A recent tweet from self-appointed cryptocurrency evangelist Elon Musk wiped $365 billion from Bitcoin’s market cap, caused its price to nosedive, and created shockwaves in the crypto community that most still haven’t recovered from.
Musk, citing research from the University of Cambridge, said that he is “concerned about rapidly increasing use of fossil fuels for Bitcoin mining” and that Tesla would no longer accept Bitcoin as payment.
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His words were lampooned by several crypto maximalists, who pointed to Tesla’s purchase of $1.5 billion in Bitcoin just a few months earlier. The environmental concerns are nothing new, they said. Wouldn’t a globally relevant company like Tesla have done its due diligence before such a big corporate decision?
Nonetheless, the argument of Bitcoin being bad for the environment is indeed a cause of significant consternation among the crypto community. Lifelong Bitcoiners don’t buy it, saying it is just another hurdle put in place by legacy institutions to inhibit mainstream adoption. Others might be dissuaded by transacting with Bitcoin when they analyze that global mining operations consume as much electricity as the entire nation of Sweden and that a single transaction uses the same amount of power that an American household consumes in a month.
So what is the actual truth? A new report by H.C. Wainright & Co sheds some light on the matter.
As a decentralized network, Bitcoin transactions are recorded and validated on the blockchain. Miners compete to register blocks of new transactions by solving cryptographic puzzles, earning new Bitcoin in the process. Specialized devices, also referred to as ‘mining rigs’, are best suited for the purpose. And when you lump them all together, akin to a server farm, that’s when mining starts to become profitable.
Hence, it’s not surprising that large-scale mining farms gravitate towards places that have cheaper electricity. An estimated 70 percent of Bitcoin mining takes place in China, with many setting up shop in sparsely-populated Mongolia due to its cheap power. Iran is another popular destination, with its government offering subsidized electricity rates. And farms have also been located in Siberia, as its harsh climate naturally reduces energy needs.
The report confirms the assumption that Bitcoin miners have a natural incentive to find cheap power and that said power sources are renewable in nature. It’s the raw economics of it all: Miners have no incentive to use expensive coal-powered electricity to fire up their rigs. If anything, Bitcoin miners are leading the charge in renewable energy use.
China’s sudden and swift crackdown on domestic mining operations has put nearly 90% of farms out of business and is cited as another factor behind the decline in price. But an unintended consequence has been tremendous amounts of wasted energy discharged into the ground instead.
The report’s authors estimate that as much as 6 –10 gigawatt-hours of hydro-generated electrical power is no longer used because of the lack of demand from Bitcoin miners. And the problem of wasted energy isn’t just restricted to China. It’s estimated that the U.S. loses nearly 6,800 TWh of electricity in its distribution network. Put into context, Bitcoin mining operations consume only 0.1% of the world’s energy production and a mere 0.4% of the world’s wasted energy.
A recent study undertaken by the Bitcoin Mining Council (BMC) compared sustainable power sources in mining operations worldwide. The study examined one-third of the entire Bitcoin mining network (or 23 large mining farms). According to the report, those surveyed reported that 67.6% of all the energy used in their Bitcoin mining activities comprised renewable sources such as wind, solar, hydro, and nuclear. Further, the BMC estimates that 56% of the Bitcoin mining network is powered by renewable energy.
The report adds that the future outlook for Bitcoin mining is even greener. With coal-driven mining banned in Mongolia combined with mining’s innate desire to seek out the cheapest energy sources, the drive towards renewable energy should only intensify.
Forbes’ Roger Huang notes that criticism of Bitcoin’s energy usage misses the mark. In a similar vein, he points out that China’s Sichuan province, which once hosted a prolific mining ecosystem, suffers from a power glut due to an abundance of ghost cities and state-driven projects that have yet to take off.
Bitcoin miners had stepped in to take advantage of this excess power, merely responding to supply and demand market forces. They helped plug the problem of wastage and addressed inefficiencies in the market. With their operations banned, that power is wasted, and all the energy used to create it will be for nothing.
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