With headlines like “Bitcoin mining is disastrous for the environment – it is time for governments to intervene” and “Bitcoin consumes more electricity than Argentina”, it’s understandable that the public could be concerned. Contrary to these alarming headlines, however, there is emerging evidence that bitcoin mining is actually a net positive for the environment, and why the current narrative being portrayed is antithetical to the truth. For family offices interested in cryptocurrency exploring new investment avenues, bitcoin puts forward a good case.
Why does bitcoin mining use so much energy?
The first thing to note is that bitcoin mining actually doesn’t consume nearly as much energy as most would think. In concrete terms, the amount of energy that the world produces every year is 162,194 TWh. Out of that, bitcoin uses as much as 189 TWh, which equates to only 0.1% of total global energy production. Additionally, the gold industry uses 21% more energy than bitcoin, the banking sector uses 28% more, and even the global energy consumption of televisions is estimated to be 33% more than bitcoin. The military-industrial complex also produces approximately 5,580% more greenhouse gas emissions than bitcoin.
Now that we’ve made reasonable comparisons to bitcoin’s energy consumption, let’s address why it uses a large amount of energy, albeit significantly smaller than what the recent narratives have been shouting. As a result of the subject’s complex nature, the exact mechanics of how bitcoin mining operates will not be reviewed in this article. However, there are many resources to learn from, one of which may be found here.
The key concept to keep in mind is this: the more energy bitcoin utilizes, the more secure it becomes.
Bitcoin mining is designed to have an increasing “hash rate”, which is essentially defined as the energy-intensive work that miners (computer servers) perform in order to generate new bitcoin, verify transactions, and secure the network. Ten years ago, one could simply mine bitcoin using their personal computer because the hash rate was so low, therefore the energy required to do so was extremely minimal. So, why does bitcoin mining require a large amount of energy now?
If more people start to mine bitcoin, the ‘difficulty’ of mining proportionately increases to the number of new miners joining, which effectively means that the energy required to do so increases – this ensures that the rate of bitcoin being produced will continue to be unchanged, stable and predictable. Gold is inferior as a store of value in this sense; if more people start to mine gold, the supply increases, which therefore lowers the price. Bitcoin fixes this dilemma since the supply stays the same no matter how many new miners get involved.
Fast forward to 2021, bitcoin is the most secure cryptocurrency on the planet because of how large the hash rate has become. Again, the higher the hash rate – the more energy bitcoin uses – the more secure the network is.
Is bitcoin mining bad for the environment?
At the surface level, bitcoin mining can appear to be alarming since the energy required to do so increases over time, as previously stated. However, the question that must be asked is this: What source is the energy coming from? Conservatively speaking, 56% of global bitcoin mining uses renewable energy, which is actually more than any country. So, ironically, if bitcoin itself were a country, it would literally be the greenest country on earth. As a result of the hash rate increasing, bitcoin miners are financially incentivized to use the cheapest forms of energy possible in order to remain profitable. So, what’s the cheapest form of energy that we have available? Renewables; clean energy. Therefore, bitcoin mining is effectively subsidizing the renewable energy market by acting as a buyer of last resort.
Bitcoin mining directly helps to decrease harmful emissions
Bitcoin mining is largely employed where energy would otherwise be wasted since wasted energy is quite cheap to use. A recent report by Galaxy Digital states that oil comprises about 40% of the world’s energy supply, however, a large portion of this energy is wasted through flaring and venting. The report states, “The greenhouse effects associated with methane are 25 times as environmentally damaging as those of an equivalent quantity of CO2. Flaring burns the methane and produces CO2 as a byproduct, theoretically reducing the CO2 equivalents by 24x. That said, the efficiency of flaring varies substantially, and in some cases can be as low as 30% – meaning even if the methane is flared, up to 70% can still escape into the atmosphere”
The report further reads, “Bitcoin mining offers a solution. Companies like Great American mining, Upstream Data, and Crusoe Energy Systems are building infrastructure to capture this methane at the wellhead and use otherwise wasted gas to mine Bitcoin. Unlike flaring, generators can burn this methane with a 99% efficiency, vastly reducing the risk of leakage into the atmosphere. This means that producers can ensure a 24x reduction in emissions compared to venting that methane into the atmosphere.”
Solar power is another viable option for bitcoin mining to take place. Another recent report by ARK Invest shows that bitcoin mining can actually help the solar industry grow larger, without the need for subsidies or external funding:
“Without bitcoin mining, solar – an intermittent energy source – could supply only 40% of grid power before utilities would face the need to fund significant investments with higher electricity prices. With bitcoin mining integrated into a solar system, however, energy providers – whether utilities or independent entities – would have the ability to play the arbitrage between electricity prices and bitcoin prices, as well as potentially sell the “surplus” solar and supply almost all grid power demands without lowering profitability.” For future-minded family offices, cryptocurrency might be the conscious investment avenue they’ve been looking for.
Bitcoin mining can help impoverished countries
Bitcoin has the ability to help impoverished nations by allowing them to utilize their natural, renewable energy resources for mining. Argentina, a country that has a 42% poverty rate, will now be home to a new bitcoin mining operation, which will utilize hydroelectric power. 10.5% of Argentinians can’t even afford to buy a basic basket of food worth $250 per month. The new hydroelectric bitcoin mining plant is projected to produce $650M in revenue. Imagine how much this will help improve a nation of these conditions? Furthermore, Argentina had a 40% inflation rate in 2020. What a beautiful opportunity this is for bitcoin – which cannot be inflated and has a finite supply of 21 million – to help the people of Argentina protect themselves from their national currency which is rapidly losing its value.
Next, El Salvador, which has a poverty rate of 26%. The country will be using renewable energy for mining, according to a recent announcement from the President: “Our engineers just informed me that they dug a new well that will provide approximately 95MW (megawatts) of 100% clean, 0 emissions geothermal energy from our volcanos. Starting to design a full bitcoin mining hub around it.” On average, 19.8% of the people in Brazil live on less than $5.50 per day. Brazil is the 3rd largest producer of hydroelectric power in the world, and the country has politicians such as a Representative, a State Deputy, and a Federal Deputy all publicly declaring their support for bitcoin.
Of the 129.2 million citizens living in Mexico, 52.4 million people are living in poverty and 9.5 million are living in extreme poverty. The country is the 6th largest producer of geothermal energy in the world and has both a Member of the Lower House and a Senator publicly supporting bitcoin. Relating to this, extracting from ARK Invest’s report that was mentioned previously, its call-to-action states, “The bitcoin and energy markets are converging and we believe the energy asset owners of today will likely become the miners of tomorrow. Utility executives, sustainable infrastructure funds, and grid-scale storage developers are well-positioned to expedite this future” If the potential within emerging markets is anything to go by, cryptocurrency could be an obvious choice for forward-thinking family offices.
The amount of wasted energy is 19.4x larger than the amount of energy that bitcoin consumes today. The logical path forward is for bitcoin to continue using increasing amounts of energy, and that’s a positive factor, not a negative one. Bitcoin will continue to use more energy that would have otherwise been wasted and/or destructive for the environment. Although bitcoin is often criticized for its large use of energy, the data shows us that it is of utmost importance to understand where the energy is coming from. Family offices must embrace the fact that cryptocurrency is not going away. Corporations such as MicroStrategy, Square, and Tesla own it as part of their cash reserves. Billionaires such as Ricardo Salinas and Paul Tudor Jones praise bitcoin and voice their concerns over inflation and the future of fiat currencies. El Salvador recently made it the country’s national currency.
Bitcoin is a story of hope. It is a net positive for the environment, and it is here to stay.