Jamie Gleave, Mary Maguire and Sean Condon discuss the significant energy consumption involved in Bitcoin mining, and whether this can be overcome
Since its 2008 inception as a decentralised electronic cash system, Bitcoin has become the world’s ninth most valuable asset by market capitalisation. It has fuelled a multi-billion-pound industry based on a payment system that is decoupled from governments, banks and third-party financial institutions, and its recent acceptance as legal tender in El Salvador gives an insight into how cryptocurrencies might feature in future global finance.
Despite the growing adoption of cryptocurrency as an alternative financial service, criticism has been levelled at Bitcoin’s environmental impacts – particularly its energy consumption, which is frequently compared to that of entire countries. The environmental inefficiencies of Bitcoin and the blockchain technology underpinning it (see ‘What is Bitcoin?’, right) have come under scrutiny, with critics challenging the electricity consumption associated with processing financial transactions and mining Bitcoins (see ‘What is Bitcoin mining?’, overleaf).
Maintaining an edge
Incentivising the completion of mathematical problems to mint new Bitcoins has created an arms race between miners. As the rewards become more financially attractive, more people are drawn in. Greater mining activity increases the problem-solving difficulty, pulling greater investment into more powerful energy-consuming miners to solve the puzzles. This creates a vicious cycle in which people have to operate the most powerful hardware to maintain a competitive edge. Gone are the days of verifying transactions using home computers. Dedicated mining rigs, running 24/7 in purpose-built data centres, are considered essential to remain profitable.
Although some data centres have been constructed with sustainability in mind, they still require electricity to power and cool their hardware. This has resulted in Bitcoin mining efforts being located in places with cheap, stable electricity sources – which are not necessarily environmentally friendly.
A return to fossil fuels
Against a backdrop of decarbonisation and the growing obsolescence of fossil fuels, countries that still rely on cheap and stable fossil sources are attractive to miners. The recent cryptocurrency crackdown in China, which declared all such transactions illegal, took a significant number of coal-powered miners offline. Much of this mining equipment was redeployed in Kazakhstan, which has a surplus of fossil fuel-generated electricity – but Bitcoin’s enormous energy consumption has since been linked to blackouts in the country.
The demand for cheap energy to mine cryptocurrency is now so great that, in 2021, a mothballed coal power station in Dresden, New York, was brought back into use through a natural gas conversion to power more than 15,000 miners. The plant has been challenged by people worried about damage to aquatic biodiversity, caused by the vast amount of water being drawn from an adjacent lake for cooling. Bigger concerns, however, surround the environmental acceptability of miners being powered by a privately owned fossil fuel energy production facility, potentially paving the way for other idle plants to be revived.
The nomadic nature of Bitcoin mining, absence of official data and differing statistics makes activities and energy sources hard to track.
In 2020, the 3rd Global Cryptoasset Benchmarking Study (bit.ly/CryptoBench_3), estimated that just 29% of global Bitcoin mining is powered by renewable energy.
Bitcoin’s environmental impacts go beyond energy consumption: the hardware supply chain and quantity of electronic waste (e-waste) arising from the disposal of inefficient technology is also becoming a problem. Equipment and technology manufactured solely for mining has limited after-market and repurposing opportunities, with studies claiming that redundancy can occur within 18 months of manufacture. This obsolescence is a key generator of Bitcoin e-waste.
As of mid-February 2022, Bitcoin’s e-waste footprint has been calculated to total 32.80kt annually – a number comparable to the Netherlands’ total small IT waste.
With most miners being located in countries that have poor regulatory waste disposal frameworks, total recycled Bitcoin e-waste arisings are likely to be less than the global recycling average of 20%.
Is it fair to condemn Bitcoin as an environmentally disastrous invention? Its advocates point out the potential of Bitcoin and blockchain to deliver significant environmental, social and economic benefits. Bitcoin’s existence could give the roughly two billion people who lack bank accounts access to a form of banking with low transaction fees and no intermediaries. In addition, employment opportunities are created where data centres are built. Wider application of blockchain in supply chain management for industries such as agriculture may ensure that information about a product’s origin, manufacture and delivery is visible and traceable. Other applications could include patient healthcare data storage, waste transfer system management, and ensuring incorruptibility of electoral voting.
Recognition of carbon emissions in Bitcoin mining is gaining traction, with some companies now placing greater focus on environmental, social and governance matters, and more discussion of sustainability in general. This can be seen in Iceland and Norway, where miners are taking advantage of the cold climate and cheap low-carbon hydroelectric and geothermal energy to power and cool their rigs. More energy-efficient mining hardware and immersion cooling technologies are also coming into play.
A stubborn problem
However, it remains difficult to defend Bitcoin’s current sustainability credentials, particularly when the largest commercial operations in the US, Canada and Russia are still predominantly powered by ‘dirty’ energy. The hardware redundancy problem also means the e-waste issue remains, regardless of how miners are powered. One possible resolution is transitioning Bitcoin to a ‘proof-of-stake’ protocol, whereby intensive mining computations are replaced with a more energy efficient transaction validation system based on the number of Bitcoins an owner holds.
“Bitcoin’s wider adoption as a form of payment or commodity will dictate how its environmental effects are managed”
Ultimately, given Bitcoin’s fluidity and mobility, it is difficult to predict the outlook. The cryptocurrency’s wider adoption as a form of payment or commodity will dictate how its environmental effects are managed. As long as the incentive of rewarding miners for their mathematical work exists, Bitcoin’s core economic principles will likely dominate over its environmental and social considerations.
Tyler Winklevoss, a major Bitcoin holder, perhaps summed up the position best when he tweeted: “Computers and smartphones have much larger carbon footprints than typewriters and telegraphs. Sometimes a technology is so revolutionary and important for humanity that society accepts the tradeoffs. #Bitcoin is such a technology”.
What is Bitcoin?
Bitcoin is a cryptocurrency that allows payments to be sent digitally between parties without going through institutions such as banks and payment providers. Bitcoins are created, distributed, traded and stored on a public ledger known as the blockchain, which logs all transactions taking place as ‘blocks’. Network transactions are secured by cryptographic algorithms within software, rendering it virtually impossible to double-spend or counterfeit Bitcoins.
What is Bitcoin mining?
Bitcoin mining is the process by which computers (miners) work to verify transactions and add them as ‘blocks’ to the blockchain. Miners compete to solve a complex mathematical problem, with the first miner to solve the puzzle being rewarded in Bitcoins. Some 18.9m Bitcoins have been minted from the capped 21m supply. As the number of Bitcoins mined per block is programmed to halve approximately every four years, the final Bitcoin will be released in 2140.
Jamie Gleave is an associate director at AECOM.
Mary Maguire is a principal consultant at AECOM.
Sean Condon is a graduate consultant at AECOM.