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Bitcoin & The Environment: Can We Make Bitcoin Green?

Author: Jeffrey Craig Date: July 1, 2021

In a survey by Digiconomist, Bitcoin’s annualized electricity consumption footprint reached an all-time high in March 2021. As a result, many interesting statistics and reports have come into the spotlight with regards to Bitcoin’s energy consumption and a very popular question has taken the crypto world (and the general public) by storm, i.e., what’s the environmental impact of Bitcoin? The question became even more significant when Elon Musk the other month tweeted Tesla will no longer accept Bitcoin due to “climate concerns.”

Bitcoin Environmental Impact

Is Elon Musk Right On Bitcoin?

While most people today are aware of the environmental effects caused by gas, oil, and coal (fossil fuels), many of us are less aware of how the digital economy and cryptocurrencies can harm the environment. It’s hard to conceptualize, but it’s even harder to calculate.

To tackle the question of what impact (positive and negative) Bitcoin has on the environment, it’s important to examine the specific energy sources Bitcoin uses and analyze whether they are harmful or not.

Does Bitcoin Really Use A Lot Of Energy?

Bitcoin needs electricity. Therefore, if we want to assess Bitcoin’s carbon footprint or negative environmental impact, we must understand which energy sources power that electricity.

According to the U.S. Energy Information Administration, the three major energy categories used for electricity generation are fossil fuels (coal, natural gas, and petroleum), nuclear energy, and renewable energy sources. Thus, for Bitcoin to have a smaller carbon footprint, it needs to source electricity from the least damaging source, i.e., nuclear or renewables. But that’s not easy to measure.

In fact, in the United States in 2020, natural gas accounted for about 40% of U.S. electricity generation, and coal accounted for about 19%. Hence, if we are going by the numbers, 60% of electricity generation in the U.S. is from fossil fuels. Thus, Bitcoin mining operations in the U.S. for example, are more likely to be connected to these damaging electricity sources.

On the other hand, people point to the Cambridge study on Bitcoin’s environmental impact, which references that 76% of miners use renewables as part of their energy mix, and 39% of all miners fully source their electricity from renewables. However, of the 76% that use renewables, it’s not clear what percentage of that 76% is clean or dirty. From the second statistic, that still means approximately 60% of bitcoin mining uses fossil fuels, which is problematic.

What’s The Damage?

As of July 2021, the Bitcoin network’s annual energy consumption is estimated to be 131 terawatt-hours (TWh), which is comparable to Argentina’s power consumption. But compared to countries like China or the United States, Bitcoin’s annual electricity consumption is tiny.

In terms of carbon emissions, going off of the Bitcoin Energy Consumption Index calculation, the estimated number of carbon emissions from Bitcoin is equal to 63 million metric tons of carbon dioxide, which is comparable to Belarus. On an even greater scale, worldwide energy-related carbon emissions are equal to 31.5 gigatons, which means Bitcoin’s carbon footprint is in fact microscopic compared to global emissions.

Nevertheless, it’s important to note that the bitcoin mining industry has only been around for a few years, and countries, cities, and companies have been operating and running for decades. And given that Bitcoin’s energy consumption has already surpassed various countries on the emissions rankings, it’s understandable that people are concerned.

bitcoin electrcity usage

Source: Statista. If Bitcoin were a country, it would be the 27th most energy-demanding nation on earth.

Is Bitcoin Mining Bad For The Environment?

Because bitcoin mining is decentralized and spread out globally, it’s difficult to get a perfect aggregate estimation on how much “dirty” electricity it uses. Therefore, tracking down the global locations with the largest mining output and doing a case study of the various countries’ energy grids is the best we can do.

Interestingly, the distribution of bitcoin mining’s carbon footprint is fairly centralized, primarily in China (Inner Mongolia, Xinjiang, and Sichuan), Canada (Alberta), Russia, and the United States. Bitcoin mining produced approximately 17.29 million metric tons of carbon dioxide emissions in 2018, of which around 26.2% were emitted in Inner Mongolia. Additionally, China accounted for almost half of the global bitcoin mining’s carbon footprint in 2018. This is why we are hearing news circulate about an ongoing behind-the-scenes, yet also public crackdown on Chinese bitcoin mining operations.

distributio of bitcoin mining

Source: Statista

However, as a counterargument, many have said that clean surplus energy is also being used to fuel Bitcoin to a significant degree. For example, an area that uses renewable energy to power bitcoin mining is southwestern China, where hydro power accounts for around 80% of the generated electricity in Yunnan and Sichuan.

Unfortunately, as stated above, mining activities can also be found in regions with coal-heavy power generation, such as in Inner Mongolia. Thus, Bitcoin’s carbon footprint cannot be analyzed holistically. It’s very much a case-by-case, geography-by-geography, energy-source-by-energy-source analysis, and one that also requires on-site investigation. The United States, Canada, Europe, Russia, Iran, Kazakhstan, and other areas where there are large Bitcoin pool operators or mining rigs are also equally implicated in these environmental concerns.

Nonetheless, this is just the macro perspective, which doesn’t help fully explain what happens on the ground. Getting to a more accurate number and conclusion requires more precise measurements about mining activities and how carbon-intensive certain region’s electricity sources are.

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Can Bitcoin Become A “Greener” Asset?

Moving forward, innovations to improve energy optimization and machine efficiency will certainly play an important role in advancing the bitcoin mining industry. As chips operate at smaller nodes, as machines operate more efficiently, and as mining processes become more optimized, the industry is likely to succeed in lowering its emissions as a whole. Also, as more research sheds light on the energy sources that Bitcoin miners use, it will certainly pave the way for improved standards and best practices to come to the market.

Nonetheless, bitcoin mining’s decentralized nature alone makes it very difficult to accurately quantify Bitcoin’s real electricity usage. The exact numbers and reporting on the electricity consumption from each mine, pool, or rig, are difficult to dig up. As a result, estimating the costs from using “the AC” or “turning on the light switches” is even more tedious.

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