The debate over the environmental impact of the Bitcoin mining ecosystem is heating up again as scientists have provided a new dose of perspective on the subject. A statement from Noah Smith, a former assistant finance professor who turned columnist, touched on the bitcoin (BTC) mining industry in March, suggesting that the network’s ever-increasing energy consumption is simply unsustainable. Smith’s belief is that more countries will limit bitcoin mining as they use more electricity, as the rising price of BTC always goes hand in hand with rising hash rates.
While Coin Metrics founder Nic Carter has disproved some of the points raised in Smith’s column, there still seems to be disagreement about the amount of energy bitcoin mining consumes, the energy sources, and the industry’s carbon footprint on the planet .
The mining industry is arguably inclined to downplay the extent of its resource-intensive work, and some industry insiders have suggested that the discussion about Bitcoin’s environmental impact is off the shelf and that data suggests that much of the hash energy is sourced from renewable sources. Even so, environmentalists have targeted the industry in return, which has led to a seemingly endless debate on the matter.
Cointelegraph has spoken to several scholars in the field to get an alternate view of the matter, such as those behind the Cambridge Bitcoin Energy Consumption Index, which has become a trusted reference point for, albeit with, the Bitcoin network’s estimated electricity consumption some known limitations.
In addition, Aalborg University has Ph.D. Susanne Köhler and Associate Professor Massimo Pizzol have jointly written a study entitled “Life Cycle Assessment of Bitcoin Mining”, which contains some data-based assumptions about the environmental impact of the industry.
The CBECI was built to ultimately answer that question
In an interview with Cointelegraph, Anton Dek, Head of Crypto Assets and Blockchain at the Cambridge Center for Alternative Finance, explained the history of the CBEC and the methodology used to produce the energy consumption estimates of the Bitcoin Power Consumption Index.
The Cambridge official said the team observed that other models aimed at making accurate estimates of the Bitcoin network’s energy consumption had used a top-down approach, using data such as the amount miners spend on electricity as an example were used.
The CBECI methodology is a “bottom-up” approach, in which data on the available mining hardware is used to produce an estimate of the energy consumption of the Bitcoin network for the lower and upper bounds. Dek explained that the information reads, “Based on assumptions made from objective numbers like hash rate.” He added, “These various machines all have known efficiencies, joules of energy, that they use to solve hashes. Based on these assumptions, we created the index. “
The index provides an estimated power consumption range with a current theoretical lower limit of the annualized electricity consumption of 43.32 terawatt hours up to the theoretical upper limit of 476.18 TWh. The estimate of Bitcoin’s current consumption is based on the assumption that miners are using a mix of profitable hardware.
While the CBEC did not create models to break down energy sources for the Bitcoin network, the original intent in creating the CBECI index was to provide a model for carbon emissions. Dek said his team is still working on this model that he hopes will go live later this year.
Mining with renewable energies
The CBECI website also offers a global mining map, which is essentially a breakdown of the Bitcoin mining network’s distribution around the world. The map shows hash rates from country to country while also taking into account the 12 provinces of China as more than half of the global bitcoin hash rate is in the country.
The hash rate location breakdown is based on data from the mining pools BTC.com, Poolin, and ViaBTC, which contribute 37% of the total Bitcoin hash rate. Dek also noted that their dataset is now over a year old, but researchers can still make accurate assumptions about the energy sources used by miners in certain countries or regions.
“This is self-reported data from mining pools, so we have to trust these people. But even if everything is true, we’re only covering 37% of Bitcoin’s total hash rate from the three pools that provided us with information. If we extrapolate it to the total number of miners, we assume that this is a representativeness of this sample, which may not be true as we have more data from China. We will improve that. “
This regional view of China also gives insight into the energy mix miners use in different regions. The team has not yet released this specific data visualization, believing that the current hash rate of 37% on which their data is based is not representative enough to make accurate estimates of the network’s carbon footprint. Dek added, “If we look at the energy mix of each region and then each country, we can take the energy mix and then more accurately estimate the carbon emissions factor.”
Still, Dek said other researchers came to estimates by multiplying the total annual electricity consumption of the Bitcoin network of around 130 terawatt hours by the average carbon emission factor (~ 0.5 kilograms / carbon dioxide per kWh generated). The Cambridge researcher suggested that such an estimate may not be representative given some assumptions that can be inferred from regional mining site location data:
“It’s more complicated than that because I think the Bitcoin energy mix does not fall into the average world mix. The reason is that they use renewable energies not because of their benevolence but for purely economic reasons. In some regions, hydropower is abundant , and if you look at the Bitcoin mining map and China, the Sichuan region is still very important for mining. “
Dek noted the widespread presence in the area of mining facilities powered by electricity from hydropower plants in Sichuan. The CBECI data also reflects the increase in hash rate in the area during the rainy season, when excessive rainfall results in an abundance of electricity generated by swollen dams. His estimated share of global hash power: “In April (2020) it was 9.66%, in September 2019 it was 37%.”
Perspectives from the “Life Cycle Assessment of Bitcoin Mining”
The study “Life Cycle Assessment of Bitcoin Mining” by Köhler and Pizzol from 2019 provides an estimate of the environmental impact of Bitcoin using a well-established method for assessing the life cycle. The Bitcoin network was estimated to consume 31.29 TWh in 2018 with a carbon footprint of 17.29 tons of CO2 equivalent, using data, information and methodology from previous studies on the subject.
Speaking to Cointelegraph, Köhler noted that their study shows that the impact of adding new capacity to the Bitcoin mining network is decreasing based on two assumptions. The first is that the equipment is becoming more efficient, which was proven correct about two years later. The second assumption that miners would move to regions with more renewable energy sources didn’t quite come about as expected: “Even if mining is more efficient, there is a lot more mining going on and that means a bigger impact.” She added:
“The assumptions in our study were influenced by rumors that China would crack down on its miners. Recent data on mining sites suggests this did not happen as expected. The effect of improving the energy efficiency of the hardware means, however, that the effect for each additional TH dismantled (i.e. in relative terms) decreases. However, we now see that the hash rate increases faster, which in other words leads to greater overall impact (so in absolute terms). “
As Köhler explained, their initial assumption has been invalidated to some extent as the sheer growth in the hash rate of the Bitcoin network has resulted in higher power consumption and thus a greater impact on the environment.
Even so, the Aalborg Ph.D. The colleague admits that getting an accurate estimate of the bitcoin mining ecosystem’s energy consumption, as well as its carbon footprint, is a huge task. This is due to a number of factors including the exact location and proportions of miners, the mining equipment used, and the accuracy of the data from various sources.
Incentives – the prospect of “green Bitcoin”
Another fascinating point that Dek raised is the interest his department has received from various players in the cryptocurrency industry. Private companies and fund managers have asked for data or services that can prove exactly how “green” a Bitcoin is. This depends on whether or not it was mined with a renewable energy source:
“Fund managers are now interested in things like ‘green bitcoin’. More and more institutional investors are joining in, and many of them are interested in Bitcoin’s ESG (environmental, social, and governance) view. The ideal for them would be a system that colors the bitcoin. “
Dek also said that some miners are looking for ways to prove they used green energy to mine their BTC. This could potentially create a market for selling “green bitcoin” for a premium that could motivate miners to switch to green energy sources. Meanwhile, Köhler believes that many miners focus primarily on profit margins and that cheap electricity, however produced, will override the appeal of green energy sources if they are not so affordable:
“There are some incentives to use renewable energy, as in the case of hydropower in Sichuan, which allows miners to use cheap electricity. It should be noted, however, that this electricity is seasonal, so availability is not the same all year round. Overall, miners are encouraged to use the cheap electricity to maximize profits. This includes, for example, electricity from coal in Inner Mongolia and electricity from oil in Iran. “
Dek shared these views, saying that miners are usually rational about their business decisions. If there is a cheaper source of energy, regardless of how that energy is generated or the incentives for using green energy sources, they will likely use it: “I find that miners, especially large bitcoin miners, are rational economic actors. I think they will continue to do so – if there is a cheaper option they will switch and if not they will stay. “
Data is the key
As Köhler aptly summarized, better access to data from industry players could provide the answer to a debate that is likely to continue for many years to come: “Better data and more transparency from the mining industry would enable better models and less speculation – in the crypto space and in public, “she added:
“As long as the impact of Bitcoin mining continues to grow, I see no end to this debate.”
Dek agreed with the assessment of the debate about the environmental impact of Bitcoin due to the distribution of the network, even as more data and tools become available. He is also strongly reminiscent of the fact that the Bitcoin protocol was designed this way for a reason: “Bitcoin must be inherently inefficient. If it is very efficient, it would be very cheap to attack the network. “