The Truth About BTC Energy Consumption
Market Meditations | June 22, 2021
According to the Cambridge Centre for Alternative Finance (CCAF) Bitcoin currently consumes 84.58 Terawatt Hours per year. This is just under 0.55% of global electricity production or just under the annual energy draw of small countries like Malaysia or Sweden. This certainly sounds like a lot of energy. However, we cannot rely on energy consumption alone. We also can’t trust some of the common misconceptions around BTC energy usage:
You cannot extrapolate the associated carbon emissions of energy consumption without knowing the precise energy mix. For example, one unit of El Salvadorian geothermal energy will have much less environmental impact than the same unit of coal-powered energy. To calculate energy consumption we can look at hashrates. Carbon emissions are harder to ascertain (mining is an intensely competitive business and miners are not typically forthcoming around details of their operations). Not only are they harder to obtain but they vary significantly by region. Conclusion: we cannot really focus on energy consumption alone and we don’t have clear enough data on Bitcoin’s carbon emissions.
A key factor that makes Bitcoin’s energy consumption different from that of most other industries is that it can be mined anywhere. This enables miners to utilize power sources that are inaccessible for most other applications. The process of oil extraction today releases significant amounts of natural gas as a byproduct. Constrained to the location of remote oil mines, traditional applications have been unable to effectively leverage that energy. But Bitcoin miners from North Dakota to Siberia have seized the opportunity to monetize this otherwise-wasted resource. Of course, this is still a minor player in today’s Bitcoin mining arena, but back of the envelope calculations suggest that there’s enough flared natural gas in the U.S. and Canada alone to run the entire Bitcoin network.
Or just today we heard news that Stronghold Digital Mining raised $105 million in funding. The business uses waste coal (an environmentally toxic byproduct of coal mining) to fuel its electricity generation.
The vast majority of Bitcoin’s energy consumption happens during the mining process. Once coins have been issued, the energy required to validate transactions is minimal. As such, simply looking at Bitcoin’s total energy draw to date and dividing that by the number of transactions doesn’t make sense — most of that energy was used to mine Bitcoins, not to support transactions. If we can create a more sustainable means of mining, we will be able to make significant progress.
There’s hundreds if not thousands of factors impacting bitcoin energy consumption. These can be listed and debated but it really comes down to the following question: How much energy should a monetary system consume?
Your answer will likely be based on how you feel about Bitcoin. If you believe it offers no utility beyond serving as a ponzi scheme or money laundering device, then it would be logical to conclude its energy consumption is wasteful. If you are one of millions of individuals using it worldwide as a tool to escape monetary repression, inflation, or capital restrictions, you will likely think that the energy is extremely well spent.
Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society. As members of the crypto community, we then all become responsible for reducing Bitcoin’s carbon footprint and demonstrating that the societal value Bitcoin provides is worth the resources needed to sustain it.