Educating Elon: Is energy usage really Bitcoin’s Achilles’ heel?
The cryptosphere was hit by an Elon-shaped asteroid last week with the announcement that electric car giant Tesla was suspending vehicle purchases using bitcoin.
In a Twitter post, CEO Elon Musk cited the network’s alleged “rapidly increasing use of fossil fuels for Bitcoin mining”. It’s an allegation the Bitcoin community is familiar with and Musk was inevitably hit with a swarm of criticism as they looked to educate him. But is there any truth to what he was saying?
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
Bitcoin incentivises renewable energy
The vast majority of all energy used today is produced by fossil fuels. In fact, they account for more than 80% of the world’s energy consumption. Governments around the world have set ambitious targets to change this, but we’re still some way off a world powered by green energy.
One common argument put forward by Bitcoin’s proponents in the energy debate is that the technology is built in such a way that it incentivises the use of clean power. This is because it’s currently much cheaper than nonrenewables, and in an industry with such significant financial rewards, this matters. Miners will always go wherever they can use the cheapest power, and they’ll move to those regions where power is cheapest.
Which contributes more damage to the environment?
A) An inflationary monetary system that MUST “grow” forever (and will manipulate money to ensure it)
B) A system that fixes A. (and as a byproduct, drives a renewables industry faster. #bitcoin saves the planet!
— Jeff Booth (@JeffBooth) May 13, 2021
A recent report by payment giant Square further explained that renewable sources typically produce excessive supply when demand is low. Conversely, they struggle to provide enough when demand is high. According to the report, the issue of divergent renewable production and demand for electricity could be mitigated by building an ecosystem “where solar/wind, batteries, and Bitcoin mining co-exist to form a green grid that runs almost exclusively on renewable energy.”
Bitcoin miners would effectively be using up stores of energy that would have otherwise gone to waste. The report argues they would make ideal buyers of last resort for renewables because they “offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection.”
Solar and wind produce cheaper energy than fossil fuels. This should make them ubiquitous, but they’re held back by an obvious flaw: they produce too much energy when demand is low and not enough when it’s high. Batteries could fix this, but alone aren’t economical enough.
— Square Crypto (@sqcrypto) April 21, 2021
We’re already seeing how Bitcoin can hoover up renewable energy that would have otherwise gone unused. In the Chinese regions of Sichuan and Yunnan where hydroelectricity is abundant, much of it goes to waste. These areas are also Bitcoin mining hotspots, accounting for 50% of global mining in the wet season and 10% in the dry.
There is far more energy being generated than there is demand for it, solar alone has 5x the capacity to run bitcoin. Bitcoin being the bidder of last resort puts excess energy to use. It’s certainly supporting renewables more than governments or subsidies. pic.twitter.com/mSMKzqhT7f
— Jacked of All Trades (@JackedTrades) May 13, 2021
But does this argument hold up? Currently, 39% of bitcoin mining is performed with renewable energy and 76% of miners use renewables as part of their energy mix so the numbers certainly seem to stack up in its favour. Equally though, you could also argue that Bitcoin simply incentivises cheaper energy, and should the prices flip, then so too will the energy mix they use.
The solution here is for all of us to ensure that renewable energy remains the most financially efficient means of powering everything we do. If crypto can incentivise this somehow, as Square believes, surely it would be worthwhile?
Everything requires energy
Bitcoin Energy Consumption:
The world produces 160,000 TWh every year. 50,000 TWh is wasted.#Bitcoin uses 120 TWh.
— Bitcoin Archive ??? (@BTC_Archive) May 10, 2021
Kraken’s Head of Growth, Dan Held argues that our economy is based not on money, but on work and energy. Energy attributes value, and to a certain extent, the cost of most goods reflects the energy used in producing it.
21/ Everything requires energy. Claiming that one usage of energy is more or less wasteful than another is completely subjective since all uses have paid market rate to utilize that electricity. pic.twitter.com/r5wEE6CaFT
— Dan Held (@danheld) January 18, 2021
Money is energy. Everything requires energy. It is challenging to think of a better use of energy (primarily stranded, renewable, green or otherwise wasted energy) than to secure a global financial network that offers financial freedom to billions of people. #bitcoin
— Eric Weiss (@Eric_BIGfund) May 13, 2021
Bitcoin’s transparency works to its advantage in many ways, but it also inadvertently works against it in this regard. It gives anti-bitcoiners a stick to beat it with, making it far easier to estimate bitcoin’s carbon emissions over others – including currencies such as the US dollar. And if Held’s data is to be believed, the world’s reserve currency is as dirty as it gets.
Are you going to stop accepting US Dollars next which use even more energy? pic.twitter.com/NwlrMfjak9
— Dan Held (@danheld) May 12, 2021
Recent research by Yassine Elmandjra, an analyst at ARKInvest, also supports this. Elmandjra found that traditional banking consumes 2.34 billion gigajoules (GJ) per year and gold mining 500 million GJ. Bitcoin, on the other hand, consumes 184 million GJ – less than 10% and 40% of traditional banking and gold mining, respectively.
The fiat financial system burns much more fossil fuel than Bitcoin does. If you care about the environment, you should stop using the petrodollar immediately and start using Bitcoin. Dollar run on war and oil. Bitcoin runs on math and electricity. Bitcoin accelerates clean energy pic.twitter.com/JbQ1VjC08G
— Crypto Martian (@crypto_martian) May 13, 2021
But, comparing the banking system to Bitcoin is a bit like apples and oranges. Traditional banking mechanisms require multiple settlement layers whereas Bitcoin offers final settlement. It’s almost impossible to account for the data centres, branches and card networks (and much, much more) that cumulatively all contribute to the system’s carbon emissions.
Bitcoin could replace all the energy used by economic activities
The argument that other industries are bigger polluters isn’t simply to indulge in an exercise in whataboutery. There’s no disputing bitcoin uses energy and is responsible for its share of carbon emissions. What is important is that it has the potential to replace and combine many of these systems in a way that could benefit everyone, and in doing so, help global emissions eventually drop at an exponential rate.
How much cleaner would the world be without gold mining and storage, central banks, cash withdrawals, and the dirty diesel trucks that transport pieces of paper around almost every city in the world? Your guess is as good as ours. But we’ll let Saylor ELI5.
— Lily’s Show (@LilyKnightShow) May 13, 2021
The real question here is really whether you think simply that bitcoin is a waste of energy, that it’s not making a tangible impact on the world and it won’t improve the financial system. We strongly believe that it will change the financial system for the better and that it is already helping millions around the world, and will only help benefit more.
In the past few months, for example, Belarusian activists have sent bitcoin worth more than 3 million dollars directly to striking workers so it can’t be blocked by the government, which is then converted locally to rubles to feed their families as they protest the country’s dictatorship. This isn’t just the future anymore, this is the here and now.
Bitcoin has a valuable role to play, and while it may use a lot of energy, relative to other sectors, it is a vast improvement and will only get more energy efficient over time. This is also an area that Musk can help greatly in. He seems to realise the benefits of crypto, and hopefully, now he has had fun tweeting, he can start constructively engaging in developing solutions that even further increase the renewable mix used by miners.
Let us know what you think on Twitter.