Actually...Bitcoin Is Good For The Environment
A Comprehensive Look At The Sustainability Of Cryptoassets
The claim I’m going to address here is that the excessive energy use for the blockchain is unsustainable and thus prohibitive for it to be our next step as web3. To be transparent, I believe these claims are mostly slander campaigns from banks or, in the case of Elon Musk’s, a means to generate good publicity for his company (and pump his $DOGE bag). However as fun as it would be to just go on a conspiratorial rant, I will try to limit this to fact-based arguments so this can be shared as a reputable source.
To be thorough and charitable to opposing arguments, I will address the three most prevalent arguments that crypto is too environmentally destructive to work long-term:
Energy Consumption
Carbon Emissions
Capitalism Is Bad (i.e. wasteful)
Energy Use
Detractors claim that crypto consumes energy at a level comparable to that of a small nation-state, and without widely available clean energy, we must limit power use for what is essentially speculation. They point out that energy requirements scale proportionately to adoption, so even if the energy use isn’t disastrous in the present, there’s no way demand will be sustainable as the space grows. Hopefully, I paraphrased the argument without coming across as too condescending.
The issue is the quantity of energy being used, the “sustainability” of this energy with respect to it being from “dirty” sources and whether you can continue to scale the demand in the future.
What needs to be kept in mind when you read statistics about Bitcoin energy use is they’re rarely put into context relative to other industries, and when they do provide context, it’s something like “Bitcoin’s energy use is somewhere between Argentina and the Netherlands!” You're left to assume that this is inherently a problem. This is an issue with a lot of Green messaging more broadly, but that’s a topic for later.
In economics, there’s something known as the Pareto Principle. This principle states that 80% of outcomes are due to 20% of causes, which as a heuristic is extremely useful because you can account for basically all but extreme outliers with this 80-20 Rule. In the case of energy consumption, 80% of energy is being consumed by roughly 20% of consumers. If you’re into green circles, you’ve likely seen this applied to Western Nations in pleas to eat less meat and limit electricity use. If you abstract it away from people and instead focus on industries and the technology which directly uses energy, a different picture is painted.
Below is a a graph depicting the relative size of uncorrelated assets based on energy consumption annually in terawatt-hours (TWh)
Crypto detractors say energy requirements make DeFi unsustainable, but really the total industry energy consumption is the same as that of all the refrigerators in the US-- they're phrasing their stats deceptively. As you might have guessed, the energy use of refrigerators does not have enough impact to be of concern for global rising sea levels or to increase the global climate by a single degree. Even amongst what’s depicted in the chart above, Bitcoin is not among the top 20% of energy consumers and these aren’t even the biggest consumers of energy globally—not by a long shot.
According to The UN Global ABC ““Global final energy consumption for buildings operation was approximately 130 EJ [exajoules] [about 36111 TWh], which is around 30% of total final consumption, and a further 21 EJ [about 5833 TWh] for buildings and construction or 5% of total demand” (page 20). If you look through the linked report, there’s some slippery language and math which alternates between “energy produced” and “energy consumed” because not all of the energy produced is consumed—at least a third of it goes to waste. However, we can say the energy wasted by this industry alone is approximately 50,520 TWh (Key World Energy Statistics 2020). This amount of energy waste—from the building industry alone—is enough to power the global mining effort of Bitcoin every year, 600 times over. I could then run this same bit of energy consumption research on the transportation industry, the healthcare industry, the military-industrial complex, the financial sector, etc.
tl;dr: the outcome is basically the same.
I’ve focused most of my attention to Bitcoin specifically because by far it is the blockchain which consumes the most energy due to it’s proof-of-work consensus mechanism. With that said, the non-PoW consensus mechanisms consume orders of magnitude less energy. The top five proof-of-work cryptocurrencies’ lower bound for energy use is an order of magnitude higher than Ethereum’s entire network use, and Ethereum is multiple times higher in energy use than its competitors. One again the Pareto Distribution rears its head!
Okay, but how can we be sure this will be the actual upper bound for proof-of-work algorithms? The pace of cryptocurrency adoption would indicate that for the entire planet to be using cryptocurrency, the energy use must scale along with it right? Actually, no.
Due to the block-size restraint, regardless of how many people are using the network, there is a theoretical maximum for transaction throughput of 27tps (transactions per second). This number may not mean much to you, but what it does mean is that instead of energy consumption scaling exponentially, it’s actually scaling with a hard-coded vertical limit. The projected upper-bound for Bitcoin energy use—and all other major proof-of-work blockchains—is accounted for in the above projection and there’s no possibility for this to change! In fact, if they try to change this, it requires hard forking which creates an entirely different coin (such as BitcoinSV), and these new coins would have nowhere near the same transaction volume, which completely defeats the purpose of making them to begin with.
As an added bonus, it is extremely unlikely another blockchain network will be developed which outpaces the consumption needs of Bitcoin. The chart below depicts relative energy consumption per transaction relative to the type of blockchain consensus mechanism. The image is telling enough just from pure visuals, but I want to draw attention to the scale on the vertical axis. The graph is logarithmic, which means that every increased tick vertically is a ten times multiple. This means Bitcoin’s proof-of-work transaction energy consumption is 60 times the energy consumption of its next algorithmic competitor. There are simply no blockchains which have been developed since Bitcoin (which have any transaction volume) that need anywhere close to the same amount of power.
The conclusion you can draw from this is that if you were to make all blockchains vanish tomorrow, there would be a negligible effect on global energy consumption. The Pareto Distribution skews too hard towards other megalithic industries for its loss to matter. Therefore, if their absence makes no difference at all, then their presence is a nearly inconsequential additional demand on energy. I would further argue that when you factor in the mobility of mining operations and their profit motive to use surplus energy in often remote locations, the reduction of wasted energy would actually serve as a net positive contribution to sustainability efforts.
The only operational costs of mining outside of equipment deterioration is energy costs. This means miners have a direct financial incentive to use cheaper energy at all times. This incentive means miners will look for energy surpluses and thus there is less energy waste thanks to crypto mining. The energy miners use will be produced regardless of if miners are savvy enough to pull from the surpluses or not. However, in this case, surplus energy is being utilized and the potential for DAOs to create global organizations to fund research, develop new eco-friendly technology, or to optimize energy use from municipalities, far outweighs any consumption in the present.
Stepping away from consumption as a quantitative measure, let’s consider energy consumption from a qualitative perspective. The hidden premise in many arguments about blockchain energy is the sources of this energy are dirty. Since the mental imagery of blockchain tech is more neo-Looney Tunes technofuturism as opposed to some solarpunk racial-ecotopia Chobani advertisement, it’s easy for people to associate its energy consumption with non-renewable and industrial. There’s too much profit motive and not enough public self-flagellation re: secular eschatology. I get it.
But the truth of the matter is, the miners running the rigs for consensus would be using whatever energy source is native to their homeland. So for instance, a miner in Germany would largely be using nuclear and other green energy sources. If the power grid of your local area is backed by Green Energy, you would be using green energy sources. Additionally, as I’ve mentioned before, there are market forces in effect. Bitcoin mining is an expensive operation and you would want to lower your production costs as much as possible. Since cryptomining is essentially GPUs running at full throttle all day and night, almost all operation costs lie in energy costs. Miners are heavily incentivized to lower energy costs as much as possible. They will always opt for the cheapest energy. Consequently, many mining operations utilize the local terrain to their advantage. If they're in an area with high sunlight, they use solar panels, near active waterways, hydroelectric, etc. Most energy grids utilize a mix of energy sources and of course in order to avoid higher overhead, miners are very likely to offset their total energy demand via renewables. Not to mention, in June/July 2021 China had its mining exodus where around half of their miners unplugged their coal powered rigs. As the BBC noted in September of this year in their article “Why Bitcoin Miners Are Moving To Texas,” Poolin the second largest crypto mining operation in China moved to Austin, Texas. Not only has Poolin moved to Austin, the Beijing-based company Bitmain has expanded its facilities in Rockdale, Texas. These operations use Texas because of its cheap energy, the relative stability of the United State economy and the large talent pool.
Source: The Energy Consumption of Blockchain Technology: Beyond Myth
Source: Bitcoin Energy Consumption
Source: How many transactions per second can bitcoin really handle ? Theoretically
Source: Cambridge Bitcoin Electricity Consumption Index
Source: China is kicking out more than half the world’s bitcoin miners
Carbon Emissions
On to the second argument, are you still with me?
As I argued above, the profit motive present in mining forces miners to be savvy with their energy consumption. This incentivizes miners to look for energy from the cheapest sources possible. Generally, this means they are driven to countries with high energy surpluses or large natural resources, which invariably means they are going to countries and locations which are the most energy efficient. As a consequence, Bitcoin’s Global Mining Sustainability Index is better than any individual country in the world—even Germany which is heralded as the Western standard for post-industrial Green Energy use.
China’s sheer geographic size and rapid industrialization has moved them firmly into the position of number one energy consumer/producer, a shift largely driven by coal power. Rough estimates for 2021 indicate that China was responsible for 65-75% of global Bitcoin mining. Given the large proportion of Chinese energy which relied on coal, Bitcoin’s carbon intensity index was around 420 grams of CO2 per kWh. But as I mentioned earlier, in June/July 2021 there was a massive mining exodus which just about halved the number of Chinese coal-driven mining rigs. Subsequently, Bitcoin’s global carbon intensity figure is 280 grams of CO2 per kWh—a substantive drop proportional to the loss of Chinese hashpower. The table below shows the energy make up of Bitcoin mining relative to global primary energy. Notably, Bitcoin’s carbon emissions are 40% less than the global mean. Obviously, this is just a start and as I’ve argued above, as each country converts their grid to more sustainable energy sources, the makeup of Bitcoin (by orders of magnitude the largest emitter of carbon of any blockchain) will change and likely continue to surpass the global mean.
It’s also kind of ironic there are concerns about blockchain carbon emissions because it’s likely carbon credits will be monitored and made immutable via some kind of blockchain.
Source: Third Global Cryptoasset Benchmarking Study
Source: Bitcoin Energy Use Compared To Other Industries
Consumption for non-essential speculative asset
This last one is more of a moral quandary and it’s very unlikely I can change your mind, but for the sake of being thorough I chose to include it. The issue here is many view capitalism as inherently bad and the second-order hypercapitalism or microcapitalism found in web3 is only more insidious to them. For many, no matter how “sustainable” the consumption or emissions from the blockchain are, there is nothing which justifies the amount of resources going into a technology whose sole purpose is speculative bets, “silly jpegs,” and laundering money for “racists.” There’s nothing I can do about their opinions on this matter, but I can say the purpose of capitalism is not “to maximize profits” or “to consume.” The purpose of capitalism is resource allocation.
Due to a lot of complex reasons I will not get into, there are many social advantages to signalling being against capitalism. This signalling is a purposeful misunderstanding of the central technology at work; the goal of which is to allocate resources to those who are most efficient at using those resources. To briefly provide a Econ 101 lesson, there are finite resources available on the planet and there is unequal ability distributed within mankind to produce. If you take 100 people and give them the same resources, and ten coins each, five of those 100 people will be able to develop something the other 95 people are willing to give their ten coins for and will end up with almost all the money (one again, Pareto). It’s not because something evil is occurring, it's because there are some entities who are more productive and can utilize limited resources more effectively to produce or mine new resources. This also means there’s a finite number of entities which can harvest and utilize the limited resources on our planet. Capitalism isn’t “consuming” anything, it’s redistributing finite resources to those with the money, i.e. tokens representing units of economic production, to those who can utilize those finite resources in ways which are hopefully productive for the system.
This is all to say, if there’s this much economic units of production being generated within web3 / cryptoassets / metaverse this should be an indication there’s enough attention being generated from people who can produce future value for the planet. As I’ve argued many times in my podcast and in previous articles: money follows attention. There’s nothing inherently wrong with “speculation.” There is something to be said for taking risks on new technology because you see there’s potential there. It requires a lot of labor and time to till and plant a field for food. This labor is put in and there are no observable rewards from your labor for months. But beneath the surface, something is brewing and the reward for your labor becomes self-evident. The cryptosphere is about a decade old. A decade into web1, we were using dial up, sending dancing baby chain emails and talking in AOL chatrooms. In 1999, if you had told someone the internet would topple dictatorships, put the entire wealth of human knowledge in your pocket, and also make egirls millions of dollars selling bathwater (well maybe that wasn’t so good) they wouldn’t be able to believe it. The first phase of this game is silly jpgs and dog coins, the final phase of this game is decentralized ownership of your citystateDAO, permission-less global contracts, and being able to sell your car, transfer the title, registration online in an instant (no more DMV thank God). These things take time to blossom, but their value becomes self-evident.
Hopefully this has put to rest any and all concerns you have about the sustainability of the cryptocurrency market. I put a lot of thought into this so please like, share, subscribe, comment, etc. I would greatly appreciate it and it would motivate me to do more in-depth articles.