Updated: Jul 13, 2021
When we think about cryptocurrency, we think of its non-physical characteristics, a utopic virtual currency to replace traditional forms of banking, without a need for notes or cash, nor reliance on financial institutions. What most of us don’t imagine are factories full of greedy supercomputers working to capacity and eating through eye-popping amounts of valuable resources. But Bitcoin mining is an essential and unavoidable part of the cryptocurrency’s creation and has become an industry in itself.
Now, as 2021 looks set to be the year that climate change takes center stage—we have already seen the new Biden administration rejoin the Paris Accord and put climate change at the top of the US agenda—is it time we started looking at the impact bitcoin mining is having on the environment? And what alternatives could be found in this most innovative of industries?
What is Bitcoin mining?
Bitcoin mining works by committing computing power towards solving a problem. Miners set to work trying to solve the problem and once they have verified 1 MB (megabyte) worth of transactions—also known as a "block"—they become eligible to receive a quantity of bitcoin. This 1 MB limit was originally set by Satoshi Nakamoto and has never changed, which has proved to be a point of contention amongst some miners who believe that the block size should be increased to accommodate more data, meaning that the network could process and verify transactions more quickly. One important thing to note is that, although verifying 1 MB worth of transactions might make you eligible to earn bitcoin, it by no means guarantees you will be paid. Only some of the miners who verify transactions will receive the payout.
As Bitcoin becomes more popular—and as its value increases—more people are joining in to mine bitcoins. As more people join the network and try to solve these math puzzles, you might expect each puzzle to be solved sooner, but Bitcoin is not designed that way.
The software that mines Bitcoin is designed so that it always will take 10 minutes for everyone on the network to solve the puzzle. It does that by scaling the difficulty of the puzzle depending on how many people are trying to solve it.
In other words, although the time taken to produce one bitcoin doesn’t vary, the computing power used to produce it does. As more people join the network and try to mine bitcoins, the puzzles become harder, and more computing power and electricity are used for each bitcoin produced.
Where does the power used in Bitcoin mining come from?
The Bitcoin network in 2020 was consuming 120 gigawatts (GW) per second. This converts to about 63 terawatt-hours (TWh) per year.
Bitcoin advocates have traditionally deflected arguments against the power used to fuel the mining process by citing its use of renewable energy in this process. In fact, it is estimated that as much as 74% of Bitcoin mining uses renewable energy. Furthermore, the industry prides itself on self-regulating in this respect; as renewables provide the cheapest source of energy for Bitcoin’s ever-increasing demands, miners are forced towards finding more efficient sources and, as such, naturally gravitate towards renewables.
However, this 74% doesn’t quite tell the full story. A recent report by CCAF into the environmental impact of Bitcoin mining found that in fact, less than 40% of the power used for mining came from renewable sources—quite the discrepancy. The study found that around 76% of miners used renewables on a regular basis and also that hydropower was one of the leading sources, followed by wind and solar. Extrapolating from this data, we can deduct where the discrepancy might lie. Renewable energy sources, and particularly hydro, can provide huge amounts of affordable energy needed to run a Bitcoin mining operation. However, its supply is far from reliable as it is unable to store energy. As such, a Bitcoin miner who needs to maintain operations must resort to “dirty” energy moments of drought or when resources run low. So, although a majority of miners use renewables, they by no means use them 100% of the time.
So, as the use of renewables for Bitcoin mining grows, its reliance on fossil fuels grows in parallel. Is opening up new sources of water, wind, and solar power the answer? Unfortunately, finding locations for renewables-fueled Bitcoin mining relies on the convergence of a well-developed renewables infrastructure alongside open Bitcoin mining regulations.
Up to now, China has provided a home for almost 60% of Bitcoin mining—favorable conditions in the form of cheap labor and extensive renewable energy infrastructure have made it a prime location. However, the US looks set to challenge this situation in the future, as cheap energy and a robust and reliable infrastructure have encouraged many miners, including Chinese operations, to make the move.
While the US may relish the opportunity to disrupt China’s dominance in the sector and proponents also point to the benefits of a more decentralized network of miners, the arrival of these miners isn’t always welcome. For example, Washington State has been alerted to Chinese mining operations moving in to benefit from the cheap hydropower it is currently providing to residents. Because of the huge power needed to supply these operations, there are concerns that residential power lines could be overloaded. The other concern is what happens when these operations leave, leaving a huge capacity surplus? Some regions have managed to address these issues by charging more to anyone using more than 5% of the network supply of electricity, but questions remain over how to deal with this in the longer term.
Miners are always on the lookout for new opportunities. One recent example is a new operation being set up in the Arctic Circle by a Russian Bitcoin mining company. The area in Northern Siberia offers the benefits of cheap electricity from hydro and natural gas, alongside the climactic benefits of sub-zero temperatures which naturally cool the mining equipment, making the process even more cost-effective.
Proponents say it is innovations like these which demonstrate the inherent self-regulatory nature of Bitcoin mining; as miners are forced to search for cheaper and more efficient energy sources, this necessarily drives innovation in renewable energy. And if that wasn’t enough motivation, the Bitcoin protocol provides a $200,000 bounty every 10 minutes to the person who can find the cheapest energy on the planet.
More Bitcoin=more power
Bitcoin mining has come a long way from where it started, where anyone with a decent laptop could mine from home by themselves. Nowadays the majority of Bitcoin is mined on super computer-driven farms run by huge companies, principally in China, the US, and Russia. Bitcoin is stuck in a quandary; to attain real value, it needs widespread acceptance. However, as its popularity—and value—grows, it becomes more and more of a commercial venture, and the demands on energy grow exponentially. Detractors point to the inherent “pointlessness” of the energy consumption—hundreds of computers competing to create something which doesn’t “exist” in the physical world. As one critic puts it “the premise of Bitcoin mining is to prove how much energy you can waste.”
And whilst one could argue as to whether Bitcoin provides a valuable service as a social good or financial service, it is more difficult to argue against the premise that mining involves a good deal of waste. At the current levels of mining, some estimate that a single Bitcoin transaction may consume up to 621 KWh of energy—half a million times more than a credit card payment, and these levels can only rise.
Another wasteful side effect is the hardware used in Bitcoin mining. High-performance supercomputers are deployed 24/7 to work on this high-intensity activity and need to be replaced frequently. We know the environmental cost of tech waste—requiring scarce earth minerals and creating toxic waste that takes decades to decay—but we accept this waste as an unfortunate but necessary part of modern life. Many see Bitcoin mining as necessarily wasteful—producing the same outcome but requiring more and more power to do it.
An article in Nature magazine expresses concern that emissions coming from Bitcoin mining alone could push CO2 levels up by 2%, causing an environmental disaster. Although such claims are hard to prove and may seem alarmist, if we can accept that Bitcoin mining is harmful to the environment, in an industry as innovative as this, should we not feel duty-bound to look at other options? And could other types of crypto mining provide the answers?
Proof-of-Stake vs Proof-of-Work
The PoW (proof-of-work) model used for bitcoin mining determines that the computer with the most power tends to win the bitcoin i.e. you have to “prove” how much work you are willing to put in. Ethereum 1.0 followed the same PoW model, but the 2.0 version has moved to a proof-of-stake model, which does not put computing power at the center of the mining process.
PoS changes the way miners come to an agreement about the state of the distributed ledger. This in turn changes the way Ethereum is mined and how miners are rewarded. With PoW, miners compete against one another to solve a puzzle on the network and receive their Bitcoin reward. High energy consumption is a by-product of this PoW model: the more computational power you have, the higher your chances of solving the puzzle. The proof-of-stake concept maintains that an individuals’ mining ability is relative to the amount of stake they own in the network. Having a stake means locking your Ethereum into the network and miners must have a minimum stake in order to mine. Simply put, Ethereum 2.0 mining is based on the size of your stake rather than the size of your computer.
While some feel the PoS model could provide a real antidote to the environmental impact of bitcoin mining, there are others who point to its inherent bias—favoring those with an already significant stake and encouraging a rich-get-richer scenario. However, staking pools and services provide the possibility for anyone to participate, making it more democratic than it may at first appear. The second thing to note is that, although the PoW model may have been created to promote an equal opportunity to all, the incremental nature of Bitcoin mining has turned it into a domain inhabited by corporations and government, a far cry from its original ideology.
It remains to be seen whether PoS could provide a viable alternative to PoW for Bitcoin mining (currently there are question marks around security and scalability) but the fact that other cryptocurrencies are looking for ways to address the environmental impact of the mining process is encouraging. Bitcoin has been at the forefront of innovation and has always prided itself on offering solutions to modern problems; the environmental impact of Bitcoin mining is an area that cannot be ignored if Bitcoin wants to continue to be a part of the solution and not the problem.
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