Can the purple-red Bitcoin really turn “green”?

Original title: Bitcoin is red. Can it be green?

Source: Bloomberg

Author: Jesper Starn, Will Wade, and Josh Saul

Translation: Chen Zou

Can you really have both Bitcoin and environmental protection? Digital currencies rely on so-called miners to keep running, with high-powered computers running day and night, sucking up electricity to perform calculations used to verify transactions. Since almost two-thirds of the computing power is in China, and China's coal is the largest source of electricity, this means that mining is generating huge amounts of non-green energy consumption. Bitcoin supporters argue that Bitcoin's carbon emissions are a drop in the bucket on a global scale, and that the transition to green electricity has already begun and is likely to continue to accelerate.

1. How much electricity is involved in mining?

It's hard to say. In 2018, Bloomberg NEF estimated the amount of electricity consumed by Bitcoin-related activities at 20.5 TWh per year (1 TWh is equal to 1×109 kWh, or 1 billion kWh). Around the same time, Morgan Stanley estimated the figure to be as high as 140 TWh. The Cambridge Center for Alternative Finance has been tracking annualized usage, and as the price of Bitcoin soared, it jumped from 6.6 TWh in early 2017 to 67 TWh in October 2020 to 121.9 TWh in early February. Digiconomist has counted carbon emissions data, and Bitcoin's annual emissions are 37 million tons of carbon dioxide, which is equivalent to the annual emissions of New Zealand.

2. Is all Bitcoin mining like this?

Just like electric cars or data servers or anything that runs on electricity, it depends on where you plug it in. A large number of other miners have flocked to upstate New York, the Pacific Northwest, Texas and parts of Europe, where natural hydroelectric and wind power is so abundant that homes and businesses can hardly absorb it all. But like any business, miners are just looking for places where electricity is cheaper.

3. Why does Bitcoin consume so much electricity?

The calculations performed by miners are used to verify transactions in the network, and their difficulty increases with the increase in computing power. The Bitcoin program is designed to stop minting when the circulation reaches 21 million. Since nearly 19 million coins have been mined in the world at the end of 2020, the difficulty of the system is now close to the maximum level, which also means that miners need to find ways to create more computing power.

4. Are all cryptocurrencies like this?

Some cryptocurrencies don't have mining as a concept, but rely on "staking," where users are rewarded for holding their coins. Bitcoin miners use expensive, custom-designed computer chips for mining. Other cryptocurrency miners typically use cheaper, general-purpose graphics cards that were originally designed for high-end gaming. But electricity is still the biggest raw material in the cryptocurrency market.

5. Opponents’ Voices

A growing number of environmentalists see Bitcoin as a huge waste of resources and a driver of climate change. For countries with unstable power systems, miners also increase the risk of power outages in the national grid. Some recent power outages in Iran have been blamed on a sharp increase in mining activity. As more examples of mining are generated using renewable energy, Bitcoin miners will compete for limited green electricity with other industries pursuing zero-carbon emissions, such as transportation, heating and industry.

6. Voices of supporters

Although Bitcoin consumes a lot of electricity, it is still a drop in the bucket compared to the amount of electricity generated worldwide. According to analysts at BloombergNEF, even though the price of Bitcoin has been soaring, it has hardly made any waves in the electricity market. However, in Iran, government officials pointed out that Bitcoin miners are one of the causes of power outages when the cold season arrives and the country's electricity is tight. Therefore, compared with cars, power plants and many factories, Bitcoin's carbon footprint is negligible. Data can better show objective facts. A 2018 analysis estimated that the video game industry in the United States alone accounts for about 12 million tons of carbon emissions each year, which is a third of the emissions generated by Bitcoin worldwide.

7. Is anyone working to reduce emissions from the mining industry?

These people exist, but the moves are more about the search for cheap electricity than environmental concerns. Some bitcoin miners use excess natural gas that would otherwise be burned to power their mining equipment. A large portion of production has moved to areas with ample hydropower supplies, such as Iceland, Norway, Canada and parts of Russia. China's share of bitcoin's monthly hash rate fell 10 percentage points to 65% in the second quarter of 2020 compared with the third quarter of 2019, according to the Cambridge Bitcoin Electricity Consumption Index. "Certainly some of it is mined with coal," Nic Carter, co-founder of research firm Coin Metrics, said of China's mining industry in an interview with Bloomberg TV. "But if you look at other provinces in China, there's a lot of bitcoin mining going on there, but in those places, it's mostly hydropower."

8. Does Bitcoin’s “greening” have an impact on the cryptocurrency market?

The impact is already being felt. In February 2021, Tesla Inc said it had bought $1.5 billion in Bitcoin and would begin accepting cryptocurrencies as a form of payment. Tesla's dual move was a key catalyst for a new bull run in cryptocurrencies at the time. But today, Tesla CEO Elon Musk dealt the crypto community a blow by suspending the acceptance of Bitcoin payments, citing environmental concerns. The decision triggered a plunge in Bitcoin and spread to many other digital currencies. Some strategists believe that environmental concerns are a major threat to Bitcoin's value in the long run.