Like many of my colleagues in the crypto investing world, I feel strongly that our sector has the potential to lead in mitigating climate change. That’s why it’s frustrating to read headlines like “Bitcoin is a disaster for the planet” and news articles that steamroll over the complexity of this emergent technology. We need to agree on some basic facts before we start hardening our positions and making business and policy decisions that will determine the future of our economy and planet.
Bitcoin is Only One Crypto Application
Bitcoin is the most popular and well-known crypto protocol, and it often gets used as short-hand for the entire crypto-economic sector. And yet bitcoin is only one of thousands of crypto-networks, applications and protocols made possible by the blockchain—the game-changing technology that allows two parties to verify a transaction without the need of a trusted third party. The Ethereum blockchain, for example, has enabled hundreds of new lending and investing apps, like Compound, and spawned companies like Orbit, which allows individuals to buy and sell solar power.
Not All Crypto Applications Require Mining or Electricity
A consensus mechanism is the technology used on a blockchain to settle transactions and secure the network, peer-to-peer, versus requiring a third-party (like a bank) to verify and confirm a transaction. Bitcoin runs on a proof-of-work consensus mechanism, which requires the use of several powerful computers (aka bitcoin miners) running around the clock. People are understandably concerned that the energy costs may be too high. But they’re missing an important part of the picture. There’s a new generation of apps that uses a proof-of-stake consensus mechanism. Proof-of-stake does not require an energy-intensive mining task–it’s based on users staking their own crypto assets (and risking losing them), to secure transactions on the blockchain. For example, Ethereum, the next biggest blockchain network after Bitcoin, plans to transition from proof of work to proof of stake when it launches Ethereum 2.0. And that means that bitcoin, and its variants like lite coin, will be the only layer one blockchains left with a proof of work consensus mechanism.
Electricity Use Doesn’t Equal Carbon Footprint
Yes, bitcoin mining eats up a lot of electricity. According to the Cambridge Bitcoin Electricity Consumption Index, worldwide bitcoin mining uses about 105 terawatt hours of electricity per year–comparable to the consumption of the entire nation of Finland. But even that is a fraction of the energy required to run the world’s traditional banking infrastructure. A 2021 report from Galaxy Digital found that the bitcoin network consumes less than half the energy consumed by the banking or gold industries. But more to the point, measuring electricity use is not the same as measuring carbon emissions. So far, there’s not a precise way to measure what kind of energy bitcoin miners use—was it generated by coal plants or clean energy, like hydroelectric dams, or some combination of the two? According to a 2019 report from CoinShares Research, 73 percent of bitcoin’s energy consumption was carbon neutral, largely due to the abundance of hydro power in major mining hubs such as southwest China and Scandinavia. According to the Cambridge Bitcoin Electricity Consumption Index, the percentage of bitcoin mining powered by renewables is anywhere from 20 to 70 percent. Notably, the Cambridge researchers conclude that “Bitcoin’s environmental footprint currently remains marginal at best.”
Bitcoin Miners Can Use Energy that Would Otherwise Go to Waste
A fundamental aspect of electricity is that you can’t use it unless you are located at the source of production or if there’s an infrastructure in place (wires, grids, et cetera) to transport it to where there’s demand. And that creates a dilemma for many remote wind, solar and thermal energy operations. Depending on the weather, they either produce too little or too much power to use locally, and the excess often goes to waste. Enter bitcoin miners—they can be located anywhere. And, because so-called stranded renewables are often the cheapest source of energy out there, miners are flocking to places where renewable power is abundant. It’s become a new business model—companies like Seetee exist to establish mining operations that transfer stranded electricity without stable demand locally into economic assets, like bitcoin, that can be used anywhere.
In June, the president of El Salvador announced that the country’s state-run geothermal energy utility would begin using power derived from volcanoes for bitcoin mining. In other words, bitcoin mining will allow the country to translate local resources into global currency. The implications are mind-boggling.
Reading about El Salvador gives me hope in the future. I am confident that crypto technology can help us build the green energy systems we need to slow global warming. But this won’t happen if the media, the business community and policy makers don’t understand the emerging crypto-economy, or buy into the false narrative of crypto advocates versus environmentalists. When capitalism figures out how much literal money there is to be made converting renewable energy, Bitcoin could actually lead the Green Revolution.
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