Bitcoin has often been criticized for its environmental impact, especially because of its electricity consumption. Are these accusations justified or are they cliches that are not supported by facts?
In this article, we are going to take an in-depth look at the criticisms made of Bitcoin in terms of ecological impact. I will start by providing some technical details about the proof of work that is at the heart of how this system works. We will then focus on the criticisms made about its environmental impact, by analyzing the figures of energy consumption, and by comparing these data with those of other similar sectors. You will also discover that Bitcoin can have ecological benefits, both through mining and through the use of its finite currency.
Thus, I want to make an objective assessment of the real ecological impact of Bitcoin by examining facts and perspectives. Is Bitcoin really an ecological disaster, or is it a solution to fight global warming? This is what we are going to try to determine in this article.
What is the role of proof of work in Bitcoin?
Before studying the electricity consumption of Bitcoin and its possible impacts, I want to remind you why we need this on Bitcoin, and why the proof of work mechanism is absolutely vital for a peer-to-peer payment system.
Bitcoin is an electronic cash system. The objective of its operation is to be able to completely do without the services of a trusted third party for our monetary exchanges. The system is thus based on a peer-to-peer network. Since there is no authority on Bitcoin, to avoid double spending, a distributed timestamp server is used. This tool makes it possible to prove the non-existence of a transaction in the past. We therefore need a way for all users to spontaneously agree on a single version of the register.
To resolve this constraint, the “Nakamoto proof-of-work consensus” is used. This principle simply specifies that the blockchain with the largest amount of accumulated work is considered valid. The nodes thus agree on this unique version of the blockchain. Within this principle of consensus, the proof of work mechanism makes it possible to protect Bitcoin from the various types of Sybil attacks.
A Sybil attack is a technique used in computer science to try to compromise the functioning of a system. It consists of the creation of false identities in order to take control of a system by pretending to be a large number of legitimate entities. This technique can be used for various purposes such as spamming, content censorship or even influencing decisions made within a distributed network.
This proof-of-work consensus mechanism is absolutely vital for Bitcoin. Instead of being established on a traditional voting system, sensitive to the various Sybil attacks, it allows Bitcoin to be established on a voting system by computing power. Since this calculation requires energy expenditure, there is a certain marginal cost to multiply your votes.
This computational work by trial and error is carried out using computers that are colloquially called “minors”. Electricity is therefore the resource requested by the system in order to have a significant marginal cost for multiplying votes. It is a tangible, universal resource and above all external to the network.
All of these characteristics specific to electricity allow the Nakamoto Proof-of-Work Consensus to remain an intrinsically open system. It is open since entities taking part in Bitcoin mining, and thus earning the associated remuneration, will never be able to have a monopoly on electricity production. It is a resource that is naturally present in the universe. This means that no historical entity can prevent a new player from taking part in Bitcoin mining, even if 100% of the entities already involved wanted to do so.
On the contrary, established consensus principles on proof of stake (in English “Proof-of-Stake”) may become closed. Indeed, since the resource used in this mechanism is the same as the resource given as a reward, established entities can have total control of the system. Once this is done, the consensus becomes closed, and no actor can come and dislodge the historical entities.
The use of Proof-of-Work, within the framework of a consensus principle, makes the system more resilient in a hostile environment. Among other things, state attacks are much less restrictive on cryptocurrencies that do not use this mechanism. There are no physical safeguards to protect these systems.
Proof of work is irreplaceable since it involves a marginal cost based on the use of a discovered resource, not an invented resource. It is even the only natural resource that can be used on a computer system in order to create a marginal cost of multiplying votes.
This is why Proof-of-Work and the resulting energy consumption are not “weaknesses” of Bitcoin, but strengths. This algorithm is essential to implement a permanently secure and truly peer-to-peer payment system.
Critics of Bitcoin's electricity consumption: figures and perspectives
In recent years, the criticisms made against Bitcoin for its ecological impact have multiplied. At the heart of these, there is obviously the criticism of electricity consumption linked to the proof-of-work mechanism.
The estimation of this consumption is a matter of debate. At the time of writing this article (January 2023), the blog DigiconomistEstimated at 78 TWh per year, the Cambridge Bitcoin Electricity Consumption Index The estimate at 94 TWh per year and The study by M. Khazzaka, which dates from April 2022, estimates it at 89 TWh per year. Since this indicator is dynamic and influenced by numerous external factors, it is very complicated to make a fixed estimate of it. However, I advise you to read Michel Khazzaka's study on this subject. Its calculation method is much more precise and rigorous than the others.
As surprising as it may seem, most of the media that write in-depth articles on the subject of the ecological impact of Bitcoin rely on a single and criticisable source: the “studies” of the blog Digiconomist. More recently, MEPs have even used these figures to justify the creation of certain laws. While their method of calculating electricity consumption may be acceptable, this blog puts forward other figures that are much more questionable. In particular, we discover estimates of Bitcoin's CO₂ production, comparisons between Bitcoin and the traditional payment system, or comparisons with the ecological impact of certain countries.
Note that the person behind this famous study against Bitcoin is neither a recognized expert in Bitcoin mining, nor a proven specialist in the electricity value chain. He is a former employee of the Central Bank of the Netherlands (De Nederlandsche Bank), an openly anti-Bitcoin institution.
Based on this data, Digiconomist concludes by arguing that a simple Bitcoin transaction would produce as much CO₂ as one million Visa transactions. This comparison is misleading for two reasons. First of all, and as I explain in more detail in the next part, the cost per transaction is not a relevant data in the case of Bitcoin. Indeed, there is no proportionality between the power consumption of the system and the number of transactions carried out. Second, Visa transaction costs only consider a very small portion of the total costs needed to complete a payment in the traditional system. Indeed, as we can find out in the study BITCOIN: ENERGY EFFICIENCY OF CRYPTOPAYMENTS, when you consider all these costs, you discover that Bitcoin consumes up to 56 times less energy than the banking system. Note that this data does not even take into account the use of the Lightning Network, a payment system established on Bitcoin that does not directly use proof of work.
These same detractors like to compare the consumption of Bitcoin to that of certain countries. We can find out on some media that Bitcoin would currently consume as much electricity as Chile! This raw data, without any other information and without knowledge about the mechanisms of mining, is obviously shocking for the general public. In this specific case, it is not relevant to compare the consumption of a country to that of Bitcoin. The two do not meet the same needs, nor do they use the same source of electricity. In addition, if we want to continue with the random comparisons, I could also tell you that the Bitcoin system consumes less electricity than the sole use of dryers in the United States. However, the usefulness of Bitcoin seems to be much greater than that of dryers.
The strategy of people evoking these preconceived ideas is clear: they want to cut short any debate by putting forward figures that exceed the limits of what is admissible. Of course, many of the elements constituting these criticisms are criticised, misleading or even impertinent. A good example of this strategy is The World Economic Forum article published in 2017, explaining to us that Bitcoin should have consumed more energy than the entire world by 2020. Against all odds, the hundreds of private jets chartered for the annual WEF 2023 meetings do not seem to have run out of energy to reach Davos this year.
Some technical details about Bitcoin
One of the major problems with the criticisms made about the environmental impact of Bitcoin is that they rely on inaccurate or irrelevant indicators. The best known is certainly the estimation of electricity consumption per transaction. Indeed, there is no short-term correlation, and no long-term proportionality, between the number of transactions made on Bitcoin and its electricity consumption. The principle of consensus established on proof of work does not allow transactions to be validated, but It makes it possible to secure an economic history.
In short, as LaurentMT explains in his article Gravity, the proof of work is global and cumulative. When a new block is mined, the security provided by proof of work applies simultaneously and uniformly to all existing UTXOs. Each UTXO accumulates a certain amount of Proof-of-Work security for each block mined. The analogy mentioned in this article is that proof of work acts like a body whose mass increases in a gravitational field, since it has a simultaneous and homogeneous influence on all the other bodies in its field.
To put it more simply, proof of work does not only affect transactions at the present moment, but it gradually buries all past transactions, in proportion to the accumulation of computing power deployed. It is therefore irrelevant to calculate an electrical cost per transaction.
In addition, it is important to understand the difference between a payment and a transaction on Bitcoin. A single transaction can accommodate numerous payments, or it may not accommodate any. A single on-chain transaction can also involve thousands of off-chain payments with the Lightning Network for example. It is impossible to estimate the number of payments made by looking only at the blockchain. It is therefore absolutely irrelevant to compare the impact of a Bitcoin transaction with the impact of a payment in the traditional system (Visa, Mastercard...).
It is therefore fallacious to say that the energy consumption of Bitcoin is proportional to the number of transactions carried out. This type of claim testifies that the person who made it does not even understand the primary mechanisms of Bitcoin.
Second, it is technically impossible to perform an exact calculation of Bitcoin's carbon footprint. Estimating power consumption is already incredibly nuanced and dynamic, as evidenced by the complexity of The study by M. Khazzaka on this subject. Based on estimates from Digiconomist, some are making a new estimate on the carbon footprint associated with this energy consumption. It is impertinent to use these figures since they are estimates made from other estimates, for which the calculation methods are questionable on many points.
We can still rely on the estimation of the rate of use of renewable energies by miners. According to the Bitcoin Mining Council (BMC), 59.4% of the electricity consumed by mining in Q3 2022 came from sustainable sources. This makes the mining industry one of the most advanced in the world in its ecological transition. In this same BMC study, we learn that mining is becoming more and more efficient. In 2021, the average number of hashes produced per gigawatt was 17.7 ETH. In 2022, the observed efficiency increased to 21.7 EH per gigawatt consumed (EH = ExaHash = 10^18 hashes = 1 billion billion hashes).
This means that Bitcoin mining is using more and more green energy, and that it is one of the most admirable industries in this field. We also learn that from year to year, each unit of electricity consumed makes it possible to produce much more computing power.
Bitcoin: the ultimate use of lethal energies
Obviously, the BMC figures mentioned above may be biased, because they come from the mining players themselves. But what is certain is that the way proof of work works naturally encourages bitcoin miners to use green energy.
By definition, a minor's income is difficult to control. They mostly come from Coinbase rewards and transaction fees. Above all, they vary based on numerous factors that are not foreseeable. As a rational player in a competitive market, miners must however optimize their profitability, otherwise they risk bankruptcy. Since he cannot act on income, he will spontaneously seek to reduce his expenses. The biggest burden for the minor is certainly the cost of electricity. To stay alive, the minor must therefore look for cheap sources of energy.
Compared to other industrial players, he is fortunate to be able to move his production site to just about anywhere. A minor simply has to have a source of electricity and an internet connection. Today, with satellite network access solutions, miners have almost no geographic constraints.
In addition, there are more and more renewable energy production sites around the world. All these hydroelectric, wind and solar infrastructures have the specific characteristics of not being controllable and of being intermittent. In other words, unlike fossil transformations, their electricity production cannot adapt to changes in demand. These sites thus end up with production surpluses that nobody wants. However, electricity is difficult to store, especially in large volumes. It also suffers heavy losses during long trips. All these electrical surpluses, linked to sustainable production methods, are therefore often wasted. These are what we call “fatal” energies, i.e. energies that are considered lost if they are not used when they are available.
On the one hand, we then have industrialists without geographical constraints who have a vital need for cheap energy. And on the other hand, we have renewable energy producers who have a lot of non-recoverable electrical surpluses. Bingo! These two activities are perfectly complementary.
That is why the rate of miners using sustainable sources is much higher than in any other industry. Miners are naturally encouraged to go and get this green electricity. Those who do so optimize their profitability and can gain market share. The others, still connected to fossil fuels, will gradually go bankrupt, thanks to a natural market process.
The ecological benefits of Bitcoin mining
In the previous section, we saw why miners are naturally encouraged to look for green electricity sources. This principle also works the other way around. Renewable energy producers are spontaneously encouraged to take part in the Proof-of-Work mechanism. This allows them to make profitable all those surpluses that were previously lost. Bitcoin mining therefore makes it possible to encourage the construction of new ENR sites. It even gives them a competitive advantage over fossil fuel producers.
Finally, mining is the link in the electricity value chain that we were missing. Not only is it not an environmental disaster, but it could well be the driver of the global ecological transition. For the first time, it makes it possible to align economic interests with sustainable production goals, spontaneously, without any state intervention.
In an electrical value chain that cannot be controlled and does not require mining, the difference between supply and demand is experienced either by the customer or by the producer. When supply exceeds demand, the producer wastes the electricity produced and loses money. Conversely, when demand is higher, the population experiences power outages. Mining makes it possible to eliminate this risk of difference between supply and demand. With a value chain that includes it, when supply is higher than demand, miners value excess production. The fleet can thus maintain a high level of production, without reducing its economic profitability. When the demand of the population increases, the producer can unplug the miners in order to be able to ensure the necessary distribution. The producer will naturally prefer to provide electricity in priority to the population since they are in a position to pay a higher price than the minor.
In addition, mining can also be used to make a production site profitable in remote areas of the world, where demand is not necessarily sufficient, but where populations need it. It can also be used to make a power plant profitable while waiting for the deployment of all the distribution infrastructure. These last examples are not directly related to ecology. However, you will agree that Bitcoin mining can also have societal benefits, especially for poor and remote populations.
Another example of the ecological usefulness of Bitcoin mining is the valorization of natural gases found in crude oil, previously intended for flaring. Crude oil naturally contains gas in solution, also known as “associated gas,” which separates from the oil during the extraction process. In the majority of cases, due to the lack of commercial demand, this gas is burned directly without any use of its energy. This waste is due to different factors depending on the extraction sites. Some are too far away from consumers, others are located in a territory where gas infrastructures are rare, or even some are in regions where the gas market is already saturated. In all cases, it is often impossible to make the transformation and distribution of this gas profitable for oil producers.
Since the associated gas consists mostly of methane, it is forbidden to release it directly into the atmosphere. Oil extractors are therefore required to intentionally burn this gas. In fact, one kilogram of methane (CH4) released warms the planet 25 times more than one kilogram of carbon dioxide (CO2). This practice of burning gas is called “flaring”. In 2021, the quantity of flared gas is estimated by the World Bank at 144 billion cubic meters.
Not only is the energy of this gas wasted, but it is also a major source of pollution. Indeed, its combustion is necessarily imperfect and substantial quantities of methane are released into the atmosphere each year. In 2021, it is estimated that the associated gas was the source of 39 million tons of methane released.
To solve these problems of energy waste and pollution, we would need a nomadic industry, capable of exploiting waste energies directly at their place of production. You know this industry: it's Bitcoin mining.
Thanks to generators, it is possible to use the energy contained in the associated gas to produce electricity. Compared to the simple combustion of these gases, the generator makes it possible to avoid accidental releases of methane into the air, thus reducing the pollution associated with their treatment. The electricity generated can be used to mine Bitcoin.
Mining is currently the only solution to align the economic interests of oil producers, and ecological interests. It simultaneously makes it possible to valorize fatal energy, previously wasted, and to greatly reduce methane pollution linked to this industry.
In short, Bitcoin mining helps to deal with environmental problems that have been known for decades but that our leaders have never been able to solve.
The valorization of the heat produced by mining
The first law of thermodynamics states that the total energy of a closed system is constant. In other words, it is impossible to create or destroy energy. You can only transform it from one form to another.
The second law of thermodynamics states that the entropy of a system tends to increase over time. That is to say, the energy available in a system tends to be dissipated and distributed more homogeneously, finally by being transformed into heat.
The Proof-of-Work mechanism involves the use of computers to perform calculations. Miners thus use energy in electrical form in order to earn bitcoins by producing proof of work. However, the Bitcoin network only transmits information. According to the first law of thermodynamics, the energy extracted from the electricity used by the miner could not disappear. It is still there in other forms.
In fact, the vast majority of this energy is dissipated into heat due to the Joule effect in computer electronic components. Then, a tiny portion of the electrical energy is transformed into mechanical force for the fan, and eventually into light energy if there are small diodes on the machine. All that marginal energy will also end up being transformed into heat.
Therefore, there is no loss of energy in the mining process. Miners use electrical energy to produce heat, in exactly the same way as a radiator. This means that, for example, if you wanted to heat a room to 20° C, a radiator would consume as much electrical energy as an ASIC to raise the temperature to that level. Meanwhile, ASIC has also made it possible to produce computing power for Bitcoin.
ASIC is the acronym in English for “Application-Specific Integrated Circuit”, which can be translated “integrated circuit specific to a specific application”. An ASIC is a microprocessor designed to perform a single specific function. In the case of Bitcoin, these chips are optimized to execute the SHA256 hash function used in the mining process. By extension, what is called “an ASIC” refers to the computer machine that contains these chips.
There are then numerous solutions to valorize this heat produced by Bitcoin miners. They allow you to enjoy the heat produced while earning bitcoins through mining rewards.
For example, many bitcoiners who mine at home use their ASIC as additional heating in winter in order to finance part of their electricity bill. We can also mention the French startup Hestiia, which produces boilers powered by miners. This type of optimization works at the individual level, but there are also concrete applications for larger entities. For example, The city of North Vancouver In Canada, the heat generated by miners is reused to heat hundreds of public, residential and commercial buildings.
The valorization of heat dissipation from mining is obviously very beneficial for the environment since it once again makes it possible to align the economic interests of all rational market players with ecological interests. Indeed, if an entity heats itself with oil, gas or even coal, the establishment of a system based on mining would allow it to use electricity instead. The use of electrical energy, depending on how it is produced, emits less CO₂. Thus, individuals are economically encouraged to make this change since it guarantees them a new form of income.
The ecological benefits of sound money
In this article, we focused mainly on the impacts of Bitcoin mining because it is at the heart of all the criticisms. However, if we take a step back, we can also think about the environmental impacts of using a hard currency like bitcoin in our society.
The monetary emission of Bitcoin is degressive, determined in advance and limited to a total of 21 million units. If Bitcoin is used as a currency, its limitation of the money supply would allow the establishment of a deflationary economic system. Since the monetary supply would not budge, the prices of goods and services would slowly decrease. Each unit of currency would thus gain in purchasing power over time. This would naturally encourage every rational actor to prioritize savings over consumption. This type of system would put an end to the overconsumption that is largely responsible for the current climate crisis.
Deflation is even the only mechanism that makes it possible to reach all economic agents, by promoting savings for consumption, without requiring them to reduce their individual freedoms.
Beyond this hard currency asset, bitcoin is also a currency that cannot be captured and managed by the state. Its adoption could support the emergence of great inventions and discoveries for humanity, and therefore potentially, innovations that would solve our climate-related problems.
To understand this, it is important to know Joseph Schumpeter's theory of creative destruction. This theory focuses on the importance of innovation and entrepreneurship for economic growth. According to Schumpeter, innovation is the engine of the economy because it allows entrepreneurs to destroy old business models by introducing new processes. This destruction creates a dynamic of change that stimulates economic growth by eliminating inefficient businesses and creating new opportunities.
In other words, Schumpeter sees innovation as a dynamic process by which entrepreneurs achieve productivity gains by introducing innovations that upset the existing economic balance. But, today, innovation is restricted since the State prevents any destruction. As soon as a company or sector is in bad shape, he arrives to top up the coffers. With the democratic system of five-year terms, politics has only a short-term vision. He will therefore always prefer to choose the easy way to guarantee his popularity rating in the short term.
Obviously, these “rescues” have serious economic and social consequences, but they also have repercussions on the ecological transition. Since they prevent zombie businesses from dying, they also prevent innovators from emerging spontaneously through the principle of creative destruction. It is then possible that we are currently missing out on disruptive innovations, allowing us, for example, to get out of this climate crisis at the top, simply because of the mismanagement of our currency. Bitcoin could also solve this, since the separation of currency and the state limits the state's budget to the tax it collects and possibly to the private debt it obtains. He could no longer borrow frantically from the ECB (European Central Bank), creating inflation in the process, in order to extend his budget indefinitely. The State should thus rationalize its spending, and could no longer prevent destruction, ultimately leading to innovation.
Conclusion
The source of criticism of Bitcoin's environmental impact is its proof-of-work power consumption. However, it is absolutely necessary for the proper functioning of the peer-to-peer system. It makes it possible to establish a significant marginal cost for multiplying votes, in order to avoid Sybil attacks.
Since this marginal cost is paid for from a natural and universal resource, the resulting Nakamoto consensus principle is intrinsically open, contrary to established consensus on proof-of-stake such as Ethereum.
It is important to be critical of the figures put forward on the impact of Bitcoin by certain media. The underlying studies are often biased and of poor quality. The data drawn from them are generally extrapolations excessively highlighted by the media and politicians to create a buzz.
In reality, mining is both a good student of ecology and an essential link in the fight against global warming. The way proof of work works naturally encourages miners to look for green energy, which is usually wasted. This makes mining the most advanced industry in the world in its energy transition.
Since it allows the valorization of certain waste energies, it promotes the implementation and profitability of renewable energy production sites. Moreover, its use on oil extraction sites would greatly reduce pollution linked to methane emissions, while exploiting these associated gases, which were previously poorly burned by flares.
There is also a lot of work to be done on the valorization of the heat produced by mining. Some applications of this principle are beginning to emerge, both for individuals and for larger entities.
Finally, beyond mining, the establishment of a Bitcoin monetary standard would put an end to overconsumption. It would also ensure the natural process of creative destruction in the economy, allowing us to achieve more disruptive innovations for ecology.
No, Bitcoin is not an environmental disaster. On the contrary, it could well be the engine of the ecological transition.
