Bitcoin is taking a lot of heat for its energy usage. 

12 April 2021

If Bitcoin's energy usage isn't sustainable, is it still worthwhile? 

Many crypto advocates argue that although Bitcoin mining does require some amount of fossil fuels, it's a price worth paying for a censorship-resistant asset. Those sceptical of government-run fiat currencies actively argue this point.

They believe those responsible for maintaining many fiat currencies are too easily influenced by self-interest or other nefarious and sinister motivates; therefore, cryptocurrencies outside government control are necessary to create and maintain a fairer world.

Were it possible to mine the cryptocurrency using 100% sustainably sourced energy, the amount of energy required to continue the process would, of course, be irrelevant.

However, it would appear that no one can quite agree on what percentage of Bitcoin miners energy comes from sustainable sources. A 2019 study called "3rd Global Cryptoasset Benchmarking Study" estimates 39% comes from renewable sources, whereas Coinbase offers 74.1% as a possible figure.

Considering just under 30% of all energy worldwide comes from sustainable sources, it seems Bitcoin is beating the world average regardless of which source you believe is more reliable. 

Why does Bitcoin mining require so much power? 

Bitcoin transactions is group together into what is known as blocks. Each block is signed digitally by a type of "watermark" and creating this watermark is called mining. Bitcoin miners are rewarded with bitcoins when they create this watermark, which allows for new coins to enter circulation. Individual miners don't work together but rather race against one another to mine the current block, of which there is one released every ten minutes. Each block contains 6.25 Bitcoins, so roughly 900 new Bitcoins are available every day.

The mining process requires two elements: a mining rig and electricity to run the rig.

A mining rig is essentially a collection of high-spec (and very expensive) computers that create the signatures which verifies a block of transactions. There are currently millions of people trying to mine Bitcoin worldwide. In the first few years after Bitcoin's creation, you could successfully mine Bitcoin using your home computer or laptop. If you chose to start mining today, you would be up against industrial-sized mining centres whose sole goal is mining Bitcoin, like the Enigma facility in Iceland.

Many critics argue miners should find more sustainable ways to mine Bitcoin and other cryptocurrencies. However, there is a problem with this thinking. The fact that Bitcoin costs money to mine - the expense of buying a mining rig, setting it up, learning how the mining process works, and the cost of the power needed to run the rig - is the reason it has any value at all. If anyone could mine Bitcoin with little or no effort or expense, the cryptocurrency would be valueless.

Consider commodities like gold and silver that businesses pay people to mine underground. The manual mining process takes enormous amounts of time, money and effort. Combined with a healthy level of demand, mined assets like gold and silver retain their value. The only difference with Bitcoin is its mined with ultra-high spec PC's rather than pickaxes and shovels.

As Bitcoin's mining process becomes more competitive, the more energy-intensive it will be to mine Bitcoin successfully. Sky-high energy costs will become Bitcoin miners most significant expenditure. Therefore, it is highly likely that mining centres worldwide will become more reliant on sustainable energy to keep their costs down, increasing their profit margins and staying competitive.

Some Chinese Bitcoin mining centres have already moved to areas with greater access to renewable energy sources, primarily the Sichuan region, where nearly 95% of the electricity comes from sustainable hydroelectric sources. Bitcoin defenders also argue the cost of managing paper currencies like the Pound is an enormous drain on energy as they require server farms and other energy-intensive resources to support them.

Comparatively, Bitcoin could be equally or even less energy-intensive than all current global financial systems combined.

Prominent business leaders

Despite the global outrage over Bitcoin's environmental impact, many prominent business names have flocked to the cryptocurrency, arguing the benefits outweigh the cost and that cryptocurrencies are the future.

Tesla and SpaceX CEO and founder Elon Musk stated in 2019, "It [cryptocurrency] bypasses currency controls...Paper money is going away. And crypto is a far better way to transfer values than a piece of paper, that's for sure.".

Similarly, billionaire investor ChamathPalihapitiya recently affirmed his belief in cryptocurrencies, urging other investors to use Bitcoin to hedge against world leaders who are "not as trustworthy and reliable as they used to be.". The Social Capital CEO also speculated Bitcoin's price could end up above $200,000.

However, some in the business world don't look at Bitcoin so generously. Bill Gates recently remarked, "Bitcoin uses more electricity per transaction than any other method known to mankind... it's not a great climate thing.".

President Biden' top economic advisor Janet Yellen was also recently critical of Bitcoin, describing it as "an extremely inefficient way to conduct transactions", in addition to questioning the cryptocurrencies legitimacy and long term stability.

Among world thought leaders, it seems the jury is out on whether Bitcoin's indisputably high energy usage is worth the potential damage to our climate and planet.

Whether or not Bitcoin's energy expenditure is wasteful is nearly impossible to decide. In the end, it depends on whether you believe the currency itself will provide value in the future.

As cryptocurrencies could one day usurp paper money as our chosen method of exchanging value, the energy expenditure could be worthwhile.

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