How viable is a “Green Bitcoin”?
Elon Musk expressed environmental concerns about Bitcoin and his announcement on 12th May, that Tesla would no longer be accepting the cryptocurrency as payment for vehicles, sent shockwaves running through the crypto markets.
Before his announcement, there were already growing concerns about the energy usage of Bitcoin, specifically, the mining process and these calls have only grown louder. Critics argue that Bitcoin will always be wasteful in terms of environmental impact, whereas other groups such as the crypto climate accord claim that the future of Bitcoin is with renewable sources of energy. Let’s take a look at how viable a green Bitcoin could be, and what steps are being taken to accelerate the use of renewable methods of mining.
The current landscape
How much energy do Bitcoin transactions take? This is an important question and one that has a number of variables to consider. Bitcoin currently consumes around 110 Terawatt hours per year. This is 0.55% of all electricity production worldwide and it is similar to the equivalent of the annual energy usage of small countries such as Malaysia or Sweden. The energy consumption of Bitcoin can be calculated fairly accurately due to the widespread data available, however, the specific carbon emissions are more difficult to track.
One advantage that Bitcoin has over other industries is that it can be mined anywhere. Typically, energy use is produced nearby to where it will be used. In the case of Bitcoin, many types of power sources can be used. One notable example is hydroelectric power, and in some wet regions, large quantities of this can be wasted. These ‘stranded sources’ of energy can be used for Bitcoin mining as is the case in the Sichuan and Yunnan regions of China.
Another potential source for renewable Bitcoin mining is flared natural gas. Oil extraction releases this gas into the atmosphere, but it is often unable to be used. The process happens in remote oil mines which makes it difficult to use that excess energy. Some Bitcoin miners in North Dakota and Siberia have started making use of this gas that would otherwise go to waste. However, it is important to note that this form of mining still creates emissions and it could potentially act as an incentive for energy companies to undertake more oil extraction.
China plays a significant role in Bitcoin mining and therefore a ‘green’ Bitcoin is unlikely to come to fruition without major changes in the ways mining is currently conducted in the country. Past estimates have shown that 65-75% of the World’s Bitcoin mining took place in China. Recently, the country has called for a ban on various mines, which has been one of the causes of the downturn in the crypto markets. One study found that 40% of China’s Bitcoin mines are powered with coal and the rest through renewables. It remains to be seen whether renewable mining could be allowed to continue or if the crackdown will affect all mining.
The Elon Musk Factor
After Elon Musk’s initial tweets citing environmental concerns, he followed them up with some meetings with leading Bitcoin miners in the US and Microstrategy CEO, Micheal Saylor. In this meeting, they agreed to form a ‘Bitcoin mining council’ to “promote energy usage transparency and accelerate sustainability initiatives worldwide”. This could be an important first step in providing a long-term shift to more sustainable methods of mining. The group will hold quarterly meetings to look at mining trends and gather data. The influence of the group is uncertain due to how much mining takes place in China – there is no Chinese representation, but members of the council cited the fact that China is beginning to clamp down on mining.
One trading house has decided to get involved directly with Bitcoin miners. Mercuria is working with Bitcoin producers to help supply renewable sources of energy. The CEO, Marco Dunand made a speech recently in which he spoke about the emergence of ‘green’ cryptocurrencies. He also addressed the urgency level around energy transition and predicted that 50% of Mercuria investments will be related to the transition of energy within 5 years. We wait to see if more companies will follow in their footsteps and provide support and incentives for greener Bitcoin mining.
Overall, there does appear to be a concerted effort to find greener ways of mining Bitcoin. But, it will take a huge effort and shift if Bitcoin is one day to be mined with renewable resources. For now, energy usage will continue to garner headlines and it is sure to be a significant discussion point for years to come. The crypto community may be beginning to acknowledge these environmental concerns and thinking up creative solutions to tackle them.
The article contains market commentary information, it should not be regarded as investment research or investment advice. Past performance is not a reliable indicator for the future.
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