SEven Elon Musk found it too much at some point: “We are concerned about the rapidly increasing use of fossil fuels for mining Bitcoin – and the transactions associated with it,” Musk wrote in a Twitter post a year ago. In particular, the use of “coal, which has the worst emissions of all fuels,” causes him concern. That’s why he suspended the plan that Tesla could also pay with the digital currency. However, due to the current drop in prices, bitcoin production – the so-called mining – may have become significantly more environmentally friendly. As the?
Basically, Bitcoin is made through an energy-intensive process. This work is carried out by highly specialized computer chips, which, however, consume a correspondingly large amount of electricity. The higher the price of bitcoin, the more mining power flows into the market. The correlation is of course not perfect – there are discrepancies in the energy efficiency of the mining computers and also because of the different energy prices around the world.
Critical threshold exceeded
As much as the current price level – Bitcoin is listed at around 21,000 dollars – scares many Bitcoin investors, it is good for electricity consumption: Basically, electricity consumption has risen steadily in recent years and then stopped on a plateau. By the beginning of June, power consumption had grown to more than 200 terawatt hours a year.
Many miners obviously found the price high enough to justify mining, but not high enough to justify new mining hardware investments. With the most recent crash, however, a critical threshold seems to have been exceeded: the Digiconomist has calculated that energy consumption has fallen for the first time since the beginning of the pandemic. Energy consumption there is assumed to be 132 terawatt hours per year. The university estimates annual consumption at 99 terawatt hours, with a theoretical corridor between 50 and 193 terawatt hours.
Of course, this is a lot at first, but it only shows that the network is very inefficient: For a single Bitcoin transaction, you can carry out around 450,000 transactions with a credit card. But that is also clear: Decentralized structures can never be as effective as centralized ones. But that says nothing about how environmentally friendly the power consumption is.
And this is where it gets really complicated. Because there is no register where this would be held. However, there are studies, such as those by the University of Cambridge, that have researched the energy sources from which the data centers draw their electricity. The first such study from 2021 came to halfway encouraging results: 76 percent of all data centers use partly renewable energies. However, this only generates 39 percent of the computing power. That means: 61 percent are powered by coal, gas-fired power plants and nuclear power.
However, a more recent study published in February 2022 comes to a devastating conclusion: after a raid in the mining sector in China, the share of renewable energies collapsed to 25.1 percent. In China, hydropower was used on a large scale, especially at certain times of the year – such as during the rainy season in summer. But this was lost when the miners then moved to Kazakhstan or the United States. The data centers there are now supplied with electricity based on coal or gas – which has increased the CO2 intensity of Bitcoin mining: from 480 grams of CO2 per kilowatt hour to 560 grams of CO2 per kilowatt hour.
Pulling out of Kazakhstan is good for greenhouse gas emissions
But now Bitcoin’s power consumption has dropped — and that can be traced back to Kazakhstan, says Alex de Vries, who founded Digiconomist. The margins there are lower and the power grid is less reliable, and the mining hardware tends to be older and therefore less efficient. The threshold at which it is worth producing for miners in Kazakhstan is arguably $25,000. If the price of bitcoin falls below $10,000, de Vries estimates that even the miners with the newest and most energy-efficient equipment in the United States will find it difficult to break even. The withdrawal from Kazakhstan, on the other hand, is good for greenhouse gas emissions, since most of the electricity there is produced from coal. But this is exactly where proponents of the digital currency come in. They argue that Bitcoin is providing an incentive to build renewable energy infrastructure.
But it can be twisted and turned as you will: Bitcoin and digital currencies in general have become significantly dirtier overall, even if the crypto crash has probably slowed down development. Arguments like the one that mining for gold also produces CO2 are useless: A single Bitcoin produced produces 215 tons of CO2 – the equivalent in gold is only 8 tons. The comparison is even worse when compared to cash or credit card payments, according to a study commissioned by the Dutch central bank. For a single cash transaction, which includes all costs from the production of the notes and coins to the processing of the payment, there are 4.6 grams of CO2 equivalent. With credit cards, the value is again 21 percent lower. The emission value of a single bitcoin transaction is therefore 798 kilograms of CO2 – a multiple of all other payment methods.