Bitcoin is on a collision course with ‘Net Zero’ promises
Every year countries are pressured to ramp up their climate change commitments at the COP conference — and Bitcoin mining is an easy target.
Each year at the annual UN Climate Change Conference (COP), individual countries are pressured to ramp up their emissions reductions promises and showcase evidence they are taking steps to meet them.
With Bitcoin mining blamed for using as much power as an entire country, and politicians searching for easy targets to strike, the industry appears to be on a collision course with these global commitments to achieve net-zero emissions.
While it’s not possible to ban Bitcoin completely, lawmakers and regulators can tank the price and make life very difficult in the years ahead for the number one cryptocurrency.
There are signs its already happening.
A report from the European Commission at the end of 2022 stated that EU countries must be ready to block crypto mining, and the trading blocks new MiCA rules were at one stage set to include a ban on Bitcoin mining. The recently adopted legislation still leaves this door ajar, however, aiming to reduce the high carbon footprint of crypto-currencies by making service providers disclose their energy consumption.
Across the pond, the Biden administration has proposed a 30% excise tax on the power consumption of U.S. cryptocurrency mining operations. The tax would be imposed regardless of whether the power is renewable, with the administration arguing Bitcoin minings power consumption of renewable energy will slow down the transition to Net Zero. Thats in contrast to a New York moratorium on Bitcoin mining in 2022 that exempted firms powered by renewable energy.
The U.S. government appears to be taking to heart the White House Office of Science and Technology Policys September 2022 report that claimed the environmental impact of producing cryptocurrencies could impede U.S. efforts to combat climate change.
Former member of the Bitcoin Mining Council and independent researcher Hass McCook doesnt mince his words about threats to ban mining.
Governments should focus on greening their grids, which miners rely upon, as opposed to trying to ban an unbannable technology.
The Swedish government was behind last years push to outlaw crypto mining in the EU and, last month, took steps to price Bitcoin miners out of the market by abolishing various tax incentives. Starting in July, Sweden will increase the electricity tax by 6,000% from 0.006 Swedish kronas ($0.0006) to an extraordinary 0.36 kronas ($0.035) per kilowatt-hour (kWh).
Governments around the world are actively looking at Bitcoin minings energy consumption, explains Brad van Voorhees, co-founder and CEO of Sustainable Bitcoin Protocol, which incentivizes the use of renewables for mining.
Sweden has already imposed a 6,000% tax on energy for BTC mining, and the Biden administration has proposed a 30% tax, which would undoubtedly mean miners move offshore, he adds.
The tax will likely never pass in the U.S., but nonetheless, the sector should focus on clean energy use and data transparency to mitigate this risk.
Others agree with van Voorhees that Net Zero is an opportunity to set Bitcoin mining on a new and more sustainable path. Morten Rngaard is a member of the Nordic Blockchain Association and CEO of Reality+, a Web3 and blockchain company.
The collision between Bitcoin and Net-Zero commitments is a call to action. Its an opportunity to harness the power of innovation and renewable energy, steering both towards a greener and more inclusive landscape, he says.
Good cop, bad cop
The focus on Bitcoin mining power usage was given additional impetus after Ethereum moved to proof-of-stake last year and saved 99.95% of its energy consumption as a result. While Bitcoiners believe PoS stands for piece of shit, the success of the blockchains energy transformation has made Bitcoin look like it is stuck in a corner using anachronistic tech.
There are now groups demanding changes to Bitcoins underlying protocol as well.
Greenpeaces Change the Code Not the Climate (Clean Up Bitcoin) lobby group is pushing to change Bitcoins consensus mechanism from proof-of-work, to proof-of-stake.
We know a basic software code change would reduce Bitcoins energy use by 99.9%. If only 30 people the key miners, exchanges, and core developers who build and contribute to Bitcoins code agreed to reinvent proof-of-work mining or move to a low-energy protocol, Bitcoin would stop polluting the planet. So why isnt Bitcoin changing its code?
This is misinformation, however, given the Bitcoin community needs to agree on a change, rather than a small group of just 30 people. The Bitcoin community split over the much smaller change of increasing the block size in 2017, leading to the Bitcoin Cash and Bitcoin SV forks, so the chances of an agreement to change the fundamental nature of the technology are hard to envisage at this point.
The industrys big hope to date has been that progressively moving away from fossil fuels to rely more on sustainable and renewable power, such as wind, solar and hydroelectric power, will placate governments.
But as the Swedish and U.S. governments have said, that may not be enough. For governments and regulators trying to comply with their international climate change commitments, there will be a bunch of hard decisions to be made. Even a mining industry 100% powered by renewable energy could be a target, as that emissions-free energy could be freed up at the stroke of a pen to help a more politically valuable industry, like manufacturing, meet emissions targets.
How much power does Bitcoin use?
The Cambridge Bitcoin electricity consumption site estimates Bitcoin network power demand and is updated every 24 hours and works with all major actors to cut down on carbon emissions. It conducts experiments to evaluate Bitcoins environmental footprint assuming the worst-case scenario.
By using the latest annual power consumption estimates of 143.63 TWh and, assuming that all this energy comes exclusively from coal, and is generated in an inefficient coal-fired power plant, the Bitcoin footprint would be 11 million metric tons of carbon dioxide emissions. Thats around 0.35% of the worlds total annual emissions.
Bitcoiners point out that the network uses less power than the banking system (200 TWh) and a majority of the power used by the industry is renewable. They also claim mining can incentivize renewable electricity generation and make marginal green power projects viable.
But even taking these factors into account, mining still uses a ton of power, to which Bitcoiners argue that its energy well-spent securing the hardest and best money known to humanity.
If you are anti-#Bitcoin mining you have positioned yourself against one of the world’s best technologies for advancing electrification and carbon free energy.
There is no technology available and ready today that can push us towards the future better than #Bitcoin mining.
Dennis Porter (@Dennis_Porter_) May 12, 2023
But non-Bitcoiners tend to look at the power use of the alternatives. The site estimates that Ethereum is using around 6.76 GWh per year. In other words, Bitcoin is using 21,000 times more power per year.
According to the Crypto Carbon Ratings Institute, before its transition to proof-of-stake, a single Ethereum transaction used 200.05 kWh of electricity, on par with how much the average U.S. household uses in 6.7 days.
According to Digiconomist, that consumption is now as low as 0.03 kWh, and the carbon footprint stands at 0.01 kgCO2, which is equivalent to the energy used when watching two hours of YouTube.
(Please dont email us to point out that the network uses the same amount of power regardless of the number of transactions we know, its just illustrative).
Digiconomists Ethereum Energy Consumption Index highlights just how radically different PoW power consumption is to PoS.
U.K.-based Block Dojo describes itself as the largest Bitcoin blockchain incubator in the world, but in fact, its based on the Bitcoin fork Bitcoin SV. It claims to be responsible for 24% of all blockchain investments in the United Kingdom. Chairman James Marchant says the energy use of Bitcoin is an opportunity for other blockchains like Bitcoin SV.
The total energy use versus the number of transactions BTC can process per day is catastrophic. BTC does not implement the protocol as per the Satoshi white paper. We are seeing developers and entrepreneurs turning to a scalable blockchain solution away from BTC, and Net-Zero objectives is one of several key reasons for this, he says.
Movement for change
The people driving the crypto industry forward are likely to be the younger demographic, Generation Z, which is increasingly sensitive to climate change concerns.
But the industry is not hiding its head in the sand, with bodies like the Bitcoin Mining Council attempting to address such concerns.
Welcoming Bitcoin miners of all shapes and sizes it accounts for about half the worlds miners now the Council is a voluntary forum that shares best practices and educates the public on mining.
Its most famous, and first, member is MicroStrategy boss Michael Saylor, who arranged the first meeting of the Council and is a strong adherent for managing miners energy use and employing sustainable alternatives.
Its latest quarterly report (based on self-reports from a survey and then estimated across the remainder of the industry) suggests miners are currently using a 58.9% sustainable energy mix.
Renewable energy can potentially mitigate Bitcoins environmental impact. There are many examples of mining facilities now powered by solar, wind or hydroelectric energy or using stranded energy or mining using flared gas that would otherwise be wasted. If the renewable energy lobbys claim that green power is the cheapest form of electricity, then miners will inevitably use more of it, explains McCook. Bitcoin mining is a perfectly competitive industry. This means players will do anything to maximize profit. Anything. This means they chase the cheapest possible electricity available. This is increasingly becoming renewable, he says.
Darren Franceschini, co-founder of Fideum Group a Singapore-based crypto funding company agrees the industry is embracing wind and solar as much for economic reasons as anything else.
With fossil fuel prices soaring, miners are economically driven to achieve Net-Zero emissions, he says. Carbon pricing mechanisms and green energy subsidies could further promote the adoption of renewable energy sources within the mining sector.
Will regulators believe Bitcoin can incentivize renewables?
Bitcoin advocates like Nic Carter argue that mining can play a role in growing the sustainable energy sector by using excess electricity capacity for energy efficiency or helping to finance renewable projects.
The need for electricity in the creation of Bitcoin is obviously a concern. At the same time, it is one of the best-use cases for excess electricity capacity vital in the renewables sector, says Toby Lewis, co-founder of Ordinals Bot. With the right incentives, Bitcoin can become a financing mechanism for the renewable grid.
The question is not whether or not this argument is correct and its a source of contention even in the crypto community its whether governments and regulators can be convinced it is.
It will be a hard sell to convince lawmakers, but Josef Ttek, a Bitcoin analyst at hardware wallet provider Trezor, argues that Bitcoin mining is a net positive for climate change.
Contrary to some claims, Bitcoin mining is beneficial for the environment and bootstraps renewable energy generation, he says, noting mining pops up wherever theres cheap renewable power.
For example, just recently, we have learned that the kingdom of Bhutan has been mining Bitcoin with its hydroelectric stations for years.
It will be interesting to see whether the result of a clampdown on mining by bigger countries will see mining nomads shift operations to crypto-friendly countries that provide sustainable power like Bhutan.
The small hermit kingdom in the Himalayas is watered by glaciers in the mountains. It has huge stores of hydroelectricity, providing 30% of the countrys GDP and literally fuelling the homes of nearly all of its 800,000 residents. According to Forbes, the country is following the example of El Salvador by becoming one of two countries to run a state-owned mining operation.
Nick Jones, CEO of Zumo a crypto-as-a-service platform believes that crypto is well-placed to quickly reduce emissions.
All sectors need to rapidly decarbonize, and crypto has an opportunity to do this more quickly than most. Bitcoins carbon footprint is due almost entirely to electricity consumption, and we have the technology to rapidly decarbonize. Significant progress has been made, but there is still much to do, he says.
Surging demand for Bitcoin
The unexpected recent addition of NFTs and tokens to Bitcoin via Ordinals has created a huge wave of additional demand for the blockchain. Last month, the daily record for inscriptions using Bitcoin Ordinals was broken four times as users flooded the network with images, games and other content.
Daniel Santos, co-founder of Gamepay, argues that Ordinals is the first successful protocol built on Bitcoin and will result in more adoption, which in turn will mean more mining and more power to be generated.
Governments will step in and regulate mining for sure, especially as Ordinals take hold. There will also be a drive for green energy, even if a lot of Bitcoin mining is done with green energy, he says.
I suspect governments will require miners to have licenses to mine.
Ordinals could be the proverbial straw that breaks the camels back for Bitcoin and its energy consumption. Moreover, as the crypto winner begins to thaw, the demand for the currency is also expected to surge as the currencys price climbs.
This is an issue that will run for years to come. Prepare for demonstrations against Bitcoin and more proposals to ban either the protocol or mining.
While Bitcoin is unbannable, there is a need to address emissions and to be on the front foot in the public debate. Whether change comes from within the industry or via external intervention is a question the crypto community needs to urgently address.
