Researchers defend Bitcoin’s environmental impact claiming previous studies are too simplistic

Bitcoin price chart. Credit: Nick Chong

Bitcoin is the world’s largest digital currency. Amid claims that bitcoin could ruin the environment and raise global warming by 2 degrees Celsius, researchers have hit back saying these studies are too simplistic to be worth taking seriously.

A key selling point of Bitcoin is that it’s decentralised from any bank or authority. Instead, Bitcoins are transferred directly from person to person using the internet. Bitcoin was created in 2009 by an anonymous person using the name Satoshi Nakamoto. One Bitcoin is worth over £6000 as of May 2019.

Today a single bitcoin is worth over £6000. There are nearly 18 million Bitcoins in circulation that can be used to buy and sell items in some shops. Bitcoin is designed so that eventually there will be 21 million bitcoins in the ecosystem. So how are new bitcoins created?

Bitcoins are released in an energy intensive process known as Bitcoin mining. The process involves Bitcoin miners being rewarded for their work in securing the network and verifying bitcoin transactions. The reward for processing a transaction in the Bitcoin network is currently 12.5 newly created Bitcoins.

When Bitcoin was first created anybody could mine bitcoin using their home computer. Now, with fewer Bitcoins available, only the most powerful computers can mine bitcoin, and these computers need to use a lot of electricity.

It’s this electricity use that worries people. In fact, the Digiconomist estimated that Bitcoin’s energy consumption is nearly the same as Ireland’s.

However, new research argues that these estimates are too simplistic to be taken seriously.

“The Digiconomist’s study estimates rely on a model that’s too simple to capture the actual dynamics of the market. We don’t have accurate data to measure electricity being used as this is a new and expanding area,” said Jonathan Koomey PhD, a special adviser to the chief scientist at the Rocky Mountain Institute.

In his report Dr Koomey criticises the Digiconmist study for keeping its estimate for electricity usage the same for each month. He states that it doesn’t consider that between July and November the price of Bitcoin varied by 40%.

Bitcoin’s electricity usage is heavily influenced by its price.

This is because the price of Bitcoin affects the profits from mining it. If the price of Bitcoin is higher then so is the potential profit from successfully mining it. This means more people will be Bitcoin mining when the price is higher and this increase in mining results in more energy being used. A lower bitcoin price has the reverse effect.

Alex de Vries, the creator of Digiconomist, defended his work, saying: “The Bitcoin mining markets are uniquely suited for economic analysis. I’d say the data speaks for itself. It has been peer-reviewed in academic literature since May 2018.

“There’s roughly 53 quintillion calculations per second going on in the network. This is the result of miners competing for the limited rewards (though high in value) of mining a Bitcoin with millions of machines. At the same time, the network processes less than three transactions per second. The energy intensity of the network should therefore not be too surprising.”

CoinShares is a digital asset manager that also conducts research into bitcoin. They say the Bitcoin network is 74% driven by renewable energy sources – four times the global average.

“Fossil fuels in general are way too expensive for mining. We know of some isolated cases (China and Russia) where coal or natural gas is cheap enough to use for mining, but this is very rare. Bitcoin feeds mostly on hydro power because it is the cheapest power in the world,” said Christopher Bendiksen, head of research at CoinShares.

“A far cry from the apocalyptic media headlines would have you believe. Unfortunately, it takes a lot more energy to refute nonsense than to state it in the first place.”

De Vries says the majority of miners are in China and that when miners do use renewable energy it only works in very limited quantities and isn’t sustainable.

In April China’s state planner added bitcoin mining to a draft list of industrial activities the agency wants to eliminate in a sign of growing government pressure on the cryptocurrency industry.

Bendiksen and CoinShares also say that around 50-60% of miners are in China

“China has a lot of renewable energy. There is a lot of coal in China, but most of it is more expensive than a lot of the hydro power. So, miners mostly use hydro, with some coal also used though mainly during the dry season,” Bendiksen said.

In fact, China invested nearly £100 billion in renewable energy across 2017 according to a report by the UN and Frankfurt School.

Bendiksen says he isn’t personally worried about the amount of electricity being used by Bitcoin despite considering himself an environmentalist.

“All technologies that improve our standard of living use electricity or another form of consumable energy. Your washing machine uses more energy than washing by hand. A car uses more energy than a horse. In fact, energy usage and living standards are very tightly correlated.

“I want to see us produce the necessary amounts of energy required for modern civilisation in a responsible and renewable way. This is why I want the focus to remain on responsible production, not limitations on consumption.”

It is clear that bitcoin’s environmental usage creates a clear divide among researchers. Bitcoin mining unquestionably uses large amounts of energy from incredibly high-powered computers. But the market is ever-changing, and the amount of energy being used by mining is heavily dependent on whether the price of bitcoin is high and low. Eventually all the bitcoins will have been released and no more mining will take place. In the meantime researchers will continue to debate if bitcoin is bad for the environment and we will see if using renewable energy settles the minds of climate change activists and researchers.

Leave a Comment