Bitcoin’s energy use: too high and harmful—is that really true?
Introduction
How much energy does Bitcoin use? It has been a hotly debated question for years, especially when the price of Bitcoin rises. The latest increase in spring 2021 reignited the debate about Bitcoin’s sustainability.
These debates usually end up as arguments about first principles: Bitcoin is ‘far too volatile to be a store of value’, ‘has failed as a means of payment’, ‘is used for criminal activity’… people say. But a look at how other currencies—or many far-reaching innovations—were introduced shows that the controversies were often very similar.
Critics therefore claim that Bitcoin mining uses far too much energy and harms the environment. Supporters, on the other hand, say the Proof of Work mechanism underlying the creation of new bitcoins is a stroke of genius. Who is right? How energy-intensive is the Bitcoin network? And is that justified by its benefits?
Note: Mining is the process by which transactions on the blockchain are verified. To verify new transactions, mining computers have to solve an extremely complex mathematical problem. This prevents hackers and others from abusing the system. Solving these mathematical problems requires a huge amount of energy. When a Bitcoin miner solves the problem, they are rewarded with a transaction fee and newly minted bitcoins. Bitcoin’s electricity use is also linked to the robustness of the system: the more electricity available to the system, the more secure the value held within it. However, Bitcoin transactions use far less energy than mining new bitcoins.
Contents
- Why the debate is happening
- How much energy does the Bitcoin network actually use?
- Bitcoin versus gold
- Bitcoin versus the banking system
- What about Bitcoin’s benefits?
- How can Bitcoin support small businesses such as GUYA?
- Conclusion
1. Why the debate is happening
First, it is worth noting that debates about Bitcoin’s energy use are often politically motivated. There will always be people who deliberately draw attention to Bitcoin’s high electricity consumption, just as others defend it for ideological reasons. To get closer to the truth, it is wise to set emotions aside and assess the arguments rationally and based on data. The issue should also be put in a broader context. There are plenty of technologies and systems that are not necessarily good for the environment in themselves, yet society generally considers their benefits to outweigh the drawbacks.
2. How much energy does the Bitcoin network actually use?
Since 2019, the Cambridge Bitcoin Electricity Consumption Index has measured the cryptocurrency’s electricity use and estimates it at around 144 terawatt-hours (TWh) a year at present. That amounts to 0.51% of global electricity production and 0.59% of worldwide electricity consumption.
The fact is that Bitcoin uses as much energy as a small country. Compared with nation states, its electricity consumption ranks 28th, between Ukraine (27th) and Argentina (29th).
That sounds alarmingly high at first. The reality is nevertheless more complex—and more complicated. As well as energy use, we should consider the value behind it. For comparison, Ukraine’s GDP is around $150 billion. The value of all mined bitcoins is $940 billion.
3. Bitcoin versus gold
Bitcoin does not compete with countries, but with other assets such as currencies issued by central banks as banknotes and coins, or stores of value such as gold. Because of comparable characteristics, including scarcity (the total number of bitcoins is capped at 21 million, of which almost 17 million are currently in circulation), Bitcoin is often called ‘digital gold’.
Gold is mined industrially too. Like Bitcoin mining, mining and producing precious metals uses energy, costs money and creates waste. As with Bitcoin mining, there is no guarantee of success when mining for gold. But the better the gold or Bitcoin mining operation—that is, the more capable the equipment or computer—the greater the chance of finding gold or mining Bitcoin.
Gold mining also relies heavily on electricity generated from fossil fuels. Last year, the World Gold Council therefore proposed reducing emissions from the gold sector by 80% by 2050.
Global Bitcoin mining has the highest renewable energy mix. The comparison of energy use with individual countries is also interesting. Source: Bitcoin Mining Council
According to the Global Cryptoasset Benchmarking Study, 39% of the energy used by Bitcoin is generated in a carbon-neutral way. Other sources put that figure as high as 73%. The Bitcoin Mining Council estimates that the sustainable energy mix for global mining has grown to 56%, making it one of the world’s most sustainable industries. One analysis suggests that gold mining costs 50 times more than Bitcoin mining and operating the Bitcoin network. Mining the gold for a single wedding ring alone creates 20 tonnes of waste.
Of course, gold has many wonderful uses, and its market capitalisation is more than ten times that of Bitcoin. The point is simply that calling Bitcoin inherently bad seems incomplete in light of this comparison.
4. Bitcoin versus the banking system
Then there is the comparison with the banking system. The figures are very difficult to pin down, but quite a few people claim that the Bitcoin ecosystem uses far less electricity and is much more efficient than the existing banking system, whose infrastructure includes branches, servers, data centres, cash machines, transport and more.
Galaxy Digital estimates that the banking industry consumes more than 260 TWh a year. Cathie Wood, founder of the American investment firm ARK Investment Management, says the Bitcoin network uses less than 10% of the energy required by the banking system. To be fair, the banking system still serves billions of people, whereas around 100 million people currently own cryptocurrencies.
5. What about Bitcoin’s benefits?
Air conditioning undoubtedly has its uses, but it also affects the environment. There are more than a billion air-conditioning units worldwide—one for every eight people. Do we really need that many? It is a complex question, intertwined with our priorities as a society.
The point is that, as mentioned at the start, the benefits should not be forgotten in all the debate about energy use. It is easy to forget that energy is always being used and trade-offs are being made. So it may be worth considering how people can benefit from using Bitcoin.
Beyond market speculation, Bitcoin also makes life easier for many people. It enables people around the world to participate in the same monetary system. This can be an advantage, particularly in poorer, crisis-hit or totalitarian regions, where it allows decentralised, cross-border transactions without high fees.
As the naira depreciated sharply, many Nigerians turned to Bitcoin. In 2020, Nigeria ranked third in crypto trading volume, behind the US and Russia. Nigerians working in wealthier countries use Bitcoin to send money to their families. Inflation is only one driver, though. For many people, Bitcoin is also attractive because it protects against censorship, corruption, repression, inflation and capital controls.
Seven million people have left Venezuela since the protests against the Maduro government. Many of them send money from abroad via Bitcoin to relatives who have stayed in the country. The Human Rights Foundation estimates that around four billion people worldwide live under totalitarian regimes that use money as a tool of state surveillance and repression.
Another point in Bitcoin’s favour is that its energy use differs from that of many other industries: Bitcoin can be mined almost anywhere with electricity and an internet connection. Energy generally has to be produced near the end user, but Bitcoin does not have this limitation. Mining can therefore even be seen as a tool for the energy sector, creating an ideal use for variable and surplus energy. According to data from the World Bank and the International Energy Agency, around 2,200 TWh are lost each year through inefficiencies and transmission losses—energy that mining could convert into monetary value.
6. How can Bitcoin support small businesses such as GUYA?
This is a particularly fascinating topic, so we cover it separately in our articles about decentralised autonomous organisations, or DAOs for short.
Thanks to the Taproot update introduced in 2023, Bitcoin can execute complex processes known as smart contracts and store items such as documents as NFTs or ordinals. Find out how companies and customers alike can benefit in the article ‘DAOs – the companies of the future’, or enter DAO in the search.
7. Conclusion
As cryptocurrencies, and Bitcoin in particular, have grown in significance and value, their high energy use has become a focus of public debate.
Whether Bitcoin and similar assets have a legitimate claim on these resources depends first and foremost on the value we subjectively assign to them as a society. It also remains to be seen how prices will develop. If prices rise, energy use rises too.
We should also wait and see what benefits may be set against these costs in the future, how the share of renewable energy develops, and whether Bitcoin might even help advance the energy sector. However, condemning Bitcoin outright seems simply wrong.
According to The Crypto Voices, Bitcoin is now the world’s sixth-largest monetary asset (excluding gold and silver). Only the EU, Japan, the US, China and the UK rank ahead of it. Such a status inevitably requires enormous amounts of energy. High energy consumption is not inherently bad, either. People have always made trade-offs for new technologies. The aim should not necessarily be to use less energy, but to power the things that benefit us as a global community with more green energy.