In the crypto space, the environmental impact of Bitcoin mining has been a cause for concern in recent years. According to reports, the Bitcoin mining industry is very energy-intensive and produces C02 emissions equivalent to that of a small country.
Of course, there is a political element to this hotly debated topic. Elon Musk has been heavily involved, having recently suspended Bitcoin transactions for his Tesla electric vehicles due to the increase in fossil fuels produced from mining Bitcoins. However, he has stated that Tesla plans to resume accepting Bitcoin, should mining the digital currency become cleaner.
With everything that’s happened in recent weeks it’s clear that environmental impact could play a very important role in the future of cryptocurrency.
So, is Bitcoin energy efficient? Let’s look at the facts and what possible solutions may be out there to address this issue.
What is Bitcoin mining?
Mining Bitcoin refers to the creation of new Bitcoin. This is performed by high-powered computers that compete to solve complex maths problems or ‘cryptographic puzzles.’ Miners are rewarded with Bitcoin when they are able to solve these puzzles. This is a critical component of the development and maintenance of the Bitcoin blockchain.
Bitcoin mining is not as good of an opportunity as it once was. The first Bitcoin miners were able to earn Bitcoins quite quickly using computers in their own home. These days, Bitcoin mining is dominated by companies with high computing power and large budgets.
Bitcoin energy consumption
A report done by Bank of America securities found that rising Bitcoin prices have led to a huge surge in CO2 emissions. Over the past 2 years, the emissions caused by Bitcoin mining have increased by over 40 billion tonnes. This is more carbon emissions produced than the entire country of Argentina in an equivalent amount of time, according to analysis undertaken by the University of Cambridge.
This environmental impact has prompted a crackdown on Bitcoin mining, particularly in China. Considering that 65% of Bitcoin mining takes place in China, this could force Bitcoin mining to use cleaner energy. You can follow the power consumption of Bitcoin in real-time here.
Should Bitcoin mining switch to renewable energy?
A substantial portion of Bitcoin mining is already being powered by renewable energy. The University of Cambridge predicts 39% of mining is powered by renewable energy, which is significantly higher than the share of renewables in global electricity production.
Elon Musk and the environmental impact of Bitcoin
As always, Elon Musk remains a hot topic in the crypto world. His on-again, off-again relationship with Bitcoin has been turbulent to say the least. In February 2021, Tesla sent the price of Bitcoin skyrocketing when it announced that it recently purchased A$1.9 billion of Bitcoin and planned to accept the digital currency as a means of payment for its electric vehicles. Musk was seen as the new darling amongst Crypto and Bitcoin enthusiasts alike.
Fast forward a few weeks, and the narrative completely flipped. Firstly, news broke that Tesla has sold a portion of its Bitcoin holdings to reportedly ‘test’ its liquidity. However, the major turning point in this rollercoaster ride came when he announced on twitter that Tesla had suspended any purchases made with Bitcoin. The decision was made due to the concerns regarding the environmental impact of Bitcoin mining.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP— Elon Musk (@elonmusk) May 12, 2021
El Salvador adopts Bitcoin as legal tender
El Salvador has become the first country ever to adopt Bitcoin as legal tender, marking a historic moment for cryptocurrency. Lawmakers in El Salvador’s Congress voted in favour of the new Bitcoin Law. This law means every Business must accept Bitcoin along with the US Dollar as legal tender for goods and services. This excludes business who are unable to afford or provide the technology to accept a Bitcoin transaction. This news resulted in a 5% jump in the price of Bitcoin shortly after being announced.
El Salvador’s president, Nayib Bukele, delighted Bitcoin enthusiasts even more when he tweeted that the countries volcanoes could be used as a renewable resource that would allow for “cheap” and “100% clean” Bitcoin mining.
Our engineers just informed me that they dug a new well, that will provide approximately 95MW of 100% clean, 0 emissions geothermal energy from our volcanos 🌋— Nayib Bukele 🇸🇻 (@nayibbukele) June 9, 2021
Starting to design a full #Bitcoin mining hub around it.
What you see coming out of the well is pure water vapor 🇸🇻 pic.twitter.com/SVph4BEW1L
Elon Musk considers backflipping on Bitcoin suspension
In another twist in the tale of Musk’s tumultuous relationship with Bitcoin, Tesla will reportedly resume accepting Bitcoin when miners can prove 50% energy usage. In his own words’ Musk stated, “When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing bitcoin transactions.”
How can Bitcoin become more energy efficient?
Many promising concepts are being developed to drastically reduce the energy consumption of Bitcoin. Bitcoin developers are currently testing the Lightning Network, which is a Layer 2 solution that would reduce the energy demand of Bitcoin substantially. This works by moving a number of transactions off the main blockchain through a collection of nodes that routes payments through a payment network, similar to the Visa network.
Blockchains such as Bitcoin and Ethereum are both Proof of Work mechanisms which require a lot of electricity. However, new consensus mechanisms such as Proof of Stake could be a solution to the energy intensive Proof of Work blockchains. Proof of Stake eliminates any need for mining which is the primary cause for the energy consumption. Ethereum is in the process of moving to Proof of Stake which will reportedly reduce energy demand by roughly 99%.