With the state of the public debate around bitcoin mining, non-fungible tokens and the energy consumption that goes into them, it’s fair to say cryptocurrencies have had a rough ride when it comes to recent scrutiny of their environmental impact.
Recent headlines in the New York Times and other media outlets have decried the large energy cost of bitcoin mining, which requires complex computational power and is vital to the security of the Bitcoin blockchain. As the original cryptocurrency’s price reaches new highs and institutional investors wade into bitcoin, the security of its trillion-dollar market cap and the industry around it is more important than ever. On the other hand, it’s certainly justifiable also to have a debate about the energy cost of mining bitcoin and the carbon emissions that result from it.
But the current debate largely falls into two categories. One is focused on the energy costs and what may be done (or not) to mitigate them. The other is on refuting those claims, diving into the minutia of energy consumption, scale and the vast array of complexities that are electrical grids, mining equipment and well, bitcoin, generally.
Both of these focal points are essential but what’s missing is a situating of bitcoin mining and energy in a larger context. Not only does this mean considering what energy costs the status quo seemingly sees as inherently necessary and valuable, but also recognizing there are ripple effects from bitcoin that go well beyond the “number go up” price watchers and gawkers, and extend to asking fundamental questions about the organization of the world today.
“When looking at bitcoin and comparing its energy use to all of Argentina for example, what, to me, that should do is compel the next question, which is, what’s the energy consumption of the Internet of Things (IoT) or even [artificial intelligence]. What are the other large, computationally driven practices that are becoming more and more prevalent in our everyday lives?” said Bill Maurer, director, Institute for Money, Technology and Financial Inclusion at the University of California, Irvine, in a call.
In essence, in a world with finite resources and energy, how does bitcoin fit?
The question is one of bitcoin and how we ascribe value, but also of everything else such as all the processes of our lives that we take for granted or as a matter of settled fact. The question isn’t just about bitcoin but about the human rights, political and environmental impacts of it versus its counterparts.
The energy costs
Bitcoin mining’s energy costs are high relative to most comparisons people make. As noted, it’s been compared to the entire country of Argentina.
“The reason that bitcoin mining has been discussed much in research and the media is because its energy consumption is significant,” said Susanne Köhler, a researcher at Aalborg University in Denmark who has conducted life-cycle analysis of blockchain technology. “Bitcoin’s energy consumption is approaching that of all data centers globally. In 2020, electricity consumption of bitcoin mining was estimated between 0.1 and 0.3% of the global electricity use. With updated numbers it could be closer to 0.69%.”
Köhler goes on to say that the energy consumption of bitcoin mining is significant and has been growing over the past years. She said if miners are serious about reducing the energy consumption of bitcoin mining, switching to a different consensus mechanism is the obvious step to take and that she was unaware of any other approach that would lead to a comparable reduction of the energy consumption. Data from miners would also be desirable for assessing the environmental impacts related to bitcoin mining.
CoinDesk Research today published an expansive report on the wide-ranging environmental impacts of bitcoin mining titled “Does Bitcoin Have an Energy Problem?” in which its author, research associate George Kaloudis, addresses a wide array of energy concerns.
Kaloudis said bitcoin uses a relatively clean energy mix and there is meaningful investment into renewable-powered bitcoin mining. Kaloudis points out around 40% of mining energy is renewable and just over three-quarters of miners use renewables in their energy mix. By comparison, he said, the world uses around 20% renewable energy.
“Bitcoin provides a means to monetize wasted energy, improving the financial standing of energy companies, allowing for investment into clean energy production and transportation,” he said. “Bitcoin uses a lot of energy, but it is not an environmental disaster. Since the cheapest energy sources are typically stranded renewables, bitcoin’s growth trajectory is predicated on the expansion of renewable energy production.”
Investment in bitcoin mining has trended, in fact, toward using more renewables. A study from digital asset management firm CoinShares examined the bitcoin mining network and claimed that the Bitcoin network gets 74.1% of its electricity from renewable sources such as wind, solar and hydropower.
Part of the tricky aspect of comparing bitcoin mining to countries, for example, is it’s hard to measure or hold it up next to the energy cost of traditional finance like the banking system and its associated digital transactions.
Kaloudis says It is difficult to compare the current financial system’s energy draw to bitcoin given that the current financial system depends on the “full faith and backing” of the government.
“The banking system is likely more energy intensive than bitcoin, if you add up the energy cost of banking branches, vaults, New York City skyscrapers, security trucks, etc.,” he said. “Gold mining uses more/a similar amount of electricity but creates far more waste than bitcoin.”
While noting that there are other uses for gold beyond bullion and its perceived store of value, Kaloudis also suggested that, in his view, the intrinsic value of gold is “overhyped.”
Bitcoin and ‘clean’ energy
A new report published Wednesday from the Bitcoin Clean Energy Initiative, founded by Square, also claims bitcoin mining – in conjunction with renewable energy and storage – is primed to accelerate the energy transition.
ARK Invest, another asset management firm, developed an open-source model that projects how bitcoin mining could augment renewable energy and storage systems “to supply a larger percentage of a grid’s baseload energy demand for comparable or lower-cost unit economics,” according to the report.
The Crypto Climate Accord (modeling itself after the Paris Climate Accord), an initiative launched by a number of cryptocurrency companies, aims to make the cryptocurrency industry run entirely on renewable energy by 2025.
The recently formed Crypto Council for Innovation, a lobbying group hoping to inform and influence regulatory actions around the cryptocurrency sector,” may be another vector for change.
“Because CCI’s mission involves educating policymakers and the public about the potential of crypto, we plan to examine all dimensions of its benefits, including looking through the lens of sustainability,” said Gus Coldebella, chief policy officer at Paradigm, former general counsel of DHS and one of the leaders of CCI.
These measures are, to be fair, still early. But it’s worth considering how other industries stack up to bitcoin, particularly when it comes to things like computational power and associated tech.
On one hand, the fact that bitcoin mining consumes an enormous amount of energy is well known. The academic journal Nature published an analysis in early April that claimed the carbon footprint of bitcoin mining in China alone, where energy is fairly cheap, is akin to the entire emissions of one of its 10 largest cities.
On the other hand, there is also a lot of work to be done with regards to sustainability across all sectors, not just bitcoin. Going back to 2017, for example, research then found that just 100 companies, including ExxonMobil, Shell, BHP Billiton and Gazprom, account for 71% of industrial greenhouse gas emissions since 1988.
These companies reap millions of dollars for “boiling the oceans” and putting the world in a perilous state; they continue to lobby to block laws to mitigate climate change; and, in the past, have actively covered up evidence of climate change and injected misinformation into the media.
In a prior interview, Maurer used Amazon as an example of the cascading costs people might not immediately think of in their everyday lives, even though they consider Amazon to provide a valuable service, delivering goods that they think they want.
It’s obvious to most that fuel companies, for example, provide vital services. We need to get around and we want the products that those sectors produce. But is that true of everything that we buy? Is that true of bitcoin? Which leads us to further questions: How do we ascribe value? What do we think is valuable? And, of those things that we value, what costs are we willing to pay to have them?
Evaluating the ‘stuff we want’
“It’s difficult to compare this with other industries, as you would be comparing apples with oranges. Amazon does not provide the same service as bitcoin. Nor does Tesla.”
Maurer suggests that, in comparing Amazon to bitcoin, one needs to consider not just how much energy is used at their most basic level, operationally, but also the resultant, secondary outflows. In the case of Amazon, that would include an examination of the total energy consumed throughout its life-to-death, product and service supply chain, including associated emissions.
“If Amazon gets really good about predicting what I want to buy next and I succumb to those numerous push notifications, we’re also getting large increases in consumption that really aren’t necessary and affect everyone on the planet,” he said. “That’s not going to be sustainable due to shipping, logistics, oil consumption, factory production and on and on.”
Kate Crawford, co-founder of the AI Now Institute at New York University and a researcher at Microsoft Research, in 2018 created a map that documented the sprawling tendrils of human, planetary and data resources that go into creating a single Amazon Echo, which she says shows the full cost of an AI system.
In the accompanying 21-part essay, she wrote, “Put simply, each small moment of convenience – be it answering a question, turning on a light, or playing a song – requires a vast planetary network, fueled by the extraction of non-renewable materials, labor and data.
Bitcoin, of course, has its own associated outflow emissions to consider. For example, it is mined using computers, so the cascading costs apply there as well and should be a part of these conversations.
But when considering how many people regularly buy (and throw out) products like an Amazon Echo and the costs that go into the product from start to finish, it becomes a question of priorities and values. What is it that we are choosing to buy, support and value?
In the case of Bitcoin, sometimes the answer to that question has become lost in the noise over its price and its resource requirements.
This isn’t about bitcoin alone
The conversation shouldn’t isolate bitcoin as an industry outside of and piling onto the world’s energy consumption while being superfluous, but rather infrastructure about which we can make choices and act accordingly in other areas around. It’s a part of the energy consumption pie, not a needless second pie haphazardly thrown on top, as it’s often portrayed.
“Money is a kind of infrastructure, and infrastructure existing is sort of like the end of a political argument in which you build the infrastructure and then it’s just invisibilized and an assumed cost,” said Maurer.
“Argentina’s economic woes, from enormous debt obligations to high inflation, compounded by the COVID-19 pandemic, drove its population to seek alternative ways to store their wealth this year,” wrote CoinDesk reporter Sandali Handagama late last year. “But as the government limited U.S. dollar purchases by its citizens, crypto quickly proved to be the next best thing.”
National currencies are inherently manipulated and part of a political process that has stakes whether it be elections, solvency or something else. Money can again be an open question, something bitcoin is achieving.
“Things like bitcoin provide the possibility to unsettle these decisions and make them open questions again,” said Maurer.
Not only does it make them open questions, but it shows the current systems failings. ATM fees, account maintenance fees, check cashing fees, overdraft fees and others have a huge affect for downstream individuals when considering the financial players that be. In 2020 amid a pandemic, banks in the U.S. collected more than $30 billion in overdraft fees. That’s up from $11 billion in 2019.
If people whose first exposure to cryptocurrency in general was as “magic internet money,” NFTs of a Kings of Leon album, or Elon Musk and the beef-jerky company Slim Jim posting memes of a Shiba Inu along with the word “Doge,” they may well have concerns over the large amounts of energy bitcoin mining (and to be clear, none of the things above are bitcoin) consumes.
But the ripple effects of its development, the questions it raises, and the benefits it conveys are numerous, well beyond its price point that grabs the most headlines.
Politics, human rights and rethinking the world
Bitcoin offers value to people in a multitude of ways beyond Tesla’s balance sheet. It’s been used to support activists in Nigeria during the #ENDSARS protests after their bank accounts were shut down.
Bitcoin has been used in Belarus to support protesters of the “last dictator in Europe,” when some were fired for their role in demonstrating against an illegitimate election.
As my colleague Anna Baydakova wrote at the time, “The state maintains an iron grip on the economy, and getting fired for political reasons means you might not find another job, at least not in your town.”
Beyond bitcoin, the currency, the very idea of decentralization that it rests upon – the idea that no single entity can shut it down or stop people from using it – has myriad other benefits.
CoinDesk has also reported on the ways a decentralized network was launched by a hacker to quantitatively measure internet censorship, the ways decentralized virtual private networks (dVPNS) gained traction in Nigeria and how an artist collective created NFTs publishing the names and faces of American police officers accused of killing unarmed Black people.
These are just a few examples of the ways that bitcoin, other cryptocurrencies and decentralized tech are bringing value to people.
“Bitcoin as a censorship-resistant mechanism for receiving and sending payments online,” said Rainey Reitman, chief program officer for the Electronic Frontier Foundation and co-founder of the Freedom of the Press Foundation. “That opens up a wide range of human rights and civil liberties issues because right now, payment processors and the financial systems are not oriented towards human rights. They are quick to shut down accounts, which have real impacts on people’s lives.”
Reitman said there is no right in the U.S. of access to financial services. There is no right to a bank account. There may be an assumption that as long as you follow the law and don’t do anything wrong, PayPal, for example, won’t shut down your account.
“That’s absolutely not the case,” she said.
From WikiLeaks suffering an extra-legal financial blockade in 2010 after releasing government emails to a bookstore being targeted by PayPal, and alternative social networks cut off by PayPal, Reitman and EFF document instances where companies and banks execute “financial censorship.”
Reitman said when we think about bitcoin and cryptocurrencies in general, it’s important to remember they offer a valuable alternative to existing financial systems that often penalize certain forms of speech or prevent certain people from getting accounts, including many people who are engaged in political advocacy or things of that nature.
It’s all about power
There’s a conversation happening right now in the United States, in Europe and around the world about the role of big tech companies in our society and about how much power companies like Google, Amazon and Facebook have.
“We’re raising some really important and necessary questions as a society about how much control we want them to have over our lives,” said Reitman. “And one of the things that’s concerning to me is that we’re not having the same level of conversation about PayPal or JPMorgan and how much power they have.”
Fundamentally, bitcoin is a form of payment and a store of value. But with its genesis, design and rise to prominence, it raises fundamental questions about power, the way the world is constructed, and whether that’s something we’re comfortable with. It is challenging to rethink narratives around trust and centralization that are woven into the social contract. That doesn’t mean we shouldn’t ask questions about them, though.
“Bitcoin draws attention to the fact that political apparatuses sustain any kind of money that we have had in the world, and that there are relationships with authority,” said Maurer. “Bitcoin really underscores that any kind of money or any kind of relationship of value always involves trust. And trust isn’t just the thing between you and me; that’s a personal thing. It’s a thing among individuals and institutions.”