While many of us may consider the carbon footprint of buying a physical item like a jumper or a toaster, it is truly mind boggling to think about the environmental impact of time spent online. This may be why the huge carbon footprints of cryptocurrencies like bitcoin are going largely under the radar for many of us, including investors and climate activists.
Yet the real-world cost of bitcoin cannot be underestimated. A University of Cambridge study found that the network burns through 121 terawatt-hours per year, putting it into a category of a top-30 country in terms of electricity usage. In fact, the carbon cost was largely ignored altogether until 2017 when prices surged and the general population started to take more notice. Aside from the significant carbon footprint of bitcoin, it’s important to understand what bitcoin is and why it’s so popular.
Bitcoin is created by mining a 64-digit hexadecimal number (known as a ‘hash’) that is less than or equal to the target hash that the miner is looking for. The miner gets paid in crypto tokens for all the currency they make. The act of solving these computational equations on the bitcoin network makes the payment network trustworthy. It proves the worth of the bitcoin and verifies it at the same time so that it can’t be spent twice. Essentially, an online log makes records of the transactions made and once approved, they’re added to a block on the chain, hence the phrase ‘blockchain’.
What makes it all the more confusing is that not only is cryptocurrency fairly new to the general population, but the way it is created is shrouded in secrecy due to its niche status. This makes it much harder for miners to be held accountable for their intensive carbon usage, in a time when every company needs to consider their impact on the planet.
The secrecy is also what excites investors about bitcoin since it isn’t tied to a certain location or institution and it’s completely decentralised – unlike a bank. Investors trust bitcoin as inflation is controlled algorithmically by cutting the reward rate periodically, rendering the rate of new bitcoin supplies as unalterable by design. The issue remains that there is no government or organisation to hold them to account for their carbon footprint. A footprint which is intrinsically tied to its value as the demand for it increases, using more and more energy. With every market jump, the cost to the planet is greater.
The price of one bitcoin is $57,383 at the time of writing, which takes the market cap value above that of Facebook and Tesla. The wider cryptocurrency market that includes dogecoin, ethereum and litecoin has reached an estimated $1.4 trillion and counting.
From a financial perspective, miners want cheap servers to increase their profit margins which is why much of the bitcoin activity is done in China. As the industry is unregulated there is no reason why activity wouldn’t surge in the place where it costs the least to do it. Currently, China does not have a cost-effective renewable energy supply so two thirds of the grid is fuelled by dirty coal power stations.
Another problematic caveat to the bitcoin story is the amount of so-called green companies and investors that are buying into it. Some of them are not disclosing this element of their portfolio due to the immense carbon footprint but those that are publicly traded have no choice. Perhaps one of the most high-profile companies to reap the rewards from bitcoin is Elon Musk’s Tesla, who have made $1 billion in 10 weeks from their investment. It remains to be seen whether these businesses are doing their due diligence regarding the origins of their bitcoin and if it is mined from a sustainable source. While this may give Tesla more money to invest in green infrastructure, it’s hard to say whether this is the more ethical way to do so.
Hope is on the horizon as more consumers are demanding eco-friendly bitcoin and green cryptocurrency in general. Three of the up-and-coming climate-friendly cryptocurrencies investing in green energy sources are nagricoin, solarcoin and cryptoleaf, with potentially many more to come.
There is also a surge of bitcoin activity in the European countries of Iceland and Norway where renewable power is readily available due to their geography. They’re also much cooler than China so require less energy to stop the servers overheating from use which is where part of the energy usage comes from. The University of Cambridge has found that 39% of mining is powered by renewable energy instead of fossil fuels. Renewables as part of the mix are on the rise with 76% of miners using some renewable energy in 2020, an increase on the 2018 results.
The way that the world is going, renewable energy is becoming cheaper and more efficient than fossil fuels anyway, it’s just a case of how long it will take to wean the industry off its old ways.
This is not likely to happen any time soon on the scale required. So, for the meantime, bitcoin mining continues to make money for a variety of investors by exploiting the environment as much as ‘real-world’ companies.
Sadly, at this point in time it’s not safe to assume that if we invest in bitcoin, then this will be from a sustainable server. The good news is that more and more consumers are demanding greener cryptocurrencies and are as invested in where it comes from as they are in the thing itself.
One important lesson we can take from this is that it demonstrates how the digital world has a very real impact on planet Earth. Whether we’re buying cryptocurrency or simply scrolling the internet, we are impacting the planet in one way or another.
Graphic courtesy of Alice Eaves