Bitcoin mining produces carbon emissions worth 3.4 billion yuan in one year

Recently, Bitcoin has attracted widespread attention at home and abroad on the issues of energy consumption and carbon emissions. Tesla CEO Elon Musk, who holds more than $1 billion, also recently stated that when miners use more than 50% clean energy for mining, Tesla will resume allowing Bitcoin transactions.

In today's international environment, carbon emissions are extremely important to both Tesla and Bitcoin. In 2020, Tesla's net profit was US$721 million, and it made a profit of US$1.58 billion just by selling carbon emission credits.

Previously, BitMEX, one of the largest crypto derivatives trading platforms, announced that for every $1 paid by users, at least $0.0026 will be donated to offset carbon footprint (Note: Carbon footprint refers to the "carbon consumption" of a person or group). The trading platform FTX said that carbon compensation is not the only way to solve the environmental footprint of cryptocurrencies, but it is a good start.

On July 16, China's carbon emission rights trading was officially launched at the Shanghai Environment and Energy Exchange. The first matchmaking price was 52.78 yuan per ton, with a total transaction volume of 160,000 tons and a transaction volume of 7.9 million yuan. This also marks the first step in China's carbon trading.

According to a report released by the United Nations Environment Programme in 2019, global carbon emissions are expected to reach 56 billion tons of carbon dioxide equivalent by 2030, which could cause global warming to exceed 1.5°C. If emissions are reduced to below 25 billion tons of carbon dioxide equivalent, there is still a chance to limit global warming to 1.5°C.

Therefore, it is very important to understand the carbon emissions generated by Bitcoin mining. Of course, new technologies are not always perfect, just like the huge impact of Bitcoin on the environment. Digiconomist, a platform dedicated to revealing the unexpected consequences of the wave of digital change, recently published an article to explore the sustainability and carbon emissions of Bitcoin. The original translation of BlockBeats is as follows:

Bitcoin consumes energy

The minimum energy consumption is calculated based on the total Bitcoin network computing power. The data before February 13, 2019 are calculated using the Antminer S9 with a power consumption of 1500 watts. From February 13, 2019 to November 7, 2019, the Antminer S15 is used for calculation. After November 7, 2019, the Antminer S17e is used, and after October 31, 2020, the Antminer S19 Pro is used for calculation.

Annual Bitcoin Carbon Footprint

Carbon footprint of a single Bitcoin

At present, the annualized carbon footprint of Bitcoin is 64.44 million tons, equivalent to the carbon footprint of Serbia and Montenegro; the annualized electricity consumption is 135.66 terawatt hours, equivalent to 135.66 billion kWh, equivalent to the electricity consumption of Sweden; at the same time, 6,350 tons of electronic waste are generated. If calculated according to the Shanghai Environment and Energy Exchange's 52.78 yuan per ton, the annualized carbon footprint of Bitcoin is worth about 3.4 billion yuan.

The annualized carbon footprint of a single Bitcoin is 817.02 kg, which is equivalent to 1.81 million VISA bank card transactions or 130,000 hours of online video viewing; the annualized electricity consumption is 1,720 kWh, which is equivalent to the electricity consumption of an average American household for 58 days; at the same time, 80.5 g of electronic waste is generated.

On the sustainability of Bitcoin

Since Bitcoin mining is providing a stable source of income for miners, miners are willing to buy mining machines and participate in the game by consuming electricity. This has led to the total computing power and energy consumption of the Bitcoin network reaching new highs (Note: This happened before mining was cleared in Sichuan, Yunnan and other places). If Bitcoin were a country, its energy consumption would rank 28th in the world.

Of course, consuming a lot of energy may not be the biggest problem of Bitcoin. The fact that most of the mining equipment in the Bitcoin network is located in areas that are heavily dependent on coal-fired power may be the biggest problem of Bitcoin.

Clean energy still accounts for a relatively low proportion of energy consumed in Bitcoin mining

Determining the carbon impact of the Bitcoin network has been a difficult problem in recent years, as it requires knowing not only how much electricity the Bitcoin network consumes, but also where that electricity comes from.

One way to understand the source of electricity is through the location of Bitcoin miners. Of course, determining the location of Bitcoin miners is not an easy task.

Initially, as everyone knows, Bitcoin miners are mainly located in China, and since the average emission coefficient of China's power grid is 700g CO2/kWh, the carbon intensity of electricity used for Bitcoin mining can be estimated (Note: Carbon intensity refers to CO2 emissions per unit of GDP). Assuming that 70% of Bitcoin mining occurs in China and 30% of it uses clean energy, the weighted average carbon intensity is 490 gCO2eq/kWh.

Later, more granular information was obtained in the 2017 Global Cryptocurrency Benchmark Study by Garrick Hileman and Michel Rauchs. In this study, they determined that the total energy consumption of equipment accounting for about half of the Bitcoin network's computing power was about 232 megawatts. Mining equipment located in China accounted for half of this, with a lower limit of about 111 megawatts of energy consumption.

The energy consumption of mining equipment investigated by Garrick Hileman and Michel Rauchs is shown in the figure below. By matching the carbon emission coefficients of various national power grids, the weighted average carbon intensity of the Bitcoin network is calculated to be 475 gCO2eq/kWh.

39% of energy consumption comes from renewable energy

Some users have suggested that specific regions in some countries may provide energy with lower carbon intensity. In 2018, Coinshares said that most of China's mining machines are located in Sichuan and use cheap hydropower for mining. However, subsequent research failed to support this claim. Faced with this situation, the main author of the Coinshares paper admitted to "making a mistake."

Specifically, although the amount of electricity generated in Sichuan during the rainy season is three times that of the dry season, hydropower is not generated continuously. The fluctuation of hydropower generation means that miners can only use cheap hydropower during a limited period of time.

In a 2019 study on the carbon footprint of Bitcoin by Christian Stoll et al., the location of miners based on IP addresses was introduced to calculate the weighted average carbon intensity of the entire Bitcoin network taking into account regional differences. The resulting value was 480-500, which is slightly different from the 475 mentioned above.

Similarly, using a similar approach, Cambridge University provided a map of the location changes of Bitcoin miners over time in 2020. By filling different colors with location data and the carbon intensity of different power grids, we can get the proportion of dry season mining activities in each region as shown in the figure below. Therefore, on an annual basis, the contribution of renewable energy to the Bitcoin network is still low. According to the 2020 interview with Cambridge University, miners said that about 39% of their energy consumption comes from renewable energy.

Which one consumes more energy: Bitcoin, VISA or gold?

To better measure the energy consumption of the Bitcoin network, VISA can be used as a reference. In 2019, VISA processed a total of 138.3 billion transactions. VISA said that its operations worldwide consumed a total of 740,000 gigajoules. This means that VISA consumes energy equivalent to that consumed by 19,304 American households. After calculation, the carbon footprint of each VISA transaction is 0.45 gCO2eq.

These data show that there is still a big gap between Bitcoin and VISA. The energy intensity of each Bitcoin transaction is higher than that of VISA. Moreover, the gap in carbon footprint between the two is even greater.

Of course, VISA is not entirely representative of the global financial system. However, even compared to non-cash transactions in the regular financial system, Bitcoin transactions require more energy.

If we change our perspective and view Bitcoin as "digital gold", we can compare Bitcoin mining with gold mining. Currently, about 3,531 tons of gold are mined each year, emitting about 81 million tons of CO2. However, this type of comparison has certain flaws, such as gold mining can be suspended while Bitcoin mining cannot.

Limited scalability leads to an extreme carbon footprint

The main reason for the exaggerated carbon emissions per Bitcoin transaction is that the underlying blockchain is not only built on an energy-consuming algorithm, but is also extremely limited in terms of transaction processing capabilities. In an optimistic scenario, Bitcoin can process about 220 million transactions per year. The global financial system processes more than 700 billion payments per year, and payment providers such as VISA can process more than 65,000 transactions per second. Due to the limitation of transaction processing speed, Bitcoin cannot achieve any form of mainstream adoption as a global currency or payment system.

There is no real solution to the scalability problem for Bitcoin either. Some supporters of the digital currency believe that Layer 2 solutions such as the Lightning Network can help expand the scale of Bitcoin, but this solution clearly contradicts the impossibility of large-scale transfers. In order to transfer funds to the Lightning Network, the funds must first be traded on the main network. At the current network performance, it would take 35 years for the Bitcoin network to conduct a transaction for each of the 7.7 billion people on the planet. So far, the only practical way to solve Bitcoin's scalability problem is to use a trusted third party to process transactions internally, rather than using the Bitcoin blockchain. However, this is just reinventing the wheel.

PoW is the first company algorithm to prove itself successful, but it is not the only one. In recent years, more energy-efficient algorithms such as PoS have been developing. Compared with PoW, the energy consumed by PoS is negligible. It is estimated that if Bitcoin switches to PoS, it can save 99.95% of energy consumption compared to the current PoW.