Bitcoin mining: Digital money printing with real world footprints?

On May 12, 2021, Elon Musk announced on Twitter that Tesla would no longer accept bitcoin for vehicle transactions out of concern for the “great cost” of bitcoin mining on the environment due to the “rapidly increasing use of fossil fuels.” Then, on June 13, 2021, Elon Musk tweeted in a reply to another user that “when there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions.” Regardless of one’s opinion about Elon Musk, his stance on prioritizing clean energy echoes a question with which the world has been wrestling: Can bitcoin have a green future?

Bitcoin mining indeed has a large appetite for energy, and—with increasing numbers of individual and institutional investors hoping to cash in—that energy consumption only stands to rise. Miners receive freshly minted bitcoin as a reward for contributing computational power to process transactions and secure the bitcoin network. If bitcoin’s total mining rewards were represented by a pizza, the size of each miner’s slice would be determined by their computational power; the more power, the larger the slice:

In 2010, a personal laptop could profitably mine bitcoin. However, to arrive at the same output today requires warehouses full of specialized computers running around the clock. As bitcoin’s price increases, more miners are expected to enter the network, thereby increasing the computational power and associated energy consumption required.

Environmentalists and cryptocurrency skeptics have highlighted their concerns over bitcoin energy consumption and the harm it presents to the environment. The University of Cambridge Center for Alternative Finance in March 2021 estimated bitcoin mining’s energy consumption at one hundred thirty terawatts annually, or roughly the annual energy usage of Sweden. With this much energy consumption, carbon emissions are significant and consequential. According to a 2019 study by the Technical University of Munich, cryptocurrency mining generates nearly twenty-two megatons of carbon emissions from fossil fuels each year. This is comparable to the amount of carbon the city of Las Vegas or country of Sri Lanka produces over the same time frame. As a result of the magnitude of carbon associated with bitcoin mining operations, the Chinese government issued a notice requiring provinces to inspect their power stations and identify and eliminate prohibited mining activities. Until early June, bitcoin miners in China comprised approximately 65 percent of the total network, sourcing 86 percent of their energy from nonrenewable sources. Since then, the bitcoin network’s hashrate (a measure of the computational power per second used when mining​) has fallen by approximately 50 percent, representing a substantial elimination of illegal mining operations in China. The Chinese government’s actions have assuaged many critics’ concerns over coal-powered mining in China.

The staggering carbon emissions from current cryptocurrency mining operations, paired with the potential for exponential growth, are compelling reasons to formulate and consider mitigation measures to make bitcoin more sustainable. Recent attempts have sought to replace fossil fuel energy in bitcoin mining with energy from sustainable sources, such as solar, hydroelectric, nuclear, or wind. For example, Energy Web Foundation, a nonprofit organization that seeks to decarbonize bitcoin mining, recently helped launch the Crypto Climate Accord. The Accord urges enterprises dealing in bitcoin mining to consider using renewable energy sources and reduce carbon emissions from the mining process to zero by 2040. Some countries, such as Norway, Sweden, and Iceland, have already begun to sustainably mine bitcoin using hydro, wind, and geothermal resources. Mining enterprises have also taken significant steps to deliver more transparent energy usage and sustainability metrics.

With all of these challenges in mind, it is essential that bitcoin mining incorporate renewable and clean energy resources to adhere to heightened environmental, social, governance (ESG) standards. Investors increasingly view corporate adherence to ESG criteria as “closely linked with business resilience, competitive strength, and financial performance.” In one notable example, activist shareholders recently gained board seats on Exxon Mobil by promising to push for aggressive ESG initiatives within the oil giant. Furthermore, diversifying renewable sources for mining can improve the efficiency and stability of the electrical grid. Musk’s recent statements on the environmental impacts of bitcoin mining served to put a spotlight on its energy usage. As interest in both cryptocurrency and corporate ESG initiatives surge, it seems that the time is ripe for the market to establish clean sources for bitcoin mining.

Dr. Julia Nesheiwat is a Distinguished Fellow at the Atlantic Council Global Energy Center, and since December 2020, has served as Commissioner on the US Arctic Research Commission reporting to the White House and Congress on domestic and international Arctic issues.

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Image: Representation of cryptocurrency (André François McKenzie/Unsplash)