Bitcoin, the world’s first and most well-known cryptocurrency, has been the subject of much debate since its inception in 2009.
One of the most contentious topics surrounding it is its environmental impact.
This article aims to examine the environmental impact of Bitcoin in terms of air pollution and CO2 emissions
Regardless of your stance on climate change and how CO2 emissions affect it, this article takes for granted that, all else being equal, fewer CO2 emissions are better. That’s because so many detractors of bitcoin view it that way.
With that in mind, my goal with this article is to give a realistic, well-cited view of Bitcoin’s emissions and try to give a framework on how best to think about them.
As the mining process and the associated energy consumption of the Bitcoin network have grown exponentially, many critics have raised concerns about its carbon footprint, and (they surmise) its potential to damage the environment.
Take this 2021 article from the New York Times as an example:
It is actually quite rare to find any technical inaccuracies in this kind of reporting…at least when it comes to Bitcoin’s raw energy consumption.
Bitcoin does, in fact, consume an extraordinary amount of energy. As of April 2023, Bitcoin is estimated to consume about 145.5 TWh per year (though this number is constantly changing).
If Bitcoin were a country, it would sit between Ukraine and Malaysia in terms of its energy consumption.
Surely this means Bitcoin is responsible for a great deal of CO2 emissions, right?
Well, based on this data alone, we actually can’t say. We need more information.
A narrow focus on energy consumption is the issue. Making this error hides other variables that matter far more.
What should we focus on then?
I argue more important variables would include (but are not limited to):
On those last two, I can already tell you that if you truly think Bitcoin, as a technology, is worthless, then this is not the article for you.
It won’t matter how good the other variables are because you are going to see bitcoin as a waste of energy anyway.
In a later section, I will briefly attempt to address these critiques, but it is not the primary purpose of this article, and I have already covered these benefits in immense detail already, which you can refer to.
With that in mind, let’s talk about the variables that matter.
While the energy consumption of Bitcoin mining is undeniable, it is crucial to consider the energy mix used for mining.
Energy mix analyses is the practice of discovering what percent of energy consumption comes from various sources of energy.
A superficial view of this is to simply look at “renewable” vs “fossil fuel” Sources.
Thankfully, various parties have already attempted to do this research for us.
Looking at these studies, we find that the Bitcoin mining industry has shown a trend towards using more renewable energy sources, with estimates suggesting that 36 to 59% of the energy consumed by the network comes from renewable energy.
That is a wide gamut, and it is notoriously difficult to arrive at a consistent number because:
However, we do glean some useful data here.
But that is just the superficial way to view this. What we really want to know is - what level of emissions is the Bitcoin network responsible for?
To understand that, we actually need to break down energy sources even more .
That’s because not all energy sources - whether renewable or fossil - have the same carbon foot print. For instance, if you can believe it, there are some renewable energy sources, such as burning wood, that are more carbon intensive than some fossil fuels, like natural gas.
Here is a further break down of estimates through 2021:
Is there room for optimism that even as Bitcoin’s network grows, it can actually reduce its net carbon emissions?
I think so.
There was once a time when Bitcoin’s energy mix was much more carbon intensive per TeraHash (the unit by which we measure mining on the bitcoin network).
Over time, we have seen two very clear trends in bitcoin mining:
Why is that?
As the mining industry developed and (for lack of a better term) industrialized, it became far more competitive.
But how do you compete when all you are doing is setting up large datacenters that guess numbers all day? Anyone can do that.
By far, above all other aspects of competition in mining, the price of electricity is the most important.
Miners are almost narrowly focused on minimizing the cost of energy to power their miners.
Because of this and some unique aspects to bitcoin mining, miners are very adept at finding cheap electricity.
You might ask: Wouldn’t all consumers of electricity be concerned about the price too? What makes miners special?
Here is the short answer: Most other consumers of electricity need to worry about all sorts of other aspects and prices to their operations. The price of electricity is a small factor.
For instance, if you are an insurance salesman in Nashville, TN, and you open an office to service your clients there, you are going to buy from the local electricity company and you don’t have much choice in rates. Your customers are in Nashville. Your life is in Nashville. You need to be in Nashville. The electricity price is the electricity price and its a very negligible cost of your business (most likely).
Miners do not have this luxury, since (as I said before) the price of electricity is almost all what matters.
In short, if you are like most people, you go where the customers are.
But with bitcoin mining, you go where the cheapest supply is.
Making this even more extreme than a similar industry, like gold mining, is that you can put a bitcoin miner nearly anywhere and in almost any environmental condition. Hot or cold, wet or dry, it doesn’t really matter.
All you need is an internet connection and the ability to reach the miners if they break. In fact, most issues with a bitcoin mine can be troubleshooted remotely.
You can also throw in decent uptime as another requirement, but even this can be navigated by a miner if the energy is cheap enough.
Why am I bothering to tell you all of this?
Because excess renewable energy and stranded energy are the cheapest kinds of energy on Earth.
Think of a hydroelectric damn that serves a rural area.
It may consistently produce more electricity than the local population needs. If it has no connection to a centralized power grid, then it cannot sell that excess for others to use.
The only option then is to pay for and install a large battery, but that is cost-prohibitive and unlikely to be used.
The excess energy is thus stranded and wasted.
Enter the Bitcoin miner.
The miner comes to an agreement with the power company that owns the dam where he agrees to purchase some or all of the excess energy at a very cheap price. This is a win for the power company that owns the dam because now they are getting something for this energy that would otherwise be completely wasted.
This is not a hypothetical. Miners and power companies make these agreements every day.
I would know…I am one of the miners who does this.
So, as we can see, we don’t need to rely on the goodness of miners to seek out renewable or stranded energy. They do so out of their own interest.
And this self-interest has another interesting and beneficial side-effect: It actually makes renewable energy more profitable.
And profitability is a key stepping stone to further innovation and scale.
Off-grid stranded flare gas mining has emerged as an innovative alternative for Bitcoin mining, utilizing an otherwise wasted energy source while reducing the environmental impact of the cryptocurrency network.
You might be thinking? Isn’t natural gas a fossil fuel? Isn’t it emitting CO2 as well?
The short answer is: yes.
But the short answer omits a lot of nuance.
For instance, in the United States, the transition from coal to natural gas as an energy source has resulted in more CO2e (CO2 equivalents) reductions overall than all renewable transitions, according to the U.S. Energy Information Administration.
That said, mining on stranded natural gas cannot be said to have 0 carbon emissions.
However, the net CO2e emissions go down when the miner uses stranded flare gas.
When an energy company pumps oil out of the ground, natural gas is often a byproduct of that operation.
In a great many cases, there is nothing that can be done about this.
Oil companies would of course like to sell this natural gas but many if not most of these pumps are in remote locations with no access to a pipeline.
The companies are thus forced to ignite the byproduct gas using what is known as a ‘flare’.
Why?
Because natural gas is made up of mostly methane.
Methane is a much stronger greenhouse gas in terms of warming potential than CO2 - about 27 to 30 times as much, according to the U.S. Environmental Protection Agency.
However, if you set the methane on fire, you convert it into CO2, which is better for the environment relatively speaking.
There is just one problem: these flares are not very efficient, so some amount of methane leaks into the atmosphere - around 9% of it, in fact.
However, reciprocating gas powered engines are around 99% effective.
These are what miners use to convert the natural gas into electricity to power their miners.
On top of this, the producers are now able to sell this natural gas to a customer and make some money on it.
This is a win/win situation for all stakeholders - the miners, the producers, and the environment as a whole.
Tail emissions are the carbon emissions of an activity at the point of that activity.
The most common example of a technology with ‘no tail emissions’ is EVs (electric cars).
This is probably a good time to highlight a common misconception about EVs (electric vehicles), such as Teslas and other electric car manufacturers. You’ll soon see why this is relevant.
Many people assume that because EV’s have no “tailpipe emissions”, they are carbon free vehicles. And in a very shallow sense, they are.
It is precisely because of this assumption that so many environmentally conscious people advocate for and choose to drive them.
However, electric vehicles are actually more carbon intensive to manufacture than gasoline powered vehicles.
Beyond that (and even more important) is that the carbon footprint of an electric vehicle depends greatly on the energy source used to charge the vehicle.
Take this chart from a National Academy of Sciences’ Paper to see just how important this is:
As you can see, a traditional gasoline powered car would produce far fewer emissions than an EV whos energy generation came largely from coal.
And yet, many of us unthinkingly assume that if its an EV, it can’t be worse for the environment than a gasoline powered car or natural gas powered bus.
That said, in the United States, it is unlikely you’d find most EVs being charged by coal. In fact, it is far more likely they would be powered by natural gas or renewables.
But this very same argument can be made for bitcoin miners as well. In fact, for the reasons explained above, bitcoin miners are far more likely than EVs to be powered by natural gas or renewables - they have more flexibility and more price sensitivity to be so.
If we are ok with EVs (on environmental grounds), then we should probably be ok with bitcoin miners as well.
Another important consideration when thinking about environmental impact is the proximity of the power generation to large population centers.
This is less important when considering warming impacts, but that is not the full environmental picture.
Of perhaps equal concern are the pollution and air particulate effects on human populations.
Let’s think back to the previous section where we mentioned electric vehicles.
I pointed out that most EV’s in the United States would likely not be powered by coal.
Unfortunately, it isn’t like this everywhere. China, the largest EV car market on the planet, does power most of its EVs using coal generated electricity.
And the effects of this are staggering.
A joint study between Universityt of Tenn., Univiversity of Minn., and Tsinghua University found that, in the city of Shanghai, pollution from an additional million electric powered cars would kill nearly two and half times as many people annually as an additional million gasoline-powered cars.
That is how bad coal is, even ignoring its carbon effects.
But this article isn’t about electric vehicles or making arguments about coal. It’s about the environmental effects of bitcoin.
So why am I bothering to tell you all this?
I want you to understand that calculating environmental impact is not just about carbon.
You have to consider other effects besides warming - air pollution being among them.
Why do so many electric vehicles cause more deaths in Shanghai, but not other places?
Because their coal power plants are located in or near the city, a major, densely populated urban center.
So the other factor you need to think about when weighing the environmental cost of a bitcoin mine is not where it is located or even just what kind of power source it has.
You also have to ask how close that power source is to major population centers.
In the case of on-grid mining, it will be more or less the same as what you use to power your house or charge your car.
In the case of, say, stranded flare gas mining, it will be very remote from any people.
The mining process used to generate a tremendous amount of so-called “e-waste”.
Once a generation of bitcoin mining ASICs can no longer profitably run, they are thrown away.
The frequency of generational obsolescence in bitcoin mining used to be on the order of 1 to 2 years.
Meaning…after 2 years, you needed to buy completely new ASICs to stay competitive or even profitable.
However, advances in performance and hitting a wall in the shrinking of the chips has resulted in miners lasting much longer than they used to.
An Antminer S9, released in 2016, is still used in some mines today, provided the electricity used to power them can be secured cheaply enough.
That said, there is still e-waste in bitcoin mining, but this is not narrowly a bitcoin problem.
In 2022, the United Nations Global E-waste Monitor estimated global e-waste to be about 53.6 Metric Tons (Mt). The same study estimated that ‘printed circuit board waste’ (the category that ASICs would fall under) amounted to only 1.2 Mt - less than 2.24% of the total. Even better, 34% of that 1.2 Mt (around .408 Mt) was recycled in environmentally sound facilities, making this category of e-waste one of the least environmentally worrisome.
It’s hard to quantify what percent of the total 1.2 Mt of waste results from mining ASICs, but its likely quite low, as all other personal computing e-waste is part of this category as well (a much larger market).
At the beginning of this article, I told you that if you don’t at least have an interest in the value bitcoin offers, then no matter how “green” it is won’t matter to you.
If that’s you, then hopefully I can convince you here.
This is the value-proposition of Bitcoin:
Readers may quibble with one or more of these. The point of listing them is to make the case that, should you find any or all of these appealing, then we might be open to expending energy to power this network.
If that is the case, then it becomes less about whether we should spend energy on it and more about how much energy we should be ok with in lieu of alternatives.
I bring this up because we must already make this choice - Bitcoin is attempting to compete (in the long term) with the traditional financial system.
I assume most of you reading this are ok with some amount of carbon emissions in order to get the benefits of the banking system.
If we could get more benefits for less energy consumption, this would be beneficial for us and for the environment.
So let’s compare bitcoin with the traditional banking system globally right now.
Several researches have attempted to quantify the energy consumption of the traditional banking system.
Our first bit of research comes from Michael Khazzaka, a bitcoin and blockchain consultant for businesses looking to adopt bitcoin payments.
In his June 2022 paper Bitcoin: Crypto Payments Energy Efficiency, he focused on the following areas of energy consumption: Distribution, Bookkeeping, Card Payments, and Other Payments.
To try and better compare apples-to-apples, he eliminated from the total any kinds of services bitcoin is not competing with or attempting to replace outright.
For instance, bitcoin it not attempting to perform financial management services (which many banks do) so they are not included in this analyses.
In the 26 page paper, he attempts to lay out his methodology and provide the sources of his data for calculating the energy consumption of each aspect of the banking sector.
He concluded his research by claiming that the current Bitcoin network is 26% more carbon efficient per transaction than the current banking system.
He also noted that when you mix in layer two scaling systems, such as the lightning network, and you max out its capacity, you can expect to see a per transaction energy consumption that is ~96.7 million times more efficient than the current banking system.
This is shocking because of how much more flexible and speedy bitcoin transactions are to traditional ones.
But maybe these estimates seem too unrealistic for you.
Galaxy Digital provides a more down-to-Earth perspective.
In their 2021 report, performed by Rachel Rybarczyk, Drew Armstrong & Amanda Fabiano, Galaxy attempts to tease out the relevant energy consumption processes of the global banking system.
They provide the following disclaimer and conclusion (keep in mind that the numbers listed here may differ from those in the rest of this article since they are from 2021):
Electricity data for the banking industry is scarce. With the publicly available information that we could find, we estimate the banking system uses 263.72 TWh of energy each year. Deriving a comprehensive number for this sector’s energy consumption would require individual banks to self-report.
Even in aggregate, a comparison between Bitcoin and the layers of the banking system is inherently flawed. The traditional financial stack is a complicated hierarchy of counterparties and intermediate settlement. Credit card networks are great for exchanging fast payments and IOUs, but they depend on the banking system for settlement, and the banking system in turn depends on central banks for final settlement, which in turn depends on the dollar system as a whole.
In the interest of scope, we have excluded central banks, clearinghouses (like the DTCC), and other aspects of the traditional financial system from the above analysis. It is important to note that this audit is only a slice of the entire system—the overall energy usage of the banking system is unknown and externalities are excluded.
And here is the final graphic to pull it all together:
One point worth noting here is that if you take this chart at face value, it is true that the traditional banking sector uses more energy than bitcoin in absolute terms.
But a fair criticism is to say that traditional banks process far more transactions than Bitcoin does, so from a per-transaction perspective, banks are more energy efficient.
Conversely, a bitcoin transaction is superior in many ways, so maybe that increased energy consumption is worth it.
But I hear you asking: why the giant delta in the data from Khazzaka’s research and Galaxy Digital’s?
First, Khazzaka was attempting to compare the carbon efficiency of a bitcoin transaction vs a traditional banking transaction. Therefore, his analyses was taking into account the energy mix of the two networks.
Galaxy Digital was attempting to quantify the raw energy consumption of the two payment networks.
Second, Khazzaka was considering more second order externalities to the banking system and then including those energy costs into his estimates. Galaxy Digital was not doing that sort of analyses.
Once you account for these, the research is far more consistent.
Third, the more ‘out-there’ claims by Khazzaka (‘a bitcoin transaction could be millions of times more energy efficient than a traditional one’, etc.) is extrapolating known possibilities about the future of bitcoin’s technology when using present day scaling tech. This tech is not without its own tradeoffs, and would require greater adoption. However, if you buy those possibilities, then his math checks out.
Galaxy Digital was not considering the possibilities of second layer tech, likely for the sake of simplicity and because this tech would not affect total energy consumption; just ‘per-transaction’ consumption and emissions.
Maybe you still aren’t convinced that the energy is worth it. The value of bitcoin seems dubious to you or maybe its just theoretical.
Then let’s compare bitcoins energy consumption to other areas of the economy that almost anyone would agree are frivolous.
If Bitcoins energy consumption bothers you, then one might think these would bother you even more. If so, we can work to eliminate low-hanging fruit energy waste - like always-on devices!
The Natural Resources Defense Council (NRDC.org), a climate change and environmental think tank, released a 2015 report entitled Home Idle Load: Devices Wasting Huge Amounts of Electricity When Not in Active Use.
They begin their report with the following definition:
Idle load or “baseload” consumption includes appliances and equipment in off or “standby” mode but still drawing power; in “sleep mode” ready to power up quickly; and left fully on but inactive. Much of this always-on energy provides little or no benefit to the consumer because most devices are not performing their primary function and home occupants are not actively using them.
This report is only making estimates for the United States, so the following idle load energy consumption does not cover any idle load outside of the United States.
They concluded that US idle load alone accounted for about ~1,375 TWh/yr - or ~9.45x that of todays Bitcoin network.
Keep in mind that the number of these devices has grown greatly since 2015, especially with the introduction and popularization of “always-on” devices like the amazon Alexa devices and other home assistants.
The point is, regardless of how we feel about the bitcoin network and the amount of energy it consumes, there are litterally billions of devices consuming electricity many times greater than that of Bitcoins’ and literally no one is using them when they do.
The question of whether Bitcoin is bad for the environment is complex and multi-faceted.
It depends heavily on the energy mix of the mining as well as the alternatives for that energy (or lack thereof)
There is no denying that the energy consumption of bitcoin is substantial. The question is: is the energy we trade worth what we are getting.
I hope I have laid out a good case for why the energy being traded is worth what Bitcoin gives us in return.
I also hope I have cleared up some misconceptions about energy more generally and provided more nuanced thought to this conversation.
