A halo of myths has formed around bitcoin mining and its energy usage, forcing even the most experienced crypto enthusiasts to doubt its efficiency and environmental footprint. Bitcoin is currently being bombarded by numerous attacks and criticisms from eco-activists and Wall Street executives alike. According to these myths, bitcoin mining causes serious harm to the environment due to its massive energy consumption. When examined in a vacuum, the current consumption of the bitcoin blockchain is comparable to the total energy consumption of the Netherlands. But, is bitcoin mining as harmful to the environment as it seems? Or are these fears being blown out of proportion?
Myth #1: Bitcoin causes harmful CO2 emissions resulting from its enormous electricity expenditures
This is probably the most frequent argument we hear from bitcoin critics. But is it true? According to a recent Yahoo Finance article, bitcoin does not expend nearly as much energy on a yearly basis as does the banking and gold mining systems. Here’s a visualization that speaks for itself:
Think about it this way: it takes twice as much electricity to either maintain the traditional banking system, or mine gold than it does to mine bitcoin. However, eco-activists often disregard these facts, stating that bitcoin is a useless digital asset.
Yet, bitcoin itself is a very valuable and important piece of the global financial system. The bitcoin network operates as an autonomous banking system and can completely replace banking services, allowing the unbanked to access financial services in a decentralized, censorship-resistant, and permissionless manner.
Elon Musk recently tweeted that Tesla halted bitcoin payments because bitcoin mining is not environmentally friendly. As you can see from the statistics above, this is far from the cut-and-dry reality. The fact is, the production of Tesla’s electric cars has its own negative effect on the environment — such as the environmental cost of mining lithium ion used in electric vehicle batteries — making everything he says quite contradictory.
Another point critics often raise about bitcoin is its high transaction costs. Elon believes that DOGE (Dogecoin) is more valuable than bitcoin in this regard, although he does not take into account the fact that if the number of DOGE users grows, the protocol’s transaction costs will also increase. Therefore, DOGE will eventually have its own scalability issues just as bitcoin currently does.
The next argument against the eco-activists’ criticism has to do with the type of energy miners use. As a general rule, miners will always seek access to cheap renewable energy sources. In many parts of the world, renewable energy sources like hydroelectricity and solar are cheaper than fossil fuel-based energy, however, this isn’t yet true across the board. In China, large mining pools are concentrated in designated areas, such as Sichuan and Shenzhen, with access to environmentally friendly renewable energy sources. With an oversupply of relatively green energy, bitcoin mining is an extremely profitable business in these areas, which in turn, supports these eco-friendly energy sources.
The Center for Alternative Finance at Cambridge University conducted a survey and found that 76% of miners use renewable energy to mine cryptocurrencies, while the share of green energy utilized for mining reaches 39%. Thus we can conclude that bitcoin does not cause any comparable damage to the environment, unlike banks and governments, whose offices are often located in populous regions and have limited access to renewable energy. Even further, blockchain, thanks to its transparency, allows us to estimate the carbon footprint of cryptocurrency mining.
Myth #2: bitcoin mining wastes energy, causing its shortage
This assumption is incorrect and isn’t based on solid logic. The reality is quite the opposite. According to The World Bank, 8% of electricity is lost during transportation, which means that transporting electricity over long distances is inefficient and expensive. Therefore, the only way to preserve electricity produced no matter from what source, is for it to be consumed as close to the source as possible.
As we noted earlier, a significant share of miners are located in regions with an oversupply of renewable energy. In these regions, the oversupplied energy created would be wasted or lost in transport if not used in bitcoin mining. Therefore, bitcoin miners actually utilize energy in areas where that same energy would go to waste. In this way, one could claim that bitcoin is using resources better than the traditional energy grid.
Myth #3: bitcoin is useless, so mining wastes energy resources
We’ve just debunked the “bitcoin wastes energy” myth, so let’s look at mining from a different angle: cryptocurrency mining stimulates investments in green energy.
The bitcoin Clean Energy Initiative (BCEI) released a White Paper in which it conducted a study on how bitcoin is accelerating the development of green energy. According to the research, connecting miners to renewable energy producers will help increase investor returns and eliminate demand volatility associated with the industry’s seasonality.
Another argument in favor of Bitcoin mining is its complexity. Gold is expensive around the world because it’s a finite resource. The cost of gold mining has a key influence on its price fluctuation. It takes a lot of energy to process several tons of rock to produce a single ounce of gold.
If gold were easy to mine, it would not be so valuable. Similarly, the bitcoin exchange rate closely correlates with its mining difficulty. Bitcoin is scarce and difficult to mine, which makes it a valuable asset, unlike currencies, which can be created basically out of thin air. Governments can print as many banknotes as they want with nominal work involved. This implies that mining does not waste energy, but rather converts it into a valuable, scarce digital asset.
Bitcoin opponents believe that cryptocurrencies have no intrinsic value and therefore should not waste any resources at all. This assertion is easily challenged. Author and investor Lyn Alden’s article makes a crushing argument supporting the value of digital assets:
In terms of utility, try bringing $250,000 worth of gold through an international airport vs bringing $250,000 worth of bitcoins with you instead, via a small digital wallet, or via an app on your phone, or even just by remembering a 12-word seed phrase. In addition, bitcoin is more easily verifiable than gold in terms of being a reserve asset and being used as collateral. It’s more frictionless to transfer than gold and has a hard-capped supply.
And here’s what the creator of bitcoin, Satoshi Nakamoto, had to say about bitcoin’s value:
Myths and prejudices continue to inhibit mass adoption of bitcoin, but the crypto industry continues to grow rapidly despite this problem. Bitcoin mining is not wasting energy, and instead, it contributes to the growth of the renewable energy industry while eliminating energy waste, all while creating value for investors.