadrupled since the beginning of its last peak in 2017.
According to Digiconomist, a website that measures the impacts of Bitcoin, the cryptocurrency is responsible for nearly 71 Mt CO2 every year, which is comparable to the carbon footprint of Greece, and 148.86 TWh of electricity use, which is comparable to the power consumption of Malaysia.
To put the energy consumed by the Bitcoin network into perspective, let’s compare it to another payment system, such as VISA. According to Statista, one Bitcoin transaction alone uses an average 1200.86 kWh, while 100,000 VISA transactions uses only 148.63 kWh – it’s a huge difference.
A study published in Nature Climate Change warns that Bitcoin’s emissions alone could push global warming above 2C.
What are the other environmental impacts of Bitcoin?
Bitcoin mining is done with specialised computing equipment that becomes obsolete roughly every 1.5 years, so the process creates a huge amount of electronic waste. Digiconomist suggests Bitcoin produces in the region of 8 kilotons of e-waste a year – the same volume as Luxembourg.
Additionally, the short-lived nature of the chips used in these computers has prompted a massive demand for microprocessing chips, which has had a knock-on impact on the production of other devices such as smartphones and electric cars.
Can Bitcoin be greener?
One of the biggest issues with Bitcoin is that, because it’s so energy-intensive, miners tend to go where electricity is cheapest. As such, most – some 65% – mining facilities are located in regions (primarily in China) that rely on highly polluting coal-based facilities or hydroelectricity, which are cheap and little taxed. The Cambridge Centre for Alternative Finance estimates coal accounts for 38% of Bitcoin’s miner power.
Back in Spring, however, China had a big crackdown on cryptocurrency. After Beijing decided to expel its miners in May, more than 50% of the hash rate – the collective computing power of miners worldwide – dropped off the network.
Nonetheless, Bitcoin mining remains, and advocates have tried to minimise backlash from environmental campaigners by pointing to the possibilities of renewable energy use, although this is a contentious matter.
A 2019 report by CoinShares, a pro-cryptocurrency research firm, estimated that 74.1% of the electricity powering the Bitcoin network came from renewable sources, making bitcoin mining "more renewables-driven than almost every other large-scale industry in the world". Meanwhile, however, the Cambridge Centre for Alternative Finance estimates that just 39% of Bitcoin mining comes from renewable energy.
The fact remains, even with the most optimistic estimates of renewable energy use in Bitcoin mining, it still remains a net contributor to carbon emissions.
What are the alternatives to Bitcoin?
Bitcoin is just one of dozens of cryptocurrencies, all vying for the top spot in global markets. Others, such as Ethereum, are just as energy-intensive, with Digiconomist estimating this particular currency uses as much electricity every year as the entire nation of Switzerland. However, Ethereum is allegedly poised to move to a less energy-intensive processing framework in the future.
Other cryptocurrencies, meanwhile, have negligible environmental consequences. Cardano, for example, is reportedly four million times more energy efficient than Bitcoin, as transactions can be processed using the same energy requirements as an ordinary computer network.
For now, though, Bitcoin largely reigns supreme. But how long its popularity will last is up for debate. There are only a finite number of coins left available to mine, and the cryptocurrency’s reputation has taken something of a hit in recent times following a public disavowing by tech mogul Elon Musk (although he has recently made yet another U-turn on this stance).
However, cryptocurrency as a concept is almost certainly here to stay. What its future looks like in environmental terms is unclear, but some moves are being made to ensure at least some level of sustainability is ingrained in its development. Some countries, for example, have banned mining altogether, prompting crypto enthusiasts to look for less energy-hungry methods of obtaining digital currency (such as Cadano). Elsewhere, crypto ‘farms’ are being set up in countries such as Iceland and Norway, whose power comes largely from renewable sources and whose climate is ideal for keeping servers cool.
Ultimately, we are almost certainly on the precipice of a new age of money handling – we have a valuable opportunity to ensure we get it right.
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