Have you heard that bitcoin mining is good for the environment? Yes, that was news to me too. I was under the impression that Bitcoin is bad in capital letters, yet another thing that contributes to climate change. But once I started looking into this, it turned out to be much more controversial, and much more interesting, than I thought. So what is it, is bitcoin good? Or is it bad? Thatâs what weâll talk about today.
Bitcoin is the currently most widely used digital currency, a sort of virtual money that isnât owned or regulated by any government. What makes it so appealing is that itâs created and used in an entirely decentralised system. Itâs bottom-up finance, basically, from the people, for the people. At least thatâs according to Roger Ver, aka Bitcoin Jesus, who was recently arrested for fraud and tax evasion. So. maybe take that with a few grains of salt.
But where do bitcoin come from? Well, much like gold coins, they come from digging, but you donât dig in the ground, you dig in mathematics. Bitcoin mining means finding a very large number. This number has to properly fit with the previously found numbers to give a result in a target range. The only known way of doing this is to just guess very large numbers and try them, one after the other. Finding such a number is computationally extremely expensive, but once youâve found it, itâs easy to confirm that it works. This is called the âProof-of-Workâ. If your number has been proved to work, you get a certain amount of bitcoin in return.
The trouble is that the calculation for the Bitcoin mining requires a lot of electricity and that requires a lot of energy. Itâs now roughly 150 Terawatt hours per year, thatâs about as much as the entire nation of Poland, and more than half a percent of the electricity consumption of the entire world. And itâs going up.
I have to admit that the first time I heard that Bitcoin mining takes up that much energy I couldnât believe it. But it sounded much more plausible after a friend, who is very into gaming told me just how much power his gear consumes. For example, Nvidiaâs new GPU consumes a kilowatt in power, thatâs about as much as an electric stove.
Whatâs so revolutionary about Bitcoin mining is that, since it can be traded into traditional money, anyone who has access to energy can make money. This has made Bitcoin mining very appealing for countries which are rich in energy but poor otherwise. For example El Salvador, which sits on more than 20 volcanoes and generates about a quarter of its electricity from geothermal sources. The El Salvador government has successfully mined almost 500 Bitcoins, worth almost 30 million US dollars.
Bitcoin mining is particularly attractive in areas where energy is abundant, but that are far off any big electric grids, so they canât make profit selling the energy locally. There is a national park in Congo for example that runs a bitcoin mine from a hydroelectric power station and uses the money to protect wildlife. In rural Kenya, a crypto company is mining with solar power and geothermal energy. And thatâ s now also providing electricity to towns in the area. Basically, the bitcoin mining made it worth investing into building the power plant. You can maybe see now why some people are excited about this. Electricity is the major cost factor in bitcoin mining, so itâs basically a way to put a price on energy. That creates a strong incentive to use energy very efficiently, anywhere. This is why bitcoin advocates are saying that mining encourages innovation, balances grids, and âhas the power to redistribute wealth and to help end povertyâ.Sounds good doesnât it? Itâs like solving world hunger with a really big calculator. Ultimate proof that maths is actually good for something. Yes, nice idea. But the trouble is that cheap electricity isnât the same as environmentally friendly electricity. For example, one Bitcoin mining operation in central New York, Greenidge Generation, resurrected an old coal power plant that now runs on gas. It delivers about 44 megawatts to run 15,300 computer servers. They mined more than 409 bitcoins during the first quarter of 2024, thatâs more than 25 million dollars. In Montana, a bitcoin mining operation is buying 100 percent of the energy from a coal power plant. In Kentucky, the state government is offering tax breaks to attract Bitcoin miners and save coal companies. Itâs now is the state with the highest Bitcoin carbon footprint in the US
Indeed at the moment most of bitcoin mining is done using fossil fuels, though the fraction has gone somewhat up and down, depending on laws and regulations. For example, in September 2021, China banned both crypto mining and trading, and many operations left the country. Alas, in China the mining was done mostly with hydropower, so it had a very low carbon footprint. After that, bitcoin mining moved to cheap gas in the US and Kazakhstan, consequently the carbon footprint went up. Scientists have estimated that, in 2022, Bitcoin mining was responsible for more than 65 megatons of carbon dioxide emissions. That is more than the emissions of the whole country of Greece and roughly 0.2 percent of global emissions. Bitcoin isnât the only cryptocurrency of course, but itâs still the most widely used one and generates approximately two-thirds of all greenhouse gas emissions from cryptocurrencies. But the good thing about Bitcoin is that it indeed creates a big incentive to improve energy efficiency. For one thing, the more people mine, the more difficult it becomes, so competition drives the need to improve mining. And more importantly, in regular intervals that are roughly every 4 years, the bitcoin reward for mining goes down by one half. The last such halving event just happened in April. This means that miners need to at least double their energy efficiency every four years for their business to remain profitable. And indeed, efficiency has improved greatly: Bitcoin mining began with general-purpose CPUs and GPUs, basically normal computers. Then it transitioned to so-called field-programmable gate arrays, that are circuits that can be reprogrammed after manufacturing. The current state of the art is Application-Specific Integrated Circuit, theyâre the modern version of money printers basically. So mining has become more efficient mostly thanks to increasingly specialized hardware, a general trend we are currently seeing in computing. As a consequence of this, the energy efficiency of Bitcoin mining has improved by two orders of magnitude in one decade. So you see weâre wasting energy much more efficiently now. Â
And of course it doesnât have to be done with fossil fuels, it could be done using renewable energy. This is why Bitcoin supporters say that mining will speed up the transition to renewables because energy means money. And thatâs right in the sense that it gives people a reason to invest in renewables. But that in and of itself doesnât make bitcoin mining good for the environment, it just makes it less bad. And, as we saw earlier, itâs also helping to keep fossil fuel companies in business. So itâs a mixed bag, and itâs half full of coal.
Another argument of Bitcoin enthusiasts is that mining is good because it makes use of oversupply. That is, it helps renewable energy providers to remain profitable if no one wants the energy that they produce with say, solar, or wind. And make renewable energy sources profitable faster, because often it takes time to hook them up to the grid. Â According to a study from researchers at Cornell for example there are 32 planned renewable installations in Texas which could produce profits of 47 million dollars before they start operating commercially if they were mining Bitcoin.
However, during a heatwave last year, the Texas government paid a bitcoin miner more than 31 million dollars to power down. Still it is true that Bitcoin mining can help make renewable energy more profitable and make it profitable faster.
Another thing that Bitcoin mining is good for is to use energy that is inconvenient to use for other purposes. An example for this is methane flaring methane or venting it.
In principle, burning methane, the main constituent of natural gas, creates energy. But if the methane leaks along a pipeline or bubbles out of the ground in a place thatâs just too far away from any existing power plant, it makes no economic sense to use that energy. So they either do a controlled release, which is called venting, or they burn it off, which is called flaring.
It's an idiotic practice because not only do we not use the energy, methane is also a greenhouse gas. So either they burn it and create carbon dioxide, or they vent it and that also contributes to global warming.
In 2022 flaring resulted in 500 million tons of carbon dioxide equivalent in greenhouse gas emissions. This is about 1% of the global total, so not a small amount. And weâre not getting anything out of it.
This is where Bitcoin mining comes in. Bitcoin mining operations can be local and mobile, and they can be deployed when and where the gas is vented or flared. So that it doesnât go to waste.
For example, the company Great American Mining tried that with small container mining operations that could be sent to places easily. However, they ran into difficulties when Bitcoin price went down in early 2022. Later that year, the company was bought by Crusoe Energy Systems, which works on the same thing. Â And that is a nice idea, but in the end the carbon dioxide still gets into the air, and it also creates more money for the fossil fuel industry which some people object to. Another idea that Bitcoiners have come up with is to do the same with methane that escapes from landfills and wastewater plants. Itâs basically biogas, just that no one is using it. According to the US Environmental Protection Agency, municipal solid waste landfills are the third-largest source of human-related methane emissions in the country, accounting for over 14% of these emissions in 2022, about 25 thousand metric tons of Carbon dioxide equivalent. Thatâs not a huge amount, but still, half of the time the gas goes unused.
Crypto mining operations can go there and use that energy to make money, because what screams "innovation" more than running a cryptocurrency company off of trash? This works especially well for remote or small landfills that donât produce a lot. In this case it makes no financial sense to build infrastructure to use the gas to power the grid. But bitcoin mining does make financial sense.
The American company Marathon Digital Holdings is working on exactly that, a 280 kW Bitcoin mining pilot project in Utah exclusively powered by landfill methane gas. The company Vespene, headquartered in California, also has such a pilot plant in Wisconsin that they say will be fully operational later this year. Â And a crypto enthusiast in New Jersey mines bitcoins from his own farts. Nah, I made this up, but canât be long until we get there.
It sounds like a sensible idea to use energy that otherwise would go to waste. But then again, that energy could be used for better things. For example, you could use the landfill gas to power EV charging stations. Indeed, in the US there are already over 500 projects that use landfill to generate electricity or natural gas.
There is a completely different way to make Bitcoin more sustainable which is just to change the way itâs being mined. As I said in the beginning, to get bitcoin for your energy you need to have a âProof-of-Workâ, that is, you must provide a number that everyone agrees on actually does the job. The problem is that the computation you have to do for that requires a lot of energy. So an option would be to change the consensus algorithm for what is required to get your bitcoins in the first place. A candidate for the new consensus algorithm is known as Proof-of-Stake.
In this case, the mining and approval is replaced by a proposal for a new entry, and a random choice. The proposal comes with a âstakeâ, that is the amount of currency you are willing to put into it, hence the name. The higher your stake, the higher the chances that your proposal gets validated. In case that made as little sense to you as it made to me, the bottom line is that thereâs no difficult maths problem to solve, so the process is dramatically more energy efficient.
It's unlikely that Bitcoin will change to a different algorithm though. More likely and more feasible is to switch to an already existing cryptocurrency that is more environmentally friendly. Ethereum 2.0 for example is a cryptocurrency that uses Proof of Stake and is way more energy efficient than Bitcoin, according to some estimates, about a factor 30 thousand.
Of course, making cryptocurrencies themselves more energy efficient removes the argument that itâs a great incentive to develop energy efficient technology, so in the eyes of many people in the business itâs somewhat pointless. Â
A different movement to make cryptocurrencies more environmentally friendly is to increase the fraction of renewable energy thatâs being used in mining. This is the idea of the Crypto Climate Accord, an initiative launched in April 2021 with the aim to get to 100% renewable electricity use by 2030, and to net-zero greenhouse gas emissions by 2040. Over 200 companies and individuals have joined it so far.
I learned a lot while I was working on that script, and I think I now understand better why bitcoin is so controversial.
The basic issue is that bitcoin mining takes up a lot of energy that *could be used for something better. But in reality, it often isnât used. A lot of energy just goes to waste. And then bitcoin mining can step in. Because with bitcoin mining people can make money from energy that would otherwise go to waste. It's like finding money in the sofa cushions, except your sofa is a volcano and the money is a bit string.
Bitcoin mining has benefits beyond not wasting the energy because it encourages energy-efficiency. The trouble is that a lot of cheap energy that can be used for bitcoin mining has high carbon dioxide emissions. So while energy efficiency is all well and good, in and of itself it doesnât make bitcoin environmentally friendly.
The rise of cryptocurrencies is a fascinating development thatâs changing the entire world economy and financial system. That might be a good thing. Or it might be a bad thing. What do you think? Let me know in the comments.tcoin: The Good, the Bad, and the Truth
