Arguments for and againstbitcoin mining!
Now that Elon Musk and Tesla haveback-tracked from their position about Bitcoin and declared their concern aboutthe environmental impact of the cryptocurrency, the old debate is back. Addingto the plight, the latest crackdown by the Chinese government has worsened the situation for digital currency proponents.
The year 2021 has been aroller-coaster for the cryptocurrency world. It was looking like finallythe intangible digital currency idea is being officially embraced. Manycompanies in the world today accept cryptocurrency as a form of digitalpayment. Tesla was the latest to announce their will to accept bitcoin as apayment for their electric vehicles. It is widely known that Tesla’sinternet-star CEO Elon Musk has been a great cryptocurrency enthusiast.
Elon Musk has always been vocaland supportive of cryptocurrency. His regular tweets about cryptocurrencieslike bitcoin and dogecoin have caused the digital currency's prices to go up. He even tweeted avideo to sell as an NFT which received a bid of $5 million; Musk later retreatedfrom it. However, his commitment towards bitcoin or cryptocurrency was thoughtto be unwavering till now. Tesla even bought 1.5 billion worth of bitcoin,which they still hold as a reserve.
So Musk's retreat came as a shockto the crypto enthusiasts. Musk said, “Cryptocurrency is a good idea on manylevels and we believe it has a promising future, but this cannot come at greatcost to the environment.” His comment wasn’t well-received by the cryptocommunity but welcomed by the environmentalists.
This recent chain of events hascaused the crypto market to go through up and down. Bitcoin is infamously knownfor its volatility, so its price will have an impact due to such incidents.Last week, Bitcoin and most other popular cryptocurrencies lost asignificant amount of their market value. Bitcoin had lost around $70 billionof its market value within 24 hours.
All these fusses have stirred the debateabout the environmental damage caused by bitcoin and other similarcryptocurrencies. However, this issue isn’t new.
So, does bitcoin really leave a significant carbon foot-print we needto worry about?
Well, Bitcoin certainly consumesplenty of energy, and that’s where the criticism starts. Critics have beenraising their concern about the access energy consumed by the bitcoin network fromthe very beginning.
However, every time the topic ofenvironmental impact is raised, we see divided opinions between the two groups– the environmentalists and the crypto enthusiasts. Advocates of cryptocurrencycome up with their own arguments to make their case.
If you are wondering how harmfulbitcoin or cryptocurrencies are for the environment, let's dive with us.
What is Bitcoin anyway?
You have to live under a rock tonot come across the terms – bitcoin and cryptocurrency. Bitcoin is acryptocurrency that uses a peer-to-peer network with no central authority. Thedigital currency was invented by an anonymous person (or a group) under thepseudonym ‘Satoshi Nakamoto’ in 2008.
The minds behind Bitcoin had thevision to liberate the global financial system through creating a decentralizednetwork that will be free of central authority dictating who owns what or how.It is an online replacement for physical money.
Bitcoin is about creating a libertarian society where financial freedom will be earned.
How Bitcoin hurts the environment?
Bitcoin is energy-consuming; thisfact is undeniable. You just don’t burn a country’s worth amount of electricityand have no carbon footprint. The key criticisms of bitcoin and similarcryptocurrencies surround around following points:
· 1.Mining Operation
· 2.Equipment
· 3.Energy Source
· 4.Comparative Data
Mining:
Bitcoin stands on two key aspects– the democratization of the monetary system and the creation of a highly secure network. Bitcoinworks on a process called mining. Miners must go through complex work tocreate a new bitcoin, and mining new coins take a lot of computing power. Thisenormous computing comes with a cost – an enormous amount of energy; miners have ahuge monetary motivation to burn an awful amount of energy and that’s theproblem.
This design of the process iscalled the proof-of-work algorithm. This mechanism is used to reach a consensus amongthe nodes in the network to secure the Bitcoin Blockchain. There will be no newbitcoin without the miners. Bitcoin has a limited stock of 21 million coins and18.5 million bitcoins have been already mined since its inception. However, dueto the complexity of the system, the last bitcoin won’t be mined before theyear 2140.
Proof-of-work algorithm requiresall the nodes in the network to solve a cryptographic puzzle. Miners solve thepuzzle, and the first one to reach the solution receives a reward. Currently,miners receive 6.25 BTC, which equals around $200,000 today. This processtakes around 10 minutes.
Effectively, what bitcoin doesevery 10 minutes is that the whole network holds a lottery. Miners enter thegame by solving a very hard puzzle on their computers. This puzzle orcalculation is termed useless by the critics of cryptocurrency. The onlyreason you are solving this complex puzzle is to prove that you have createdsomething rare – a proof-of-work.
The first reward is what most peoplethink of when they start bitcoin mining – it’s financial. The second reward isvery crucial on the network. The miners earn the ability to verify everytransaction that occurred in the network. This is exactly how the bitcoin networkwas designed to work. Now, you have plenty of people working on solving thosepuzzles to mine new coins. And, this is where the problems start.
This extremely competitive gamerequires miners to equip themselves with powerful computing machines. In theearlier times of the cryptocurrency, you could do bitcoin mining with a regularhome desktop. The scale of the game has gone extremely up lately. The bitcoinwinners are often the one who is equipped with a heavy machine – roughly inproportion to the amount of energy they burn.
Now, hold your horses. If you arethinking that these miners are individuals working from home with theirpersonal computers, you couldn’t be any more wrong. There are many giganticmining facilities in the world, where hundreds and thousands of miners are runningtheir operation.
These mining facilities use verypowerful machines for their operation. For obvious reasons, they requiremassive storage and cooling facilities too.
So, these are the followingissues related to bitcoin mining:
- -Proof of work concept
- -It is designed to be complex
- -Massive mining operations
- -Massive amount of equipment
- -Huge amount of storage
- -A large amount of cooling
Even miners seek cheap resources:
How does bitcoin manage thisaccess amount of energy?
Bitcoin miners themselves seek cheaper options to minimize the cost. They tend to gather in places wherethey can find affordable electricity. They also opt for places that have verycold weather, so that they won’t have to spend a big sum of money to cool their computers. However, the bitcoin network still consumes roughly $41 million’sworth of electricity per day. That’s always going to be considered as a veryhigh amount of electricity consumption.
Now, the energy source is anotherlooming problem. Since miners seek affordability, they move to the cheapestoptions available. That’s why China holds 3/4th of the total bitcoinmining operation. The problem with that is a very high percentage of theirelectricity comes from Coal-based power plants – 62.2%. It could also be ascheap as 3 cents per KWh, which, inevitably, attracts bitcoin miners from allover the world. Coal is known as the dirtiest source of electricity.
How does bitcoin’s energy consumption compare in numbers?
The biggest criticism of bitcoincircles around its comparative energy usage. We are talking about a networkthat consumes around $300,000 every 10 minutes. That whole network was builtlike that. Currently, the network consumes around 121 TWh of electricity peryear. That is roughly two and half times the electricity used by bigcorporations like Amazon, Facebook, Microsoft, Google, and Apple combined. Thisis definitely going to leave a massive carbon footprint on the environment.
The amount consumed by bitcoin isalso big enough to compare it to the annual electricity consumption of wholecountries. Currently, the bitcoin network consumes more electricity than the entirecountry of the Netherland. It actually holds 33rd place in the annualconsumption index just behind Pakistan (125.8 TWh). It is half of whatAustralia consumes in a year.
- Here are some of the interestingfacts about it:
- -It produces 57.8 Mt of CO2; equal to the carbonfootprint of Libya
-S- A single bitcoin transaction requires 1308 kWh;this can easily power an average US household for over 44 days
- -Single bitcoin transaction produces 621 kg ofCO2; this is equal to the carbon footprint of 1.4 million Visa transactions
- -103,500 hours of Youtube videos can be watchedwith the amount of electricity required for 1 single transaction
- -Bitcoin uses 0.55% of total global energyaccording to the study of Cambridge Center for Alternative Finance (CCAF).
- -Total electricity consumption has increased bymore than 50% since the beginning of 2021
- - Both bitcoin andNFTs generate huge volumes of carbon emissions. Creating an average NFT willgenerate around 200 kg of carbon.
This gigantic amount of energyconsumed by the bitcoin network, effectively, leaves a significant carbonfootprint in the environment, and, therefore, impacts it negatively.The energy usage is going to use with time as it seems. In 2014, we had 300,000transactions. It increased to 25 million transactions in 2019. It is equivalentto power 7 million US houses. The amount could increase to 1 million transactionsper day.
So, how could this impact the climate?
That’s the scariest part. This energy-devouring nature of the bitcoin network and the subsequent carbon emissioncould become devastating to nature. According to the reports, we couldreach 2 degrees of global warming by 2033. This will bring huge catastrophe to not only the humans but also to the animals, and the fauna and flora of the world.
Defenses and arguments:
The cryptocurrency community throws few arguments to defend bitcoin that suggest it’s not as bad as it seems. Hereare the top arguments:
- -A lot of electricity comes from renewablesources
- -Stranded generation
- -It’s worth it
It’s not as bad as it seems:
The cryptocurrency community arguesthat a big chunk of electricity that bitcoin uses comes from renewable sources.This information is not completely wrong. A study from the Cambridge Universityshowed that about 39% of the electricity used by bitcoin is renewable. That’s acommendable statistic. In fact, there are very few industries in the world thathave reached that amount of renewable energy. However, that means still 61% ofthe electricity comes from sources that use fossil fuels.
The other problem, critics argue,is that this energy could be used for other things. Fossil fuel industries arealso keen to leveraging their resources to install generations for bitcoinmining rigs. For instance, Norwegian energy giant Equinor proposed to installgeneration on the natural gas (methane) flares. They aim to reduce theirflaring from oil operations through bitcoin mining. Big firms like UpstreamData and Greenidge Generation are already using a similar method. Gas flares areundesirable for the environment. Miners and oil drillers seem to bond on thissubject. Oil and natural gas come from the same wells. However, crude oil drillers,currently, have no way to process that gas to sell in the market. They tend to burnit as flaring or emit on to the environment directly as methane.
Now, they are offering these gasflares to the bitcoin miners sometimes for free and sometimes for money. It ischeaper, hence, miners are moving their rigs to these oil fields. Miningoperation company EZ Blockchain has a partnership with oil and gas servicecompany Silver Energy to use stranded gas. It gave the latter an option tomonetize their wasted energy. 10 large-scale mining operations in
North America run on stranded gas.
It means that they are alsomaking money from emitting carbon. Another problem with the idea is that it,effectively, keeps them away from finding alternative solutions to avoidemitting that hazardous gas.
Stranded Generation:
Second defense bitcoinenthusiasts use is that some of the resources they use are stranded generation.It means these resources wouldn’t be in use even if bitcoin doesn’t exist. Accordingto them, bitcoin runs on stranded generation and it acts as a global battery.Without bitcoin, these generation sources would be wasted. It provides a methodto commercialize clean and renewable energy, and it reduces capital damage.
According to bitcoinsupporters, many of these renewable facilities are poorly located andunderused. Bitcoin mining is the only working solution to keep them running.Otherwise, these facilities would have been shut down. For example – in China,provinces like Sichuan and Yunnan have big hydropower electricity facilities.Plenty of produced energy over there is wasted, especially in wet seasons.Bitcoin mining actually uses that wasted energy.
However, bitcoin critics don’tagree with this line of argument. If you are paying someone for their strandedasset, you are, effectively, paying to keep it stranded. You would wantelectricity to be connected to the grid so that it can be used for moreproductive purposes. If you use them for a singular purpose, it means that nowthey have become dedicated energy sources for bitcoin. It is difficult to lookat that and agree that it is a great idea.
It’s worth it:
The final argument rejects theentire debate of electricity consumption. It is a fact that the Bitcoin network isenergy devouring. It consumes as much electricity as Sweden or Netherland, buthow much should a monetary system consume?
Bitcoin defenders argue that weshouldn’t be talking about its energy consumption because the return value isworth it. It’s an opportunity for 8 billion people to liberate themselves fromfinancial repression. There shouldn’t be any policing regarding it. After all, electricityis used for lots of things. It is used for leisure activities, sports, andentertainment. How productive are these activities? But, we don’t talk aboutit.
However, bitcoin doesn’t just useelectricity. It uses 0.55% of the total global electricity. There is definitelya scale mismatch when they bring this argument. People use electricity forvarious purposes, but the amount of electricity consumed by bitcoin isastronomically high. Bitcoin handles only seven transactions per second. Visa,a bank card provider, can handle thousands of transactions per second. It isequivalent to driving a car for more than 500 miles. Unless, we find we workingsolution that unprecedentedly reduces the power consumption of the network, orsignificantly increases the efficiency, we can’t agree that it could be adependable financial system.
What are the alternatives?
Talks about bitcoin’s energyusage have always been there. Proof of work mechanism seems to be the biggestcause of that consumption. People have often tried to propose alternativesolutions to it. Proof of stake is one of them. Like proof-of-work,proof-of-stake also runs on algorithms, but it works differently. This methodproposes that instead of letting all users compete for mining, use a selectivepool of users. The user will be chosen from a pool of users, who already have astake in the cryptocurrency.
In this method, a user can mineor validate transactions in proportion to the coins he holds. It means a minerwith more coin, would have more power. The stake could be compared to a securitydeposit. It keeps the user checked while validating transactions. Validatorswill lose part of their stake if they approve fraudulent transactions.
This method is also usefulagainst the 51% attack. In bitcoin Blockchain, 51% attack means when a miner orgroup of miners captures 51% of the computational power. This, currently, makesit very difficult to hack or gain 51% power. However, in the future of point timewhen the number of miners reduces due to little reward, it may become vulnerableto 51% attack. Fraudulent transactions may be registered if that ever happens.In the proof of stake concept, it makes it useless for a minter to attack the networksince they hold a majority of the share over there.
Conclusion:
Bitcoin is a novel financialsystem and we have to support that. It is an undeniable fact that the networkconsumes plenty of energy. It is up to the cryptocurrency community to work in goodfaith and come up with an affordable solution to reduce the environmental impactcaused by the bitcoin network.
The original vision with which the cryptocurrency was invented can truly change the world if it succeeds. With a fast-paced changing time, we don’t know how the future will take shape. Cryptocurrency might become a big part of that unforeseeable future. It couldbecome truly liberating like it was envisioned when it was invented. However,it needs to acknowledge the subsequent environmental concerns too.
