Cryptocurrencies are trendy, they are rising globally as a new investment and transactional tool; their value rises then collapses. Their supporters think that cryptocurrencies will change the world, creating a distributed network, and replacing other currencies like the dollar, euro, or other assets such as gold. But are cryptocurrencies sustainable, and how are they linked to climate change?
But how can we quantify cryptocurrencies’ contribution to climate change? There is no official tracking and reporting. Several organisms and scientists have estimated energy consumption, carbon footprint, and even electronic waste. First, we need to know where cryptocurrencies’ mines are. Second, what energy powers the computers. In 2021, Bitcoin (BTC) reached a peak market capitalization of 1.1 trillion USD, 1 BTC worth almost $68k but has dropped to $36k in January 2022.
How does cryptocurrencies impact on climate change?
Cryptocurrencies rely on a distributed global network of computers that validate and add records to blockchains. This network consumes energy, and the energy is not always sustainable. Therefore depending on the source of the electricity consumed the impact of bitcoins changes. China and Kazakhstan are two major countries where a significant amount of Bitcoins and other cryptocurrencies are being mined. The grid of these countries relies heavily on coal.
During the last 6 years, dozens of crypto mining companies have emerged in Montreal, Quebec (Canada). As the City and Regional Government called for tech companies to settle in the area, the cheap renewable power from dams made a good case for those companies. However, it does take a lot of energy to power and cool down computers for mining cryptocurrencies. By consuming low-carbon electricity, they are taking the electricity from other users.
The comparison is tricky, is the BTC replacing the whole financial system? are we comparing like to like? how many real transactions are in BTC to buy or sell goods vs. seeing BTC as an investment or speculation tool?
Higher consumption than many countries
A study from 2019, suggested that Bitcoin’s contribution to global carbon emissions measure up to those of a small nation, between the levels produced by Jordan and Sri Lanka. The study showed that in 2018, the annual electricity consumption estimated was 45.8 TWh (45,800 MWh). Resulting in annual carbon emissions of 22,000,000 tCO2. And this is Bitcoin alone, without considering other cryptocurrencies; the same study estimated the consumption of the other 600+ cryptos of another 40 TWh. What is clear is that there is an upward trend.
But it depends on where the bitcoin is mined, most of it today is in China. And it is harder to track. The electricity consumption of bitcoin has increased over the years, some estimates say that it has the same consumption as Spain.
Carbon intensity as a raw material
Another study compared the carbon intensity (include definition) of mining bitcoin against other goods. By the time of the study in 2019, bitcoin mining was 15 times more carbon-intensive than mining an equivalent value of gold. The carbon footprint of bitcoin was estimated at 191 tCO2 while, gold was only 13 tCO2. As the value of bitcoin goes up, and the difficulty to mine increases (higher energy consumption), the carbon intensity will go up.
So what?
But even if Bitcoin is more carbon-intensive than Gold, it would not make sense to go back to gold as an exchange system in the current digital world. Therefore, a more complete analysis, however, needs to assess, what is the emissions of the alternative; which are the banks, and monetary systems in place.
In an article from May 2021, Bitcoin Magazine reported that Bitcoin emits less than 5% of the legacy financial sector’s carbon emissions. Coindesk back in 2014, already mentioned that bitcoin’s carbon emissions are relative. It is important to compare them with the broader financial sector.
For doing so, they assessed the US treasury (“the steward of US economic and financial systems”. According to the EPA, the US treasury uses the equivalent of 60 TWh of sustainable electricity, which represents 18% of its energy usage (82% of the energy is supported by other sources: fuel, coal, etc.). Therefore, total energy usage would represent 335 TWh, and it would be sufficient to keep the bitcoin network running for over a year. They do not account for banks, credit cards, and other players in the system. But, is Bitcoin today delivering the same level of services?
Bitcoin transactions operate more like cash, which means that is an exchange between two individuals without a financial intermediary. However, Bitcoin is not currently widely accepted and must often be used through an exchange. Some countries such as El Salvador, are allowing the usage but with some issues. On the other hand, we can use credit everywhere (but we need to pay fees). They also offer fraud protection that Bitcoin does not.
What is the carbon footprint of a visa transaction costs?
According to the Bitcoin Energy Consumption Index, a single Bitcoin transaction consumes 1,752 kWh of electrical energy on average, this would allow 1.2m VISA transactions. This is equal to the amount of energy consumed by 1.2 million VISA transactions, or even 120,000 hours of YouTube.
Bitcoin consumption against global finance
However, it is not accurate to compare the Bitcoin infrastructure with VISA. As you need to account for ATMs, banks, financial institutions, and other providers that make the system work. The annual consumption of the global financial system is 758 TWh. Which is almost two times the highest estimates for Bitcoin consumption.
We need to be cautious, as the global financial system is widely used while bitcoin is still marginal. Very few people pay for their houses or get their salaries in cryptocurrencies. With the huge variations, few employees would want to.
In conclusion
Bitcoin’s energy consumption is increasing and surpasses the consumption of countries like the Netherlands. Even Bitcoin supporters agree on this. However, a more correct comparison would be to compare Bitcoin (and other cryptocurrencies) against traditional banking systems that they are trying to replace. In doing so, a lower footprint results from Bitcoin. When looking at energy consumption per monetary transaction, which seems the most accurate comparison, Bitcoin is well above. But as the number of transactions increases, the energy cost per transaction will reduce significantly.
Cryptocurrencies and their supporters are looking for ways to be more energy-efficient. For example, by reusing the heat dissipated, more efficient computers, and sourcing renewable energy. Even new blockchain protocols are being developed such as Cardano, which aim at reducing energy consumption. The energy consumption per transaction of Cardano (ADA) is 0.5479 kWh, while Ethereum (ETH) is 62.5 kWh and Bitcoin (BTC) is 707 kWh (estimated – source).
BTC consumes over x1000 more energy than ADA. There are other alternatives with lower energy consumption and a smaller carbon footprint. Cryptocurrencies pay a toll on climate change due to their high energy consumption. Cryptocurrencies are just another energy consumer and contributor to greenhouse gas emissions. It is important that the technology evolves, reducing its energy consumption.
What can I do?
While countries take a long time as individuals we can act to commit to a net-zero lifestyle. There are easy things that we can all do as individuals. Learn more on how to become carbon neutral.
