Bitcoin’s environmental impact has raised concerns due to its energy-intensive mining process, its massive energy needs and resulting pollution.
Bitcoin mining depends majorly on fossil fuels, with concerns about its adverse impacts on water and land.
Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any central authorities such as banks or government, thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for verifying and can be purchased in several exchanges.
Bitcoin was the first cryptocurrency created, and has since grown to become very popular since its creation in 2009 making it the most well-known cryptocurrency in the world. It enables quick, low-cost global financial transactions and borderless transfer of value, even for small payments.
Unlike fiat currencies like euros or dollars, Bitcoin has a fixed maximum supply and the essence of this scarcity is to prevent inflation. Bitcoin transactions have their records on a public distributed ledger known as blockchain, and the process known as “mining” is used to generate new coins.
Bitcoins are digital tokens and as such cannot be touched or held physically. Owners of bitcoins can store and transfer coins using wallet software on phones or computers. Bitcoins can be used for investments as well as for online payments.
Bitcoin today has over 300 million users worldwide. some countries like Iran, Venezuela and Australia, where there is an unstable banking system, now rely on Bitcoin as it offers their citizens an alternative store of value. It has even been endorsed by big companies such as Tesla, Paypal etc as a viable payment option. Other businesses that accept Bitcoin as payment include AT$T, Home Depot, Norwegian Air etc.
BITCOIN MINING AND ITS ENVIRONMENTAL IMPACT ON NATIONS
Bitcoin mining is the process of validating transactions and adding new blocks to the Bitcoin blockchain.
The “proof-of-work” algorithm is behind Bitcoin mining and allows the Bitcoin network to function in a decentralised yet secure manner.
This works through the use of “cryptographic puzzles”. When one miner solves a puzzle, he is rewarded with a newly minted bitcoin, as transactions grow, the puzzles become more difficult making the miners improve their hardware to stay profitable, and this in turn makes the Bitcoin network secure over, preventing fraudulent transactions, and keeping away hackers. While this may sound good, it consumes a lot of electricity in the process.
By design, “proof of work” consensus leads to excessive electricity consumption. Alternative consensus models like “proof of stake” aim to provide the same benefits without high energy costs, but Bitcoin still relies solely on energy-intensive proof of work mining to maintain the network.
Bitcoin mining is estimated to consume between 40-125 tera watt-hour per year, this level of energy intensity has raised alarms about sustainability. This is so because many of the miners use power from non-renewable sources such as coal and natural gas because they are cheap and also because of favourable policies and only a few others use cleaner energy sources like solar. This scaling energy footprint is increasingly straining national electricity grids, heightening fossil fuel dependency, and escalating carbon emissions which further exacerbate climate change.
Some of the nations that rely on coal power are China, Kazakhstan and India. The use of coal in China has increased China’s emissions, thereby undermining its climate goals. This led to China banning Bitcoin mining in the country in 2021. In 2021, cryptocurrency mining grew in Kazakhstan until its ban in 2022, making India the only country relying on coal to mine bitcoin.
On the other hand, several countries such as Iceland, Norway and Paraguay have become popular bitcoin mining locations due to abundant renewable energy sources. Iceland, for instance, gets its electricity from renewable sources like hydroelectric and geothermal energy.
While this has attracted Bitcoin mining companies, these operations are still considered energy-intensive. Norway generates electricity from renewable hydropower. Hydroelectric dams and reservoirs are ideal conditions for Bitcoin miners to set up operations, which makes Norway a good choice. Paraguay, on the other hand, equally generates electricity from hydroelectric dams and in 2021 announced that it would use surplus renewable electricity to power bitcoin mining. While hydropower may be greener than coal, there are still questions about its sustainability.
Bitcoin mining is associated with what is known as “carbon footprint”. Carbon footprint is the total amount of greenhouse gases, particularly carbon dioxide, that are emitted into the atmosphere as a result of human activities. In the case of Bitcoin mining, such activities would be energy production. The carbon footprint of Bitcoin mining is quite significant as it produces between 22 and 120 million tons of carbon emissions at the upper bound.
The majority of Bitcoin mining operations are estimated to rely on electricity from fossil fuel sources, especially coal, which directly facilitates measurable emissions. Bitcoin mining emissions alone are comparable to the footprint of an entire country such as New Zealand’s total greenhouse gas output. China has been central in Bitcoin’s carbon footprint, due to its heavy reliance on coal-based mining operations, but the ban in 2021 led to the migration of equipment overseas.
Due to the profit motives successfully outweighing environmental incentives, bitcoin mining now tends to move towards regions with cheaper energy, and even then the energy supply still seems unable to meet mining capacity and demand. While the shift to regions with cheaper energy may help, it may not eliminate the climate impact of Bitcoin mining, especially if the industry continues to rely heavily on non-renewable energy sources.
Since Bitcoin is energy-intensive, its energy consumption could contribute negatively to climate change consequences if the carbon footprint is left unaddressed. Some potential effects include:
- Higher greenhouse gas emissions: The annual emissions from global mining alone surpass the emissions of some countries, and this mining is powered majorly by non-renewable energy sources such as fossil fuels, leading to a substantial carbon footprint, which can contribute to greenhouse gas emissions.
- Straining local electricity grids: Bitcoin mining in certain geographies could overload regional electricity grids leading to blackouts due to its high energy consumption.
- Higher energy costs: The increased demand for electricity from Bitcoin mining can also lead to higher electricity prices for other consumers in areas with high crypto mining concentrations.
- Accelerating fossil fuel extraction: Most bitcoin mining still depends heavily on non-renewable energy, especially relatively cheaper coal power in China and natural gas in the US. More mining means further locking these carbon-intensive energy sources for decades rather than phasing them out.
- Exacerbating climate change impacts: The compounding greenhouse emissions ultimately contribute to global warming effects like extreme weather events, sea level rise inundating coastal areas, worsening wildfires, water access etc.
To address mounting environmental concerns regarding cryptocurrency mining, governments could undertake to:
- Implement taxes on crypto firms following the carbon emissions attributed to their mining operations and energy consumption.
- Governments can also set legal limits on the allowable greenhouse gas emissions and energy usage per unit of crypto mined.
- They could also pass legislation mandating crypto mining companies to source a minimum percentage of energy from renewable sources like solar, wind and hydro.
- The government should prohibit energy-intensive mining methods like proof-of-work.
Some of the initiatives taken to reduce bitcoin’s environmental impact on nations include:
- Transition to renewable energy sources: Efforts have been made by mining companies to utilise more renewable energy like hydropower, solar, and wind instead of fossil fuel.
- Improved hardware efficiency: New specialised mining machines (ASIC miners) have better computational efficiency and energy usage compared to a decade ago.
- Implementation of “proof-of-stake”: New consensus protocols like proof-of-stake can secure blockchain networks with drastically reduced energy usage compared to Bitcoin’s “proof-of-work”. As it is, Ethereum is already making that transition which may pressure Bitcoin to follow.
- Carbon offsetting programs: Some mining companies and crypto exchanges have carbon offset programs through verified climate mitigation projects to counterbalance emissions from their operations.
- Focus on renewable mining at grid scales: Projects focusing on green bitcoin mining integrated with renewable microgrids, district heating systems powered by waste heat from mining etc.
Transitioning global energy systems to greener technologies could have profoundly positive impacts on climate change trajectories and environmental sustainability. This can be achieved by adopting renewables such as hydropower, solar etc. instead of non-renewables like fossil fuels. This will also reduce air pollution from fossil fuels that harm public health and bring about sustainable economic growth.
CONCLUSION
In conclusion, mitigating the outsized environmental impacts of Bitcoin mining warrants large-scale collective responsibility from all stakeholders to reconcile disruptive technological innovation with climate justice and sustainable development priorities.
