The future sustainability of Bitcoin (BTC) has been cast into doubt as a new study examines its impact on the climate, comparing it more closely to energy-intensive “digital crude” rather than environmentally friendly “digital gold.”
Although BTC is known to consume heaps of energy, accurate estimations of the cryptocurrency’s climate damages––financial damage from carbon emissions––have yet to be recorded. The authors of the new peer-reviewed study in Scientific Reports - the University of New Mexico’s Benjamin A. Jones, Andrew L. Goodkind, and Robert P. Berrens - estimate the climate damages of BTC from the beginning of 2016 to the end of 2021. They find that the once one trillion dollar BTC market is in need of drastic adjustment to avoid collapse.
Bitcoin - red flag or green investment?
BTC operates through an energy-intensive competitive tournament-style production system known as proof-of-work (POW) mining. Miners who seek to add new blocks to the BTC blockchain verify transactions occurring in the blockchain, while simultaneously competing to provide the correct “hash,” a unique transaction identifier, for a block. The first miners to verify a given number of transactions and provide the correct hash identifier are rewarded with new BTC.
The “winner-take-all” game of BTC mining encourages fierce competition to generate hash rate guesses with peak efficiency. To keep up, miners consistently upgrade their computing power, which increases the computational difficulty required to pinpoint the correct hash, thereby increasing energy usage. The researchers found that “in 2020 BTC mining used 75.4 TWh yr−1 of electricity, which is more energy than used by Austria (69.9 TWh yr−1 in 2020) or Portugal (48.4 TWh yr−1 in 2020).”
They use three “red flags” of incipient industry climate damage to evaluate BTC’s sustainability: climate damage per BTC should not increase as the industry matures, exceed BTC market value for any sustained period, or surpass certain benchmark values––mainly the climate damage per unit market value of other sectors that are considered unsustainable.
Has BTC's climate damage per coin increased?
The researchers discovered an upward trend in BTC mining energy usage, most likely prompted by the ever-growing competition to increase computational power. They conclude that BTC’s carbon emissions increased at a 126 times multiple, from 0.9 tonnes (t) CO2e per coin in 2016 to 113 tonnes (t) CO2e per coin in 2021.
Has climate damage exceeded BTC market value?
BTC accounted for $12 billion in climate damages over the study’s six-year span. In 2021, specifically, each coin resulted in an average of $11,314 in climate damages. BTC’s energy usage was so colossal in 2020 that at multiple periods throughout the year, BTC's climate damage per coin surpassed coin prices.
How does BTC compare to other industries?
After assessing BTC’s individual climate impact, the researchers compared it to other products such as natural gas, coal, cars, and beef. BTC averaged 35% of market value in climate damages from 2016 to 2021, between the 33% rate of beef production and the 41% rate of gasoline production, two industries infamous for their sky-high carbon footprints.
The researchers find that BTC failed all three of the sustainability red flag tests, demonstrating the currency’s dire need for change. “POW-based cryptocurrencies are on an unsustainable path,” they say. “If the industry doesn’t shift its production path away from POW, or move towards POS, then this class of digitally scarce goods may need to be regulated."
“POW-based cryptocurrencies are on an unsustainable path. If the industry doesn’t shift its production path away from POW, or move towards POS, then this class of digitally scarce goods may need to be regulated."University of Mexico Researchers
Proponents of cryptocurrencies argue that BTC is essential in today’s world to provide investment diversification, new means of exchange, and safety from government corruption. However, are the benefits of BTC worth the resultant climate destruction?