The Dark Side of Bitcoin: Highlights
- Through December 2021, BTC had a market value of over $960 billion (US$) and a global market share of nearly 41% among all crypto currencies.
- The energy consumption of Bitcoin mining has significantly increased from January 2016 to December 2021, with a peak usage of 75.4 TWh per year in 2020.
- This amount of energy is equivalent to the annual consumption of countries like Austria and Portugal.
- Prior to the ban in China, hydropower was a significant source of electricity for mining.
- The energy usage of Bitcoin mining, which is largely powered by coal and natural gas, is closely related to the cryptocurrency’s exchange prices, with a decrease in both observed in 2021 due to China’s ban on cryptocurrency transactions.
- Fossil fuels, such as coal and natural gas, primarily power POW cryptocurrency mining, though 39% of it is powered by renewables.
- This has significant carbon emissions and associated environmental damage, with estimates showing that each $1 of market value created through mining in 2018 resulted in $0.49 in combined health and climate damages in the US and $0.37 in China.
- Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Monero are estimated to have contributed 3-15 million tons of CO2 emissions between January 2016 and June 2018, equivalent to the emissions of countries such as Afghanistan, Slovenia, and Uruguay in 2018.
- Bitcoin mining’s CO2e emissions per coin increased 126 times from 2016 to 2021.
- Bitcoin mining’s carbon footprint significantly increased from 0.9 to 113 tonnes of CO2e per coin from 2016 to 2021, according to estimates based on global estimates of the location of BTC miners and the local electricity mix and regional CO2e emission coefficients by generation type.
- The CO2e emissions and climate damages of Bitcoin mining have increased significantly, with each coin mined in 2021 causing an average of $11,314 in damages and total global damages for 2021 exceeding $3.7 billion.
- Bitcoin mining has caused $12 billion in global climate damages from 2016 to 2021, with each coin created in 2021 resulting in an average of $11,314 in damages and global damages for all coins mined in 2021 exceeding $3.7 billion, according to estimates.
- The environmental impact of mining cryptocurrencies, particularly Bitcoin, is highly dependent on the amount of renewable energy used in the process.
Today’s expanding internet has enabled the birth of numerous digitally scarce goods, thanks to quickly emerging block chain technology and the use of encryption and decentralized, permission-less public ledgers. This digital economy encompasses non fungible assets such as tokens for various digital media as well as fungible, divisible assets such as the hundreds of exchange platforms that support thousands of crypto currencies. Select digitally scarce items are produced using energy-intensive methods. Several notable crypto currencies (for example, Bitcoin and Ether) are currently built on very energy-intensive, competitive tournament-style production techniques known as proof-of-work (POW) mining for delivering encrypted validation in decentralized public ledgers. A new study published in Nature journal reports that the carbon damages by mining bitcoin since 2016 have shot up 126 times until 2021.
POW-based crypto currencies are a subset of the larger range of block chain technologies that have entered global markets in a disruptive manner during the last decade or so. As crypto currencies got a footing and eventually occupied a bigger sector, their creation has been relatively decentralized and mostly unregulated. Crypto currencies are priced and sold in markets, but they can display sensitive to changes as well as financial oddities such as speculative bubbles or indications of price manipulation. Nonetheless, some advocates say that such inventions add significant value or are especially required in developing countries (e.g., from providing sustainable new financial goods or mediums of exchange to the underserved, investment diversification, or routes around government corruption).
Others dispute the value of such disruptions, particularly if the new technologies consume a lot of energy and have potentially high social costs due to carbon emissions. There could be tremendous space for learning and transitioning to other manufacturing methods that use significantly less energy while yet giving the claimed benefits. However, due to redundancies (e.g., the number of nodes engaged, or the workload of operations) in all versions of block chain technology, attaining net savings in energy use is fundamentally difficult. In this context, and as part of broader attempts to reduce climate change, the policy challenge is to provide governance structures for an emerging, decentralized economy that incorporates energy-intensive POW crypto currency. Measurable, empirical signals about potentially unsustainable climate effects might enhance such initiatives.
Using Bitcoin (BTC) as main focal point, the analysis calculates the climatic impacts of mining coins and investigates numerous criteria for determining when these impacts may be unsustainable. First, as the sector evolves, the trend of anticipated climate harms per BTC mined should not rise. Second, the market price of each BTC mined should always exceed its anticipated climate damages; that is, BTC mining should never be “underwater,” where per unit climate losses exceed coin market prices for any significant period of time. Third, to contextualize BTC’s sustainability over a given time frame, estimated climate damages per coin mined should favorably compare to some reference percentage benchmark of climate damages per unit market value of other sectors and commodities, such as those we regulate or consider unsustainable. We present these measurable parameters as “red flags” of impending climate impact from a burgeoning industry.
The proof-of-work (POW) block chain technology employed by Bitcoin (BTC) consumes a lot of energy. To put things in context, Bitcoin (BTC) is a crypto currency with a decentralized open-source block chain whose public ledger debuted in 2009 and is transacted peer-to-peer without the use of a central authority (e.g., bank or government). Through December 2021, BTC had a market value of over $960 billion (US$) and a global market share of nearly 41% among all crypto currencies.
Because new blocks are added to the block chain through a competitive consensus-driven verification process carried out by individuals or groups of “miners,” POW block chain technology consumes a lot of energy. Miners validate block chain transactions while competing to correctly generate a unique transaction identifier, or “hash,” for a block. Miners that verify a certain amount of transactions and submit the right hash identifier are rewarded with additional bitcoin, and a new block is added to the chain.
Because of the decentralized creation process, providing the right hash identification consumes significant amounts of energy, encouraging rivalry and creating a “winner-take-all” game. As miners across the world compete to add new blocks to the chain as rapidly as possible, i.e., by creating guesses of the desired hash identification, they deploy highly specialized computer equipment and gear that consumes enormous amounts of electricity to compete. As miners compete for increased computing power, the overall network hash rate rises, autonomously increasing the mathematical difficulty required to correctly guess the target hash, and thus increasing the overall energy consumption of mining activity.
Digitally scarce commodities are expected to remain and will bring innovation to a range of economic dimensions, providing value for people. It is critical to separate this broader context from components of the digital economy that may pose serious sustainability and climate concerns. The focus is on the major crypto currency, BTC, which employs a very energy-intensive, competitive POW mining method. While society and states consider the benefits and costs of numerous digitally scarce goods, researchers present an empirical approach for assessing BTC sustainability problems.
The Dark Side of Bitcoin: Global Energy Consumption Due To Bitcoin Mining
The energy consumption of Bitcoin mining has significantly increased from January 2016 to December 2021, with a peak usage of 75.4 TWh per year in 2020. This amount of energy is equivalent to the annual consumption of countries like Austria and Portugal. The fluctuation of Bitcoin exchange prices is closely related to the energy usage of mining, with a decrease in both observed in the summer of 2021 due to China’s ban on cryptocurrency transactions by financial institutions and payment companies.
A report from Cambridge University estimates that the majority of electricity used for mining proof-of-work (POW) cryptocurrencies comes from coal and natural gas, with hydropower being a significant source in China until cryptocurrency mining was banned there. However, globally it is estimated that around 39% of POW mining is powered by renewable energy, meaning that fossil fuels are still the primary energy source for the majority (61%) of such mining. The use of fossil fuels for cryptocurrency mining contributes to carbon emissions and related environmental damage, with estimates suggesting that in 2018, each $1 of market value created through mining was associated with $0.49 in combined health and climate damages in the US and $0.37 in China. Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Monero are estimated to have contributed 3-15 million tons of CO2 emissions from January 2016 to June 2018, equivalent to the emissions of countries such as Afghanistan, Slovenia, and Uruguay in 2018.
The Dark Side of Bitcoin: Climate Damages Due To Bitcoin Mining
The carbon footprint of mining Bitcoin has significantly increased over time, with each coin mined in 2021 responsible for emitting 126 times more carbon dioxide equivalent (CO2e) than a coin mined in 2016, according to estimates. This equates to an increase from 0.9 to 113 tonnes of CO2e per coin from 2016 to 2021. The data, which was based on global estimates of the location of BTC miners and the local electricity mix, as well as regional CO2e emission coefficients by generation type, highlights the significant environmental impact of cryptocurrency mining.
The carbon dioxide equivalent (CO2e) emissions per Bitcoin created have increased 126 times from 2016 to 2021, going from 0.9 to 113 tonnes CO2e per coin. This has led to a rise in climate damages caused by Bitcoin mining, with each coin created in 2021 resulting in an average of $11,314 in damages and global damages for all coins mined in 2021 exceeding $3.7 billion. Between 2016 and 2021, total global Bitcoin climate damages are estimated at $12 billion. The study also found that in 2020, climate damages from mining represented 25% of market prices for 2021, with the damages exceeding the price of the coins sold on more than one-third of days in 2020. The peak occurred in May 2020, when damages were 156% of coin price, meaning each $1 of Bitcoin market value created in that month was responsible for $1.56 in global climate damages.
For the period 2016-2021, researchers discovered that: (i) per coin climate damages from BTC were increasing; (ii) as a share of its market price, BTC climate damages were underwater 6.4% of the time, and damages exceeded 50% of the coin price and (iii) the average BTC climate damage share was 35%, which falls between beef production and gasoline consumption, but is less than coal electricity generation. BTC’s climate damages per unit market price are nearly an order of magnitude greater than wind and solar generation, implying that it is functioning much above any renewable guideline that may be set. Taken together, the findings raise a number of red flags for any sector being considered for viability.
The Dark Side of Bitcoin: If Bitcoin Is Mined Using Renewable Energy
The environmental impact of mining cryptocurrencies, particularly Bitcoin, is highly dependent on the amount of renewable energy used in the process. This has been difficult to determine due to the decentralized and anonymous nature of cryptocurrency mining. Previous studies have estimated that the proportion of renewable energy used in proof-of-work mining can range from 25.1% to 73%. These differences may be due to variations in the time period being analyzed, as well as differences in methods, assumptions about mining efficiency and cooling, and assumptions about energy sources. In 2021, China banned all cryptocurrency mining, which may have significantly altered the global share of renewables used for Bitcoin mining and increased the use of fossil fuels. The effect of this ban on the use of renewable energy in Bitcoin mining is uncertain.
Bitcoin mining has been found to be a significant contributor to global carbon emissions, with estimates suggesting that in 2018, each $1 of Bitcoin market value created through mining was associated with $0.49 in combined health and climate damages in the US and $0.37 in China. A 50% increase in the use of renewable energy sources in Bitcoin mining would reduce associated climate damages per coin mined by approximately two-thirds, but even in this hypothetical scenario, climate damages would still average 23% of the coin’s price between 2016 and 2021. Despite efforts to shift towards renewable energy sources, Bitcoin mining continues to have a significant environmental impact.