Over the course of the last financial year, Bitcoin has had many landmark moments. Most recently, the value of the cryptocurrency surpassed $60,000, meaning it was up 963% over the last 12 months. Moreover, Bitcoin has seen significant institutional interest, with Tesla purchasing $1.5 billion in Bitcoin and announcing that it will accept the currency as a mode of payment. However, it’s not all good news with Bitcoin; as its value rises, more scrutiny falls upon the asset, most significantly upon its environmental impact.
Why is Bitcoin bad for the environment?
A defining feature of Bitcoin is the fact that it isn’t controlled by any single authority, such as a central bank, but rather a complex global network of computers. Essentially, Bitcoin “miners” utilise sophisticated computers and solve complex math puzzles to make transactions go through.
However, Bitcoin mining was not always this complicated. On the contrary, in 2011, you would only need an average laptop to mine it. Fast forward to today, you would need warehouses stocked with specialised hardware systems called Application Specific Integrated Circuits (ASIC). A majority of the mining cost arises from the energy required to ensure the smooth operation of ASICs.
The first environmental hurdle arises in light of these ASICs. To ensure they are utilising the most effective technology, miners frequently upgrade their mining hardware. ASICs are not easily repurposable, meaning outdated hardware is made redundant, and these out-of-use units account for 11,500 tonnes of hazardous electronic waste each year.
More worryingly, the actual energy utilised by the ASICs while they are still in use is at staggering levels. The University of Cambridge Centre for Alternative Finance (CCAF) published studies that suggest Bitcoin’s mining efforts’ energy consumption is an estimated 130 terawatt-hours. For perspective, the entire nation of Argentina utilises roughly similar levels of energy, and the UK’s electricity consumption is a little over 300 TWh a year. Additionally, Bitcoin mining generates 37 million tonnes of CO2 each year.
Governmental responses to the environmental impact of Bitcoin mining.
Some governments have started to take action, such as the government of China. China’s Inner Mongolia region contributes significantly to global cryptocurrency mining, in part due to the affordable energy costs in the region. However, in light of China’s development and reform commission’s plans to reduce energy consumption, existing cryptocurrency mining projects in the Inner Mongolia region are set to shut in April 2021.
Counter Arguments
Advocates of cryptocurrency suggest energy usage is not inherently bad as energy is used for many modern activities. They suggest that critics of Bitcoin’s environmental impact are less focused on the net energy utilised for its mining, and more concerned about the purpose of this mining. “What we have here is people trying to decide what is or is not a good use of energy,” said Meltem Demirors of CoinShares. However, it may be difficult to argue for the necessity of Bitcoin, as it is not a widespread Fiat currency alternative, and functions more like a digital form of gold, with no inherent asset underpinning its value.
Another counter-argument proposed by advocates of Bitcoin is the fact that energy consumption crises are inevitable with the growth of online servers. As servers grow larger and more complex, energy expenditure will rise proportionally. This is a fair argument and deliberate steps must be taken to ensure digital evolutions are in line with environmental objectives. Currently, only one-fifth of the electricity used in the world’s data centres comes from renewable sources.
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