Bitcoin, energy and climate change
The ecological concerns of bitcoin mining continue to be a topic of discussion. Bitcoin is a network of peer-to-peer transactions worth more than $1 Trillion that has the ability to store and transmite value without an intermediary. Bitcoin is used by millions of users and serves a purpose of using a decentralized protocol to settle transactions outside of entities and institutions. Bitcoin is thus a currency enabled by technology, and like all technology it requires to be powered by energy. Bitcoin is not wasting energy, it’s rather responding to a demand from its users reflected in higher prices.
Energy is never created or destroyed, it is only converted. Transforming one form of energy to another will inevitably lead to some kind of impact. All energy sources are provided by nature, and it’s human ingenuity through technology that finds the most cost-effective way to harness it. All human activities and services will require using any kind of energy, either kinetic or potential. All sources of energy, whatever the type, have different advantages and limitations. Any energy conversion will involve an irreversible process, which means that every kind of energy source has an ecological impact.
But high energy usage is not a bad sign. On the contrary, growth and energy are linked. An unprecedented rise in the standards of living has been accompanied by the utilization of plentiful, reliable and affordable energy. More than 7.5 billion humans are subsidized by high-density sources of energy than what their metabolism would otherwise provide. The usage of coal first, and then oil and gas, has enabled human kind to build and operate machines that reduce physical labor and make trade and food production more efficient. Modern society is inherently energy-intensive and fossil-fuels-based. Yet, it seems Bitcoin gets the most scrutiny for having a large electricity footprint and then being associated to use of hydrocarbons and thus greenhouse gas emissions.
There is no hard data on Bitcoin annual energy usage, but 100 TWh (10⁹ kWh) or 360 PJ is a good order-of-magnitude estimate for 2021 annualized electricity consumption. World’s energy demand in 2019 was 603,276 PJ according to the International Energy Agency. World’s electricity consumption is 24,000 TWh or 86,400 PJ. To put this in perspective, Bitcoin has an estimated 100 million users, which means the electricity in the network allocated equally across its users equals 1,000 kWh or 3,600 MJ (10⁶ J); the average per capita energy use globally is 32,000 kWh annually or 115,200 MJ, while a human from a dietary perspective needs 3,050 MJ for their basic functions assuming 2,000 kcals per day of food intake. But the world is not equal: the average US citizen uses 90,500 kWh or 326,000 MJ. While Bitcoin is indeed a large user of energy, it is overshadowed in comparison to what people with good living standards use in a given year. But this is due to a simple reason: large value implies in most cases large quantities of energy.
For many, their only connection to energy is their residential electricity and heating and likely their gas for cars. But industrial societies are inherently energy and carbon intensive: every product and service has an embodied quantity of energy. For example, the average smartphone has a conservative embodied energy of 250 MJ while a laptop has 4,500 MJ and a tablet 1,000 MJ. In 2015, the annual production of these devices needed 1,000 PJ. Global data centers need near 200,000 TWh of electricity or 720 PJ. Aluminum production uses 848 TWh of electricity or 3,050 PJ. A 2006 study found that the film industry in California uses 100 PJ of energy. Energy is the capacity to do work, so it can’t be decoupled from any kind of activity. Bitcoin is only one of the uncountable actors of the globally increasing power demand.
And since power requires fuel, the fuel chosen will have different tradeoffs. The most common environmental concern is the emission of greenhouse gas emissions, due to the location of a large share of the Bitcoin network computing power in China. China, the country with the largest population in the world and the global center of manufacturing, is a growing power-hungry economy. China is the highest consumer of all commodities, including fossil fuels, because of its large industrial output and population that is continuously improving their income. Not only Bitcoin, but many other products and services traced to the country are therefore carbon-intensive. The primary energy source in China is coal, a cheap and abundant fuel that provides high quality heat and reliable electricity. For that reason, some computers of the Bitcoin network rely on coal-powered electricity for their 24/7 operations.
Since there is no hard data either on how much of Bitcoin’s electricity is powered by coal, we can assume for illustration that 65% of the hash power is located in China and use the country’s average national carbon intensity of 850 grams of carbon dioxide equivalent per kilowatt-hour (g CO2e/kWh) since some miners uses other sources like hydro power. This would mean roughly 55 million metric (Mt) tons of emissions. Research suggests the previous emission factor is overestimated by 40%. China’s total carbon dioxide emissions are 10,175 Mt. Bitcoin is in this scenario a significant source of emissions, yet only a small piece (less than 0.6%) in China as a whole or the world. But the carbon intensity of Bitcoin is not inherent to Bitcoin but rather of the incentive to find cheap reliable electricity. Hence, if the grid switches to low-carbon, so does Bitcoin mining. The associated ecological concerns of all industrial output are shared by society as a whole, not just by a few actors. The world emits near 50,000 Mt of CO2e.
Gold mining, for instance, was responsible for nearly 110 Mt of carbon dioxide (CO2) in 2018. China added 32 GW of wind power in 2020, which over 20 years of lifespan and assuming a generous capacity factor of 25% would result in 44 Mt of CO2. In 2019, 2.1 million cars were sold globally, which would result in 55 Mt of CO2 if driven for at least 150,000 km and assuming the carbon intensity of the grid of Germany. Fashion accounts for 1,200 Mt of CO2 per year globally. Steel emits nearly 2,500 Mt of CO2 annually across the globe. These sectors contribute to wealth and progress, and they need to use energy which imply the use of hydrocarbons in our energy and carbon-intensive civilization. Bitcoin, as an increasingly valuable human invention, is not an exception.
But the discussion of the tradeoffs of different energy resources do not belong to Bitcoin itself. These are issues related to energy and the environment. As an emerging ecosystem, Bitcoin will spur innovation across the different areas of application it belongs to, including energy. The very direct connection between energy and hash rate will continue to push the Bitcoin network towards efficiency. Bitcoin will continue to provide value and respond to the demand of its users, which will result in more energy usage. But energy is everything, and life has struggled and will continue to struggle whenever energy changes and becomes less useful. The impact of electricity consumption and how different energy resources have diverse costs and benefits is an important conversation but it belongs to all that humans transform. The solution is thus also in how humans transform natural resources through ingenuity and create value out of scarcity. As Marie Curie said: “Nothing is to be feared, it is to be understood”.
