Bitcoins are often referred to as "digital gold". A new study now shows that – measured in terms of the climate damage caused in relation to the market value – they are more aptly compared to crude oil. The "mining" of the cryptocurrency consumes a lot of electricity, most of which has so far come from fossil sources. Converted into CO2 equivalents, the climate costs of bitcoin sometimes even exceeded its market value. From the researchers' point of view, a fundamental redesign of the Bitcoin mining system is required to make the cryptocurrency more sustainable.
In the case of the virtual currency Bitcoin, the individual "coins" are created through complicated arithmetic operations on numerous computers involved. Based on the digging for precious metals, this process is called mining. The "miners" make the computing capacity of their hardware available to create the next block of data for the blockchain. This directory, secured by cryptographic operations, saves all transactions and protects them against manipulation. Whose hardware is the first to crack the encryption for the next block is rewarded with bitcoins and can attach the new block to the blockchain. This so-called proof-of-work method (POW) is based on mutual checks and is designed to be competitive, which means that many users try to solve the next arithmetic operation at the same time.
High power consumption when mining
The process requires large computing capacities and consumes a correspondingly large amount of electricity. A team led by Benjamin Jones from the University of New Mexico in the USA has now calculated the climate damage caused by Bitcoin mining. “Enormous amounts of electricity, mostly from fossil fuels such as coal and natural gas, are used worldwide to mine or produce bitcoins,” says Jones. "This causes massive amounts of air pollution and carbon emissions, negatively impacting our global climate and health."
For the period from January 2016 to December 2021, the researchers calculated how much electricity mining consumes, how many CO2 equivalents this corresponds to and how high the resulting climate costs are in comparison to the value of a bitcoin. “We found multiple instances between 2016 and 2021 where bitcoin is doing more harm to the climate than a single bitcoin is actually worth,” Jones said. “In other words, bitcoin mining causes climate damage in some cases that exceeds the value of a coin. This is extremely worrying from a sustainability perspective.”
The climate balance is getting worse and worse
In 2020 alone, bitcoin mining consumed 75.4 terawatt hours of electricity. For comparison: the whole of Austria consumed around 70 terawatt hours this year. The authors assessed Bitcoin climate damage based on three sustainability criteria: How does the estimated climate damage evolve over time? What is the relationship between the climate damage and the market price? And how does Bitcoin’s climate damage-to-market price ratio compare to other sectors and commodities?
"We found no evidence that Bitcoin mining is becoming more sustainable over time," reports Jones. “Our results tend to suggest the opposite: Bitcoin mining is becoming dirtier and more harmful to the climate over time. In short, bitcoin's ecological footprint is moving in the wrong direction.” This is because the computations involved in mining new bitcoins become more complicated over time and more miners participate, driving up electricity costs. While mining one bitcoin generated 0.9 tons of CO2 emissions in 2016, the value in 2021 was 113 tons of CO2 per bitcoin.
In the meantime, in 2020, energy consumption rose significantly more than the value of Bitcoin. As a result, as of May 2020, every $1 in Bitcoin market value resulted in $1.56 in global climate damage. Since the value of a bitcoin has risen significantly again since then, the climate damage in 2021 was relatively less again, despite the fact that energy consumption remained the same. On average, from 2016 to 2021, one dollar worth of bitcoin causes $0.35 in climate damage. The climate costs therefore correspond to 35 percent of the market value.
There are alternatives
In terms of the ratio of climate damage to market value, Bitcoin is thus roughly in the range of petrol made from crude oil (41 percent). In the case of gold, on the other hand, the climate damage caused by gold prospecting amounts to only four percent of the market price of the precious metal extracted. "Taken together, these results represent a set of sustainability red flags," the authors write. "While BTC is touted by proponents as 'digital gold', from the point of view of climate damage it looks more like 'digital crude oil'." From the authors' point of view, it is therefore important to reduce the climate damage caused by cryptocurrencies such as Bitcoin. If electricity from renewable sources were mainly used for mining, this could already significantly reduce the CO2 footprint of bitcoin.
It would be even more effective to replace the previous POW procedure with another, non-competitive procedure. In the so-called proof-of-stake (POS) process, the next block writer on the blockchain is drawn according to a weighted random principle. "Because POS is based on randomness and validation data sharing, it does not require large amounts of computing power and therefore consumes a fraction of the power compared to POW mining," the researchers explain. Ethereum, the second-largest cryptocurrency, has already started moving to proof-of-stake this year. According to the initiators, this reduces energy consumption by 99 percent. From the point of view of Jones and his colleagues, however, it is not very likely that Bitcoin, the oldest and, with a market share of 41 percent, the most widespread cryptocurrency, will be converted to POS in the near future.
Source: Benjamin Jones (University of New Mexico, USA) et al., Scientific Reports, doi: 10.1038/s41598-022-18686-8