Environmental impact of bitcoin explained

The environmental impact of bitcoin is significant. Bitcoin mining, the process by which bitcoins are created and transactions are finalized, is energy-consuming and results in carbon emissions, as about half of the electricity used is generated through fossil fuels.[1] Moreover, bitcoins are mined on specialized computer hardware with a short lifespan, resulting in electronic waste. The amount of e-waste generated by bitcoin mining is comparable to that generated by the Netherlands. Scholars argue that bitcoin mining could support renewable energy development by utilizing surplus electricity from wind and solar. Bitcoin's environmental impact has attracted the attention of regulators, leading to incentives or restrictions in various jurisdictions.

Greenhouse gas emissions

Mining as an electricity-intensive process

Bitcoin mining is a highly electricity-intensive proof-of-work process.[1] [2] Miners run dedicated software to compete against each other and be the first to solve the current 10 minute block, yielding them a reward in bitcoins. A transition to the proof-of-stake protocol, which has better energy efficiency, has been described as a sustainable alternative to bitcoin's scheme and as a potential solution to its environmental issues.[2] Bitcoin advocates oppose such a change, arguing that proof of work is needed to secure the network.[3]

Bitcoin mining's distribution makes it difficult for researchers to identify the location of miners and electricity use. It is therefore difficult to translate energy consumption into carbon emissions.[4], a non-peer-reviewed study by the Cambridge Centre for Alternative Finance (CCAF) estimated that bitcoin consumed annually, representing % of the world's electricity consumption, ranking bitcoin mining between Belgium and the Netherlands in terms of electricity consumption.[4] A 2022 non-peer-reviewed commentary published in Joule estimated that bitcoin mining resulted in annual carbon emission of, representing % of global emissions, which is comparable to the level of emissions of Greece. A 2024 systematic review criticized the underlying assumptions of these estimates, arguing that the authors relied on old and partial data.[5]

Bitcoin mining energy mix

Until 2021, most bitcoin mining was done in China. Chinese miners relied on cheap coal power in Xinjiang and Inner Mongolia during late autumn, winter and spring, migrating to regions with overcapacities in low-cost hydropower (like Sichuan and Yunnan) between May and October. After China banned bitcoin mining in June 2021, its mining operations moved to other countries. By August 2021, mining was concentrated in the U.S. (35%), Kazakhstan (18%), and Russia (11%) instead. A study in Scientific Reports found that from 2016 to 2021, each US dollar worth of mined bitcoin caused 35 cents worth of climate damage, compared to 95 for coal, 41 for gasoline, 33 for beef, and 4 for gold mining.[6] The shift from coal resources in China to coal resources in Kazakhstan increased bitcoin's carbon footprint, as Kazakhstani coal plants use hard coal, which has the highest carbon content of all coal types. Despite the ban, covert mining operations gradually came back to China, reaching % of global hashrate .[7]

Reducing the environmental impact of bitcoin is possible by mining only using clean electricity sources. In 2023, Jamie Coutts, a crypto analyst writing for Bloomberg Terminal said that renewables represented about half of global bitcoin mining sources,[8] while research by the nonprofit tech company WattTime estimated that US miners consumed 54% fossil fuel-generated power.[3] Experts and government authorities, such as the European Securities and Markets Authority and the European Central Bank, have suggested that using renewable energy for mining may limit the availability of clean energy for the general population.[1] [9] [10]

Bitcoin mining representatives argue that their industry creates opportunities for wind and solar companies,[11] leading to a debate on whether bitcoin could be an ESG investment.[12] According to a 2023 ACS Sustainable Chemistry & Engineering paper, directing the surplus electricity from intermittent renewable energy sources such as wind and solar, to bitcoin mining could reduce electricity curtailment, balance the electrical grid, and increase the profitability of renewable energy plants—therefore accelerating the transition to sustainable energy and decreasing bitcoin's carbon footprint.[13] A 2023 review published in Resource and Energy Economics also concluded that bitcoin mining could increase renewable capacity but that it might increase carbon emissions and that mining bitcoin to provide demand response largely mitigated its environmental impact.[14] Two studies from 2023 and 2024 led by Fengqi You concluded that mining bitcoin off-grid during the precommercial phase (when a wind or solar farm is generating electricity but not yet integrated into the grid) could bring additional profits and therefore support renewable energy development and mitigate climate change.[15] [16] Another 2024 study by Fengqi You published in the Proceedings of the National Academy of Sciences of the United States of America showed that pairing green hydrogen infrastructure with Bitcoin mining can accelerate the deployment of solar and wind power capacities.[17] [18] Bitcoin mining may also incentivize the recommissioning of fossil fuel plants. For instance, Greenidge Generation, a closed coal-fired power plant in New York State, was converted into natural gas in 2017 and started mining bitcoin in 2020 to monetize off-peak periods.[13] Such impact is difficult to quantify directly.[19]

Methane emissions

Bitcoin has been mined via electricity generated through the combustion of associated petroleum gas (APG), which is a methane-rich byproduct of crude oil drilling that is sometimes flared or released into the atmosphere.[20] Methane is a greenhouse gas with a global warming potential 28 to 36 times greater than . By converting more of the methane to than flaring alone would, using APG generators reduces the APG's contribution to the greenhouse effect, but this practice still harms the environment. In places where flaring is prohibited this practice has allowed more oil drills to operate by offsetting costs, delaying fossil fuel phase-out.[21] Commenting on one pilot project with ExxonMobil, political scientist Paasha Mahdavi noted in 2022 that this process could potentially allow oil companies to report lower emissions by selling gas leaks, shifting responsibility to buyers and avoiding a real reduction commitment.[22]

Comparison to other payment systems

In a 2023 study published in Ecological Economics, researchers from the International Monetary Fund estimated that the global payment system represented about 0.2% of global electricity consumption, comparable to the consumption of Portugal or Bangladesh.[23] For bitcoin, energy used is estimated around per transaction, compared to for credit cards (not including consumption from the merchant's bank, which receives the payment). However, bitcoin's energy expenditure is not directly linked to the number of transactions. Layer 2 solutions, like the Lightning Network, and batching, allow bitcoin to process more payments than the number of on-chain transactions suggests.[24] For instance, in 2022, bitcoin processed 100 million transactions per year, representing 250 million payments.

Electronic waste

Bitcoins are usually mined on specialized computing hardware, called application-specific integrated circuits, with no alternative use beyond bitcoin mining. Due to the consistent increase of the bitcoin network's hashrate, one 2021 study estimated that mining devices had an average lifespan of 1.3 years until they became unprofitable and had to be replaced, resulting in significant electronic waste.[25] This study estimated bitcoin's annual e-waste to be over (comparable to the small IT equipment waste produced by the Netherlands) and each transaction to result in of e-waste.[25] A 2024 systematic review criticized this estimate and argued, based on market sales and IPO data, that bitcoin mining hardware lifespan was closer to 4–5 years.[26]

Water footprint

According to a 2023 non-peer-reviewed commentary, bitcoin's water footprint reached NaNGLNaNGL in 2021, due to direct water consumption on site and indirect consumption from electricity generation. The author notes that this water footprint could be mitigated by using immersion cooling and power sources that do not require freshwater such as wind, solar, and thermoelectric power generation with dry cooling.[27]

Regulatory responses

China's 2021 bitcoin mining ban was partly motivated by its role in illegal coal mining and environmental concerns.[28] [29]

In September 2022, the US Office of Science and Technology Policy highlighted the need for increased transparency about electricity usage, greenhouse gas emissions, and e-waste. In November 2022, the US Environmental Protection Agency confirmed working on the climate impacts of cryptocurrency mining.[30] In the US, New York State banned new fossil fuel mining plants with a two-year moratorium, citing environmental concerns,[21] while Iowa, Kentucky, Montana, Pennsylvania, Rhode Island, Texas, and Wyoming encourage bitcoin mining with tax breaks.[21] [31] Texas incentives aim to cut methane emissions from flared gas using bitcoin mining.[31] In January 2024, the US Energy Information Administration launched a mandatory survey of cryptocurrency miner energy use but suspended it one month later after it was successfully challenged by miners before the United States District Court for the Western District of Texas.[32]

In Canada, due to high demand from the industry and concerned that their renewable electricity could be better used, the provinces Manitoba and British Columbia paused new connections of bitcoin mining facilities to the hydroelectric grid in late 2022 for 18 months while Hydro-Québec increased prices and capped usage for bitcoin miners.[33]

In October 2022, due to the global energy crisis, the European Commission invited member states to lower the electricity consumption of crypto-asset miners and end tax breaks and other incentives benefiting them.[34]

References

Works cited

Notes and References

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