Deep-Dive: How sustainable is Bitcoin?

Bitcoin energy

Opponents of crypto often point to its unsustainability. The computing power involved in proof-of-work requires a lot of energy. Bitcoin, the largest blockchain network, uses this proof-of-work as a consensus mechanism. There are many mining facilities all over the world and they slurp electricity. In this deep-dive we take a look at the energy consumption of the Bitcoin network and what role it plays in the energy transition to sustainable energy.

What does the data say?

The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin currently uses 102.11 Terawatt Hours (TWh) of electricity. This is 0.46% of the global electricity consumption which is a total of 22315 TWh. With 102.11 TWh, Bitcoin comes dangerously close to the energy consumption of our own little country. In the Netherlands we use 113.3 TWh on an annual basis. The Bitcoin network consumes more than countries such as Kazakhstan (96.6 TWh) and the Philippines (98.5 TWh).

Based on this data, you can indeed conclude that a lot of energy is used to keep the Bitcoin network running. However, we must realize that the energy consumption of the Bitcoin network and that of a country cannot be compared one to one. The size of a country is not always related to its energy consumption. Energy consumption in any country depends on many factors, such as energy demand in homes and industry, economic and social progress, available energy resources, spending and production, and government policies.

Expected growth in energy consumption of the Bitcoin network

Although the Bitcoin network already consumes a large amount of energy, people are also particularly concerned about the expected growth in energy consumption. As demand for the network continues to increase, it will also become increasingly attractive for miners to participate in Bitcoin mining. This is good for the network itself because it improves the security of the network, but the total energy consumption of the network then increases.

As depicted in Figure 1, we see the 3 scenarios of growth expectations for the Bitcoin network for the period from 2022 – 2040. The 3 scenarios that are undershot are a bearish, neutral and bullish scenario.

In a bearish scenario, Bitcoin demand has increased relatively little in 18 years and the price is around $100,000, which means less mining competition and therefore lower energy consumption.

In the bullish scenario, a sharp increase in Bitcoin adoption is predicted with the value of Bitcoin estimated at around $2 million, which in turn leads to an increase in mining activity and competition, which increases the energy consumption of the network. According to the Arcane Research study, the bullish scenario would mean that the network has an energy consumption of almost 900 TWh, which is almost 9x the current consumption and would equate to an energy consumption of countries such as Japan and Russia.

Bitcoin energy consumption forecast
Figure 1: Bitcoin expected energy growth 2022 – 2040 – source: Arcane Research

Bitcoin compared to the industry

To get a better picture of the energy consumption of Bitcoin mining, we take a look at other industries in this section. Many critics claim that crypto proof-of-work mining operations are very polluting, but how much energy do conventional industries such as gold and cement production consume?

Comparison of Bitcoin mining and gold mining

Gold is often seen as the analog version of Bitcoin. Gold mining costs 131 TWh of energy per year. This is almost 15% more than what the Bitcoin network consumes. The market capitalization of gold stands at $17.7 trillion. This is more than 39x Bitcoin’s market cap, which stands at $450 billion at the time of writing. Based on this, you can conclude that the gold is a lot more efficient at translating its energy into value. Part of the problem is that Bitcoin miners also have to continuously calculate to keep the network running, with gold energy consumption mainly occurring at the time of mining.

Comparison of Bitcoin mining and cement production

In another example we draw a comparison with the cement production industry. Figure 2 shows a comparison of the energy consumption for both the Bitcoin network and the cement production industry in 2022 and 2040. From figure 2 it immediately becomes clear that, in proportion, Bitcoin mining has a much lower energy consumption than the cement industry, where in 2022 cement production consumes nearly 50x as much energy as the Bitcoin network. In 2040, that is expected to be 7x as much energy consumption as the Bitcoin network. It is clear that the energy consumption of mining is growing faster than the cement industry. Despite this, Bitcoin receives a lot of criticism for its energy consumption while other industries use many times more energy.

Bitcoin Energy Consumption Compared to Cement Production
Figure 2: Bitcoin energy consumption compared to Cement Production – source: Arcane Research

Can Bitcoin contribute to the energy transition?

Although the energy consumption of the network is very high and exceeds the energy consumption of countries such as the Netherlands, in addition to the critics, there are also positive comments about how Bitcoin can contribute to the global energy transition. Bitcoin mining can also promote sustainable generation such as solar panels and wind turbines and prevent energy wastage.

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Promoting the generation of sustainable energy

Including one research from the payments company Square and parent company Block, of which the Bitcoin enthusiast Jack Dorsey is CEO, further explains how Bitcoin mining can positively influence the acceleration of the global energy transition. A major challenge in sustainable energy generation such as solar panels and wind turbines is the volatility in the generation of energy.

Due to fluctuations in the supply of wind and sun, solar panels and wind turbines produce variable and inconsistent energy. This poses a problem when the market has a certain energy requirement and there is little wind and/or sun, for example, and the same applies the other way around when, for example, there is a lot of wind but little energy demand from the market.

Although wind and solar energy (depending on the location) are often already cheaper than oil and gas, the unpredictability and deployability is often a problem, as a result of which governments prefer to use oil and gas (source; Wikipedia). Through Bitcoin mining, solar parks and wind farms can use excess energy production to mine Bitcoin. This Bitcoin can then be sold on the market, making the business case for financing wind or solar parks a lot more attractive. This makes it possible to finance a sustainable energy source at more and more locations and thus accelerate the energy transition.

Reduction in energy waste

In addition to the fact that sustainable energy sources can be financed more easily by mining Bitcoin, energy waste can also be prevented on current traditional energy sources. Bee oil drilling the so-called “flaring” often occurs. This is the burning of the by-product “gas” during oil drilling and extraction. Flaring occurs because it is expensive and complex to capture and market the residual gas product, instead incineration is an easier and “relatively” safe solution.

The problem, however, is that flaring releases a lot of bad exhaust fumes into the atmosphere and the energy it generates is not used. Bitcoin mining rigs are easy to set up in such locations. As a result, the energy can still be used, so that part of the energy loss can be absorbed. The exhaust gases will of course continue to enter the atmosphere, but adding mining rigs can prevent some of the energy wastage.

Conclusion

First of all, we would like to mention that the Bitcoin network cannot be compared unequivocally with anything else. This is simply because there is nothing quite like Bitcoin. Also, a figure such as energy consumption does not show the complete picture. For example, what is the environmental damage of mining for gold compared to the materials needed for Bitcoin mining rigs?

In addition, the Bitcoin network offers the potential to replace the entire banking system through an efficient decentralized and autonomous algorithm, the blockchain. Although not included in this deep-dive, the blockchain is potentially much more efficient replacements for a global payment system than the current global payment system. This payment system is supported by millions of people who all work for different banks, accounting firms and payment companies, which all involve a lot of energy costs and friction.

High energy consumption, but also great benefits

It should be clear that the Bitcoin network consumes a huge amount of energy. In 2023, consumption will even be comparable to that of the Netherlands, and the prediction for 2040 is that in a bullish scenario, the Bitcoin network could even have consumption as large as the whole of Japan. Nevertheless, we see that other industries such as the gold industry and the cement production industry also consume large amounts of energy that can be many times larger than the Bitcoin network.

Above all, we should also not forget about the value proposition of Bitcoin. For the first time, we have a digital monetary unit that we can trade with without a central unit. The question is whether it is worth the current (and in the future even higher) energy consumption. In addition, Bitcoin mining also offers benefits for the energy transition and can reduce energy waste. This is because the business case for sustainable generation is becoming more attractive and excess energy can be used to mine Bitcoin.

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