Why Bitcoin is good for the environment

Why Bitcoin is good for the environment

There is a misconception that Bitcoin is “bad for the environment” and uses over-proportional quantities of energy. This is because mainstream media vastly underestimates the impact and meaning that Bitcoin will have.

Bitcoin is designed to be an independent payment network and scalable store of value. The Bitcoin Network has the potential to replace large parts of the existing financial legacy system. Its energy use should therefore be compared with that of the existing financial legacy system, which is much higher than Bitcoins, as shown in Galaxy Digital’s report on Bitcoin energy consumption. Once this is understood, it becomes clear that Bitcoin’s energy consumption is not over proportional neither wasteful.

Although the mainstream media suggests that Bitcoin’s impact on the environment is much greater than that of gold and existing banking, this is not true. The opposite is actually the case. The environmental impact of gold and banking is far greater than bitcoin, as you can see below.

Bitcoin Mining & Grid Efficiency

In fact, Bitcoin will enable us to use energy more efficiently and foster a healthier relationship with our environment. There are estimates that up to 30% of the energy produced is wasted through losses in generation, transmission and distribution. Bitcoin miners try to capture this energy because they have an incentive to find cheap energy to lower their cost structure. For example, companies like Great American Mining use excess gas released from oil production to mine bitcoin.

Since the drilling for oil takes place far from residential areas, the gas released only has use on-site. It is very difficult to store the gas and bring it to residential areas, so most of it gets burned (the burning of gas is called flaring). Bitcoin mining is not dependent on residential areas; it can take place anywhere. Great American Mining takes advantage of this by capturing excess gas that would otherwise burn and pollute to mine bitcoin.

There are a variety of bitcoin miners that capitalize on excess energy, e.g. by capturing unused electricity from offshore wind farms to power Bitcoin mining rigs. Wind farms are often far away from residential areas. Energy is difficult to transport and transmit. As more U.S. citizens support renewable energy, and more wind and solar powered farms are constructed, the need for bitcoin miners to serve as a buffer between those sources and the grid will likely increase (Wodding, V.).

Mining could be used to monetise energy that could otherwise never be monetised. Bitcoin mining offers a buyer for any energy that is low cost — wasted, stranded, curtailed, surplus or underutilised (Goyal, P. Stoddard, T.) Bitcoin’s usefulness, as a technology to monetize energy, merges perfectly with demand response on modern energy grids. Signals from grid operators are instantly sensed by bitcoin miners, making them like noise cancelling technology for energy grids (Level 39).

Bitcoin Mining & Renewables

There are varying estimates for Bitcoin’s current energy mix, which includes between 29% and 39% renewable energy (The Cambridge Centre for Alternative Finance) to 73% renewable (CoinShares). The rest of the world is different, with 29% of the electricity grid and only 17% of all energy consumption coming from renewable sources (Bitcoin vs Financial Sector Energy Use).

Renewable energies are among the cheapest energy sources. This makes their use very attractive to bitcoin miners, who in turn are helping to make the use of renewable energy more efficient and thereby innovating the renewable energy market as a whole (one of the oldest hydro-power stations in the U.S. is mining Bitcoin).

“Fortunately, and perhaps by design, we are moving toward a society with abundant low cost renewable energy to back our new digital money supply. Over the coming decades, bitcoin miners will continue to utilise low value surplus renewable energy to mine the remaining 2.4 million bitcoins and compete for transaction fees from the late 21st century economy and beyond.” (Special Report: Energy Backed Money)

Bitcoin Mining; Carbon Emissions

The Cambridge Bitcoin Electricity Consumption Index (CBECI) showed an electricity consumption of the entire Bitcoin network of 133.7 terawatt-hours per year. If we estimate Bitcoin’s energy mix to be 34% renewable energy (low estimate), based on Cambridge Center for Alternative Finance estimates of an average of 29% to 39% renewable energy, that gives Bitcoin a carbon intensity of 458 kilograms (kg) of carbon dioxide equivalent per megawatt hour. This means that Bitcoin emits 61.2 million tons of carbon dioxide, or under 5% of what the financial services industry does. In the scheme of global carbon dioxide equivalent emissions, this is only 0.12% (Bitcoin vs Financial Sector Energy Use).

Conclusion

If Bitcoin lives up to its promise, it will be the greatest monetary evolution in the history of the world and poised to change the economic paradigm forever. Its carbon emissions are very low for a revolutionary new technology that is likely to improve the lives of many and turn the entire global power structure upside down. While the Bitcoin network consumes as much energy as Sweden, during its most recent peak in the summer of 2021, it also stored almost twice the capital of Sweden’s annual GDP. Bitcoin, in fact, will use little energy for the value it may store in the future. Considering that Bitcoin likely grows over this coming decade and could store $20 trillion of world’s wealth, maybe even $50 trillion or $100 trillion, that’s a lot of monetary energy that needs to be safely secured and protected (Goyal, P. Stoddard, T.)

The energy use of the Bitcoin Network is becoming proportionally less and less. The way Bitcoin scales is that over time it consumes less percent of its market cap in energy. Absolute market capitalisation is increasing faster than energy consumption. Bitcoin’s energy use will continue to grow, but its carbon intensity is on a clear downward trajectory. It will always be a rounding error with regard to global carbon emissions.

In conclusion, Bitcoin miners will be one of the thriving dynamics when it comes to driving innovation in energy efficiency. Mining entrepreneurs are innovating in the oil and gas field, and there is more than enough waste methane on earth to power Bitcoin several times over. Instead of just having no emissions at all, Bitcoin could actually become an emissions mitigator. Large established firms such as the Aker Group (and its Bitcoin-specific subsidiary SeeTee.io) have expressed their commitment to go down this path in their letter to shareholders (Bitcoin vs Financial Sector Energy Use).

Bitcoin is an innovation that will be a basis for many other societal innovations in the future, including energy markets, banking, commerce, etc. Interestingly, criticism of Bitcoin’s energy consumption is often voiced by stakeholders in the existing financial legacy system. Although the energy consumption of the existing financial system is much larger than Bitcoin.

In addition, the history of gold and banking is filled with unethical behaviour. The extraction of gold and riches has led to robbery, theft, murder, and the extermination of entire peoples. It seems that many critics are paid to spread misinformation about Bitcoin, and their motivation is not environmental protection but personal gain (Bitcoin Magazine). There is a great need for an alternative system. Our current financial system has been taken hostage by a group of economists who believe that growth and consumption are the most important variables for societal wellbeing. In a world of limited resources, growth is a bad idea. We should instead ask ourselves: How do we get the most out of the least? How do we get more for less? Productivity is a much more important variable than growth. That’s part of a deflationary mindset. This fits perfectly with bitcoin, as bitcoin is a disinflationary asset.

As time goes on, the supply decreases, and as demand increases, the price increases. This has positive side effects. It encourages saving, and saving encourages less consumption and better use of our resources. We will spend our money and time on things that we really want. Imagine a world where your money becomes more valuable over time. I know it’s different from what we’re used to, but it will make the world a much better place.

Other Resources

The article includes excerpts from my article “Does the wisdom of bitcoin come from an ancient civilisation ? — Originally published by Bitcoin Magazine on June 28th 2022.

Continue reading: What is The Lightning Network

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