How Bad is Bitcoin for the Environment?
I think I found a comparison that is useful
For more than a year now I've gotten consistently requests from folks for me to either "expose" or "debunk" the idea that cryptocurrency is bad for the environment. The idea that cryptocurrency, and Bitcoin particularly, is bad for the environment comes from the amount of power it uses. And the fact that the power it uses is often from carbon-emitting sources.
Generally you see critiques of cryptocurrency compare its energy usage to that of a nation, often New Zealand or the Netherlands. It's an emotional appeal that is trying to make the number sound big. Maybe the number is big or maybe it' isn't. But I find the comparison uninstructive. I could compare the power usage of data centers or your favorite political party to a country like New Zealand or the Netherlands etc. They are not like comparisons.
To be clear, I am definitely not approaching this topic trying to prove or disprove that cryptocurrency or Bitcoin is good or bad. I'd like to know a useful number or comparison that I could rely on. So I've been looking for well-vetted reliable comparison of crypto to something like the SWIFT network or some aspect of the banking industry.
There is one study out there from May 2021 that purports to compare the energy usage of the banking industry with that of Bitcoin. There are a few reasons I don't rely on this study. First of all is that it's a report from a cryptocurrency mining company so they have an interest in the result. It's not a peer-reviewed publications from independent scientists. The data is well cited but there are a lot of valid criticisms out there about how they came to their conclusions. It turns out that nobody has yet come up with a widely accepted way of comparing the energy usage in the banking system with that of Bitcoin. At least not yet.
But I will rely on the report for one thing. It inspired me to change my approach. The reason we're concerned with energy usage isn't the energy itself. If all of Bitcoin were suddenly solar-based overnight, it would change the conversation. Because what we're concerned about is how Bitcoin's power usage is contributing to greenhouse gas emissions. So I decided to just look for comparisons of greenhouse gas emissions. And while I couldn't find a reliable estimate for the banking industry, I did find an reliable estimate of the emissions of the total gold market.
For gold emissions I used a number from the World Gold Council, which is made up of 31 gold mining companies in 45 countries advocating for sustainability in gold mining. This number seems widely accepted, and if it is biased, it would be biased toward making gold's emission look smaller than they are.
For the Bitcoin estimate I used Digiconomist, which describes itself as dedicated to exposing the unintended consequences of digital trends, typically from an economic perspective and run by dutch economist Alex de Vries. It is also widely accepted, and if biased would seem to be biased toward making Bitcoin's emission look larger.
In 2019 the World Gold council estimated the greenhouse gas emissions of the total gold market to be 126.4 megatons per year.
Digiconomist estimates the carbon footprint of Bitcoin at 114.06 megatons per year.
Notably the Bitcoin energy consumption has been rising precipitously until around December last year when it flattened out.
Essentially, for the moment, it's a tie. The use of Bitcoin is about as bad for the environment as the use of gold, but if Bitcoin were to get more popular it could be worse.
This is not a perfect comparison but I personally find it useful. Bitcoin is largely used as a store of value these days not as a payment system, so in many ways is more like gold than it is like dollars. And Gold and Bitcoin are certainly closer to each other than Bitcoin and New Zealand.
Of course now what? I didn't write this to tell you whether Bitcoin was bad or not. I did this to help all of us have useful data point about which we could have a conversation out there. Gold has a lot of advantages over Bitcoin and is certainly less volatile. Bitcoin on the other hand still has potential as a useful digital token. Should gold and/or Bitcoin work to reduce emissions? Certainly. Is the utility of gold and/or Bitcoin not worth the emissions it produces? That's the discussion that is worth having.