The controversy continues: How does the Bitcoin mining system affect carbon footprint?

While Coin Metrics founder Nic Carter refuted some of the points made by Smith in the column, there still appears to be disagreement over the amount of energy consumed by Bitcoin mining, where that energy comes from, and the industry’s carbon footprint on the planet.

The bitcoin mining industry tends to downplay how resource-intensive its work is, with some industry insiders saying its environmental impact isn't a problem, with data showing a large portion of the energy for hash power comes from renewable sources. Still, environmentalists have zeroed in on the industry, sparking a seemingly never-ending debate.

Several scholars have expressed different views on this issue. For example, the Cambridge Bitcoin Energy Consumption Index has become a reliable reference point for estimating power consumption of the Bitcoin network.

In addition, Aalborg University’s Dr. Susanne Köhler and Associate Professor Massimo Pizzol co-authored a study titled “Life Cycle Assessment of Bitcoin Mining” that provides some data-based assumptions about the industry’s environmental impact.

In an interview, Anton Dek, head of Cambridge’s Centre for Crypto-Assets and Blockchain at Alternative Finance, unveiled the history of the Cambridge Bitcoin Energy Index and the methodology used to estimate Bitcoin’s electricity consumption index.

The Cambridge team observed that other models that seek to accurately estimate the Bitcoin network’s energy usage have taken a top-down approach, using data such as how much miners spend on electricity as an example.

The Cambridge Bitcoin Energy Index methodology is a "bottom-up approach" that uses data on existing mining hardware to create lower and upper bound estimates of the energy consumption of the Bitcoin network. Dai Ke explained that the information is: "based on assumptions about objective data, such as hashrate." He further added: "These different machines have known efficiencies, which are the joules of energy required to calculate a hash. Based on these assumptions, we build this index."

The index provides an estimated range of electricity consumption, with a current theoretical lower limit of 43.32 TWh and a theoretical upper limit of 476.18 TWh. The estimate of Bitcoin's current consumption is based on the assumption that miners are using a variety of profitable hardware.

While the Cambridge Bitcoin Energy Index does not model the energy that powers the Bitcoin network, the index was created with the goal of providing a carbon emissions model, which Dyck said his team is still working on and hopes to have live later this year.

The Cambridge Bitcoin Energy Index website also provides a global mining map, which essentially analyzes the distribution of Bitcoin mining networks around the world. The map provides hash rates for each country, and more than half of the world's Bitcoin hash rate is located in China.

The breakdown of hash rate location comes from data provided by BTC.com, Poolin, and ViaBTC mining pools, which together account for 37% of Bitcoin’s overall hash rate. Dyke also noted that their data is more than a year old, but still allows researchers to make some accurate assumptions about the energy used by miners in a particular country or region.

“This is the data reported by the mining pools, but even if all this is true, we only cover 37% of the total Bitcoin hashrate in the three pools that provided us information. This is where we need to improve.”

The regional perspective of China also shows the energy mix used by miners in different regions. The team has not yet released specific visualization data because they believe that the current 37% hash rate is not enough to accurately estimate the network's full carbon footprint. Dyke added: "If we see the energy mix per region and per country, we will be able to assume the overall energy mix, and then we will be able to estimate the carbon emission factor more accurately."

Still, Dyck said other researchers have come up with estimates by calculating the total annual electricity consumption of the Bitcoin network, which is about 130 TWh, and multiplying it by an average carbon emission factor (about 0.5 kg/CO2 per kilowatt-hour produced). The Cambridge researchers believe that such estimates may not be representative given some assumptions that can be drawn from data on the regional locations of some mining activities: "It's more complicated than that because I think Bitcoin's energy mix is ​​not among the world averages. The reason is that they use renewable energy, not because of their goodness, but purely for economic reasons. Hydropower is abundant in some areas, and if you look at the Bitcoin mining map and the distribution of China, the Sichuan region is still a very important mining area."

Dyke noted that there are widespread reports of mining facilities in the Sichuan region that use electricity from hydroelectric dams. Data from the Cambridge Bitcoin Energy Energy Index also reflects an increase in the region's hash rate during the wet season, where excessive rainfall leads to large amounts of electricity generated by dams. According to him, Sichuan's share of global hash power is estimated to be: "9.66% in April 2020 and 37% in September 2019."

The 2019 "Life Cycle Assessment of Bitcoin Mining" study by Köhler and Pizzol used established life cycle assessment methods to assess the environmental impact of Bitcoin. It estimated that the Bitcoin network consumed 31.29 terawatt hours in 2018, with a carbon footprint of 17.29 tons of CO2 equivalent, using data, information and methods from previous studies on the topic.

In a conversation, Köhler noted that their research showed that the impact of adding new Bitcoin mining network capacity would decrease based on two assumptions. The first was that the equipment became more efficient, which was proven to be true two years later. The second assumption was that miners moved to areas with more renewable energy.

“The assumptions in our study were influenced by rumors that China would crack down on miners. Recent data on mining locations suggests this is not the case. Nonetheless, the effect of increasing hardware energy efficiency means that the impact per additional energy mined will decrease. However, we are now seeing hash rates growing at a faster rate, resulting in a greater overall environmental impact in absolute terms.”

As Köhler explained, the sheer growth of the Bitcoin network’s hash rate leads to higher electricity usage and, therefore, a greater impact on the environment.

However, the Aalborg University PhD admits that accurately estimating the energy consumption of the Bitcoin mining ecosystem and its carbon footprint is a difficult task. This is due to several factors, including the exact location and share of miners, the mining equipment used, and the accuracy of data from various sources.

Dyck also said that some miners are looking for ways to prove that they used green energy to mine Bitcoin. This could create a market where "green Bitcoin" is sold at a premium, which could encourage miners to switch to green energy. Meanwhile, Köhler believes that miners are mainly concerned with profit margins, and if green energy is not so cheap, then cheap electricity will overwhelm the appeal of green energy: "There are some incentives to use renewable energy, such as hydropower in Sichuan, which allows miners to use cheap electricity. However, it should be noted that this electricity is seasonal, so the availability varies throughout the year. In general, mining companies are encouraged to use cheap electricity to maximize profits. This also includes using coal-fired power in Inner Mongolia and oil-fired power in Iran."

Dyke shares the same sentiment, saying miners are generally rational about their business decisions. If there is cheaper energy, they will likely use it, regardless of how the energy is created. "I find miners, especially large Bitcoin miners, to be rational economic actors. If there is a cheaper option, they will change, and if not, they will stay the same."

Köhler aptly concluded that more data from industry insiders may well provide the answer to this years-long debate: “Better data and more transparency in the mining industry will allow for better models and less guesswork.”

Dyck agreed that more data and tools are needed to reach a consensus on Bitcoin’s environmental impact, and he also strongly reminded people that the Bitcoin protocol is designed the way it is for a reason: “Bitcoin has to be inefficient by design. If it is very efficient, then the cost of attacking the network will be very low.”