Could the Bitcoin carbon footprint prevent blockchain technology from becoming the future of online payments? In February this year, Bitcoin’s value hit a record high of USD $50,000 and went on to peak at $61,000 in March – figures that seemed utterly impossible even late last year.
You may have seen the news about Tesla’s recent Bitcoin splurge, in which the company bought a whopping $1.5 billion of the digital currency and announced it would also accept it as payment. The move could hardly have been more successful, netting a $1 billion profit in just a few weeks – more than Tesla made from all of its global EV sales in 2020.
But while cryptocurrencies such as Bitcoin, Ethereum, Ripple, and Litecoin are disrupting financial markets with promises of tighter security and lower fees, their exploding popularity is also becoming a cause for environmental concern. A recent study by the University of Cambridge concluded that Bitcoin’s carbon footprint is now around the same size as Argentina’s – a nation of 45 million people – and as a country, it would rank as one of the world’s 30 largest energy consumers.
And so, should we be worried about cryptocurrency’s rising carbon footprint? Or is it simply a problem we can solve with more technology and renewable energy? In this article, we’re taking a closer look at exactly how Bitcoin works, how its computing demands impact the environment, and what we can do to make digital currencies more environmentally friendly, creating a more sustainable future of online payments.
How Does Bitcoin Work?
While just about everyone has heard of Bitcoin by now, only a tiny percentage of people really understand how it works – mainly because Bitcoin is a currency, unlike anything we’ve seen before. This explanation will take you through many of Bitcoin’s basic principles, but for a very in-depth breakdown of all the digital nuts and bolts, you might like to check out this detailed guide from Investopedia.
A Currency Owned by the People
Whereas physical money is underwritten by the government or bank that issues it, Bitcoin is a digital currency that exists solely on a global web of peer-to-peer computers. To that end, Bitcoin isn’t owned or controlled by any single person or organisation; anyone with internet access can join the network, make transactions, and, theoretically at least – acquire new coins.
Bitcoin uses a global database called a “blockchain”, in which all transactions and acquisitions are bundled together as “blocks”, linked together in a chronological list, and copied to every user in the network. Because all Bitcoin transactions are permanent, irreversible, and spread across millions of different computers, the blockchain system is virtually impossible to hack or corrupt.
Acquiring New Bitcoins
If you’re after a Bitcoin, you can either buy one from someone else, or “mine” it via the internet, in which you must compete against all other miners to solve a complex mathematical problem. The first person to generate the correct answer is awarded a Bitcoin “block” in a process known as “proof-of-work” – meaning that the larger and more powerful your computer, the higher your chance of success.
In the same way that you keep notes and coins in a wallet, Bitcoins are held in digital wallets you can access using specialised software or online tools. These wallets record information about each transaction and add it to the blockchain, which is then viewable by every user in the world.
Built-in Checks and Balances
While it may seem like anyone with a powerful computer can immediately strike it rich, Bitcoin also has several internal mechanisms that ensure the playing field stays as level as possible.
Firstly, the algorithms change in difficulty relative to the number of miners, so that the number of new Bitcoins created each day always remains the same. The difficulty scale ensures that no matter how many miners there are, there’s only one new block created every ten minutes, which currently contains 6.25 Bitcoins. At the time of writing this article, each new block is worth approximately USD $350,000.
Secondly, the number of Bitcoins awarded in each new block halves every four years. When the currency first started, each block contained 50 coins, today it’s just 6.25, and this will halve again to 3.125 in 2024.
Thirdly, Bitcoin’s source code contains a rule that the blockchain can only ever create 21 million coins, and by the latest count, miners have already acquired just under 90% of the grand total. And while this sounds like the supply is about to run out, the halving of new coins in each block every four years means the last complete bitcoin won’t be mined until the year 2140.
Bitcoin Carbon Footprint- Why is it so large?
In the early days, you could mine new Bitcoins with a desktop computer and a power point. But now, most successful operations are large data centres – the likes of which you’d associate with tech giants like Google or Facebook. And while it’s impossible to know exactly how many Bitcoin miners are in operation, some experts estimate the figure could be as high as one million.
Once you have all of the computer hardware in place, there’s just one more thing you need: as much cheap electricity as you can get your hands on. Miners need this energy to run their hardware 24/7 – but also to power large air-conditioning systems that prevent everything from overheating. And with Bitcoin’s recent price surge, we’ve seen the birth of a global computing arms race as operators seek to build larger and more powerful setups to secure digital gold.
“All you care about once you get the machine is, how much do I pay for electricity to run this machine? The sunk cost doesn’t matter anymore.”Alex De Vries, Founder, digiconomist.com
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According to statista.com, a single Bitcoin transaction requires 741 kilowatt-hours (kWh) of energy, which, in the real world, is enough electricity to:
- Drive almost 5,000 km in a Tesla Model 3
- Power an average Australian home for 39 days
- Watch a 50” LED television non-stop for 308 days
- Make more than 100,000 VISA card transactions
So why does a single Bitcoin transaction use so much electricity? The main reason is that every time a payment goes through (which takes around ten minutes), it’s also updated on the blockchain and copied to the hard drive of every Bitcoin user in the entire world. And as more people join the network, the amount of data continues to grow, as does the amount of electricity needed to support it.
Cleancoin, a website that tracks Bitcoin’s carbon footprint, says that more than half of Bitcoin’s total CO2 emissions come from China (53.3%), followed by the EU (11.5%) and the US (8.1%). In search of low-cost energy, many of China’s large Bitcoin operations have set up in areas where they can soak up cheap excess electricity from hydroelectric stations. But while China is the world’s largest renewable energy generator, it is also the largest carbon emitter and still sources around two-thirds of its electricity from coal. The province of Inner Mongolia – powered almost entirely by coal – recently announced it would ban all Bitcoin mining at the end of April 2021 due to rising carbon emissions, forcing existing miners to either shut down or move elsewhere in search of cheap energy.
One of America’s largest Bitcoin mining companies, Core Scientific, recently announced a significant expansion of its data centres across North Carolina, Kentucky, and Georgia. The upgrade will take the company’s total operating power consumption up to a staggering 250 megawatts in facilities covering more than 100 acres. The company’s official website claims that 46% of its current energy consumption comes from “carbon-free sources, including solar, wind, hydro, nuclear and others.”
What Can We Do to Reduce Bitcoin’s Carbon Footprint?
As Bitcoin rises in popularity and the blockchain continues to expand, it’s clear that we need to address the associated CO2 emissions before they get too far out of hand. And while the global clean energy transition is a challenge that extends far beyond Bitcoin, there are already many companies and organisations trying to a better balance between profit and sustainability.
Making Mining Less Energy-Intensive
Bitcoin’s enormous energy demand is partly due to the computationally-intensive nature of its “proof-of-work” system. But an alternative method, known as “proof-of-stake“, has the potential to maintain the integrity of the blockchain while significantly reducing the amount of electricity needed to process transactions.
While no cryptocurrency has yet switched over to proof-of-stake, Bitcoin’s largest rival, Ethereum, has announced it plans to make the transition, a move that many claim will drastically reduce the platform’s carbon footprint.
“By accelerating the upgrade of the Proof of Stake consensus mechanism, we are much further on the path to reduce Ethereum’s energy consumption by 99%.”James Beck, Enthereum Analyst, consensys.net
At this point in time, nobody is really sure if or when cryptocurrency networks will adopt the proof-of-stake concept. But with the promise of far lower energy consumption and a much smaller carbon footprint, it seems as though some or all of the major players will make the change at some point in the future.
Can Bitcoin Encourage More Renewable Energy?
With Bitcoin’s climate impact now such a hot topic, there’s talk that cryptocurrency’s growing electricity demands may actually help to drive renewable energy investment. Mike Colyer of Foundry, a digital currency advisory service, claims that Bitcoin miners located near green energy sources can help to manage oversupply, a costly problem for many large solar and wind operators.
“(Bitcoin) allows for a faster payback on those solar projects or wind projects, which means more of them can be built faster in regions where before it was not attractive, because they would produce too much energy for the grid in that area.”Mike Colyer, Chief Executive, Foundry
In Western Australia, work is underway on a new 20-megawatt solar farm that will power a cryptocurrency mining operation. The shire of Collie, which is home to two large coal-fired power stations, was excited to grant the approval, stating that the “implementation of the proposal will also be a positive contribution towards establishing a greater presence of the renewable energy sector within the Shire of Collie.”
The American state of Texas – by far the country’s largest wind producer – is attracting Bitcoin miners from as far away as China and Germany, each looking to take advantage of the state’s cheap renewable energy. Texas installed 1,250 megawatts of new wind capacity in 2020 but may add up to 10,000 megawatts in 2021 – a move that could establish the Lone Star state as an international, low-carbon Bitcoin mining hub.
Using Excess Heat to Grow Food
Some companies are taking a different approach by putting the excess heat generated by data centres to much better use. A Swedish project called Genesis Mining has paired a Bitcoin operation with a 300m2 greenhouse and is using the heat to grow fruits and vegetables. In the successful pilot project, the data centre maintains the greenhouse at a constant 25°C in a climate where temperatures often plummet to -30°C during winter.
“So far we’ve seen applications in fruits and vegetables, but datacenter heat could be used for fish, insect, and algae farming as well,” said Marco Streng, CEO of the Genesis Group. “This could also provide scalability in food production and economic growth that the area hasn’t seen before.”
Is Bitcoin the Future of Online Payments?
Despite the growing success of Bitcoin and other cryptocurrencies, it’s still difficult to say whether they’re poised to revolutionise the future of online payments, or simply remain as a niche alternative. For now, there’s a growing number of companies and websites accepting Bitcoin in one form or another, including Overstock.com, Webjet, Microsoft, AT&T, Tesla, ExpressVPN, Wikipedia, and selected ETSY stores. Amazon currently does not take Bitcoin as payment, but some have discovered you can use them to buy Amazon gift cards and then make purchases on the site.
Late last year, PayPal also came to the party, announcing it would soon allow US users to buy, hold, and sell Bitcoin via their platform, with plans to expand the offering to other countries in 2021. At this stage, users can’t actually buy items from online stores using their PayPal Bitcoins – but the move does demonstrate how some of the big financial players are slowly coming around to cryptocurrency.
For eCommerce store owners, many of the biggest platforms – including Shopify, BigCommerce, WooCommerce, and Magento – have now enabled 3rd-party Bitcoin gateways, cementing the future of online payments. On Shopify, for example, you can install extensions such as Coinbase Commerce, Bitpay, GoCoin, and Coinpayments.net, most of which are also compatible with other leading platforms. For online retailers, accepting Bitcoin can create a valuable point of difference, while the absence of conversion fees and the security of the blockchain can help to attract international customers.
Still, many stores are adopting a “wait and see” approach and happily observing the cryptocurrency market from the sidelines. But with promises of faster and more secure transactions, lower fees, and a growing user base, it seems as though Bitcoin will play an increasing role in eCommerce over the next few years.
Should You Accept Bitcoin on Your eCommerce Store?
If you’re involved in online retail, chances are you’ve already considered adding Bitcoin or other cryptocurrencies as the future of online payments. Ultimately, the best path is to do your own research, speak with hosting platforms and payment providers, and weigh up whether cryptocurrency is a good fit for your business and its customer base.
And while there’s no overnight fix to neutralise Bitcoin’s growing carbon footprint, it does pay to be aware – and in turn, help to educate consumers – about the CO2 impacts of crypto payments. If you’re an online store accepting Bitcoin, there are other ways you can help to reduce its associated CO2 emissions. You may wish to explore purchasing carbon offsets, changing to a green web hosting provider, and powering your business with renewable energy – either by installing your own system or via an agreement with your power company.
Whether you’re convinced about Bitcoin or not, there’s no doubt it will be fascinating to watch over the next few years – and has the potential to re-shape eCommerce to a significant degree. Some financial experts already project that a single Bitcoin could be worth $1 million in the future, meaning there’s bound to be no shortage of people looking to cram as many as they can into their digital wallets.
And with the recent focus on cryptocurrency’s carbon footprint, it’s encouraging to see that Bitcoin’s value is going up while the cost of renewable energy is coming down. With these two factors invariably meeting somewhere in the middle, we’re confident that Bitcoin can become a key driver of both economic and environmental progress.
Further Reading: Carbon Offset: The Good, the Bad, and the Unexpected. Read More