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-2.08%

What Is Bitcoin’s True Environmental Impact?


The vast network of computer hardware that keeps the Bitcoin network running requires a staggering amount of energy. That has led to concerns about the cryptocurrency’s effect on the environment. But assessing the cryptocurrency’s actual, bottom-line impact is not as simple as it might seem, say experts.

Bitcoin’s huge computational demands are thanks to a process known as mining.” Participants race to solve complex mathematical problems for the right to verify the next “block” of transactions and claim a reward of freshly minted bitcoins. The process requires considerable processing power and is designed to make tampering with records extremely hard. The puzzles’ difficulty also increases as Bitcoin’s price rises, so that as new miners pile in, new blocks are produced at the same rate.

With Bitcoin’s price currently surging, the issue is coming to the forefront again.

These days, solving those mathematical puzzles has become so tricky that most mining is done by companies running energy-hungry datacenters full of specialized chips. Several studies have suggested the carbon footprint of all this computation could be equivalent to that of a small country. Late last year, research in Cell Reports Sustainability also highlighted Bitcoin’s water use, estimating that it gets through roughly 2.2 trillion liters a year. And with Bitcoin’s price currently surging, the issue is coming to the forefront again.

The shadowy nature of cryptocurrencies makes accurate assessments difficult though, experts say. In particular, there’s considerable uncertainty around the hardware and energy sources miners are using. That leaves wide margins of error when estimating Bitcoin’s energy use and how that translates into environmental impacts, says Alexander Neumüller, a research associate at the Cambridge Centre for Alternative Finance at Cambridge University, UK. “It’s a decentralized network, so you really don’t know what everyone is doing,” he says.

How actually big is big?

While settling on a figure may be hard, there’s little doubt Bitcoin uses a huge amount of electricity, says Alex de Vries, a data scientist at the Dutch central bank who is pursuing a PhD in cryptocurrency sustainability at VU Amsterdam in the Netherlands. He is the author of the recent paper on Bitcoin’s water use and has published several studies on the cryptocurrency’s energy footprint.

Estimating Bitcoin’s power bill is easier than many other computing applications, says de Vries. There is a public record of how many guesses miners have made in their attempts to solve Bitcoin’s cryptographic puzzles. This so-called “hash rate” provides a proxy for the networks total computational power, which can be combined with performance data from the most popular mining chips to approximate energy use, says de Vries.

“Anyone that really understands the industry knows that there’s this immense drive to the lowest cost power source.”
—Murray Rudd, Satoshi Action Education

Where things get fuzzier is translating that into carbon emissions. Most papers so far have relied on using miners’ IP addresses to judge their location and then looking at what energy sources supply the grid in that region. A recent paper from researchers at the United Nations University in Hamilton, Canada, using this approach estimated that roughly 67% of Bitcoin’s energy use between 2020 to 2021 came from fossil fuels, thanks mainly to miners in coal-reliant countries like China, Kazakhstan and Russia. They calculated this resulted in 85.89 megatonnes of CO2 equivalent being emitted in that two-year period. For comparison, Denmark produced 45.80 megatonnes in 2022.

A similar approach can help estimate Bitcoin’s water footprint, because most of the network’s water use traces back to electricity generation. The UN researchers predict that in the same period Bitcoin used 1.65 trillion liters of water, equivalent to more than 660,000 Olympic size swimming pools. In his paper, de Vries estimate pegs the figure for 2023 even higher at 2.2 trillion.

This kind of analysis betrays a lack of understanding of the mining industry though, says Murray Rudd, an environmental economist at Satoshi Action Education, a US non-profit that advocates for Bitcoin. “Anyone that really understands the industry knows that there’s this immense drive to the lowest cost power source,” he says.

This means miners typically set up in regions with especially cheap energy or sign bespoke deals with energy providers. In many cases this low-cost power comes from renewables, he says, like excess hydropower and increasingly solar and wind as their prices continue to plummet. Some miners also rely on “stranded energy” like waste methane from oil wells and landfills. The potent greenhouse gas is normally burned to convert it into less harmful CO2 that is then released into the atmosphere. Instead, it can be used as a carbon-neutral source of power for miners, says Rudd.

Studying the studies

Assessing how these trends affect Bitcoin’s environmental impact is difficult due to the paucity of peer-reviewed research on the topic, says Rudd. That’s why he recently co-authored a paper outlining some of the key unanswered research questions in this area. “There’s no doubt Bitcoin mining uses a huge amount of electricity,” says Rudd. “The question really is what type of energy and what are the longer term impacts of that energy use?”

With the cost of renewables continuing to fall, it’s likely miners will shift to greener power sources over time, he says. Proponents of Bitcoin have even suggested it could promote the development of renewables. It’s difficult to integrate large amounts of solar and wind power into grids, because their intermittency makes it tricky to balance supply and demand. But Bitcoin mines can provide so-called “demand response” to grid operators by switching off during demand spikes in exchange for a fee, says Rudd. The Electric Reliability Council of Texas already has several such agreements with miners to help balance the state’s renewables-heavy grid.

“If the Bitcoin price is cut in half, by next week most of the industry will be gone. It’s just not a very stable foundation for a long-term renewable energy project.”
—Alex de Vries, VU Amsterdam

Some have also suggested Bitcoin mines could provide a way to monetize renewables’ developments before they are connected to the grid, which can sometimes take years. Fengqi You, a professor of energy systems engineering at Cornell University, investigated the proposal in a paper published last October. Whether or not a project could benefit depends on a host of factors such as size, location, and local regulation, says You. But in Texas they showed that 32 planned renewable installations could generate combined profits of $47 million while waiting to connect to the grid.

“If you can have some of these wasted renewable resources generate some economic value, that could in turn offset the cost of renewables and fundamentally help us support the development of renewables projects,” he says.

However, de Vries thinks it’s unlikely developers would factor this into their planning. Most renewables projects are planned many years in advance, but the highly volatile price of bitcoin means the economics of mines can change rapidly. “If the Bitcoin price is cut in half, by next week most of the industry will be gone,” he says. “It’s just not a very stable foundation for a long-term renewable energy project.”

Renewable energy is also a scarce resource, he says, so using it to power Bitcoin mining slows the decarbonization of other sectors of the economy. And crucially, when new demand comes online, this is normally met by gas plants that can be quickly ramped up and down. That means that when miners come to town it’s actually more likely to boost fossil fuel use than the regional energy mix suggests, says…



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