What is Bitcoin’s true environmental impact?

The vast network of computer hardware that keeps the Bitcoin network running requires a staggering amount of energy. This has led to concerns about the effects of the cryptocurrency on the environment. But assessing Bitcoin’s real, bottom-line impact isn’t as simple as it might seem, experts say.

Bitcoin’s huge computational demands are the result of a process known as “mining.” Participants race to solve complex mathematical problems for the right to verify the next “block” of transactions and claim a reward of freshly minted bitcoins. The system requires significant processing power and is designed to make tampering with records extremely difficult. The difficulty of the puzzles also increases with the number of miners – roughly related to the incentive for mining, which often tracks with bitcoin price. The result is that new blocks are produced at reliably the same rate as new miners step in.

With the price of a bitcoin currently rising, the issue is coming to the fore again.

These days, solving those mathematical puzzles has become so difficult that most mining is done by companies running energy-hungry data centers full of specialized chips. Several studies have suggested that the carbon footprint of all this calculation could be equivalent to that of a small country. Late last year, research in Cell Reports Sustainability also highlighted Bitcoin’s water use, estimating that it goes through about 2.2 trillion gallons a year. And with the price of a bitcoin currently rising, the issue is coming to the fore again.

However, the shadowy nature of cryptocurrencies makes accurate assessments difficult, experts say. In particular, there is great uncertainty about the hardware and energy sources that miners use. This leaves wide margins of error in estimating Bitcoin’s energy use and how that translates into environmental impacts, said Alexander Neumüller, a research fellow at the Cambridge Center for Alternative Finance at the University of Cambridge. “It’s a decentralized network, so you really don’t know what everyone is doing,” he says.

How big is really big?

While it may be difficult to pin down a number, there is little doubt that Bitcoin uses a large amount of electricity, said Alex de Vries, a data scientist at the Dutch central bank who holds a Ph.D. in cryptocurrency sustainability at VU Amsterdam in the Netherlands. He is the author of the recent paper on Bitcoin’s water use and has published several studies on the cryptocurrency’s energy footprint.

Estimating Bitcoin’s power bill is easier than many other computer applications, says de Vries. There is a public record of how many guesses miners have made in their attempts to solve Bitcoin’s cryptographic mysteries. This so-called “hash rate” provides a proxy for the network’s total computing power, which can be combined with performance data from the most popular mining chips to approximate energy consumption, says de Vries.

“Anyone who really understands the industry knows that there is a tremendous drive toward the lowest-cost power source.”—Murray Rudd, Satoshi Action Education

Where things get murkier is translating this into carbon emissions. Until now, most newspapers have relied on using miners’ IP addresses to judge their location and then look at what energy sources the network supplies in that region. A recent paper from researchers at the United Nations University in Hamilton, Canada, using this approach, estimated that around 67 percent of Bitcoin’s energy consumption between 2020 and 2021 will come from fossil fuels, mainly due to miners in coal-dependent countries such as China, Kazakhstan, and Russia. Their calculated result was 85.89 megatons of CO2 equivalent emitted in that two-year period. By comparison, Denmark produced 45.80 megatons in 2022.

A similar approach could help estimate Bitcoin’s water footprint, as most of the network’s water use comes back to electricity generation. The UN researchers predict that Bitcoin used 1.65 trillion liters of water in the same period, equivalent to more than 660,000 Olympic-sized swimming pools. In his paper, De Vries estimates the figure for 2023 even higher, at 2.2 trillion.

However, this kind of analysis betrays a lack of understanding of the mining industry, says Murray Rudd, an environmental economist at Satoshi Action Education, an American nonprofit that advocates for Bitcoin. “Anyone who really understands the industry knows that there is a tremendous drive toward the lowest-cost power source,” he says.

This means miners who are typically set up in regions with particularly cheap energy or sign tailor-made agreements with energy suppliers. In many cases, this low-cost power comes from renewables, he says, such as excess hydropower and increasingly solar and wind power as their prices continue to fall. Some miners also rely on “stranded energy” such as waste methane from oil wells and landfills. The powerful greenhouse gas is normally burned to convert it into less harmful CO2 which is then released into the atmosphere. Instead, it could be used as a carbon-neutral power source for miners, says Rudd.

Study the studies

Determining how these trends affect Bitcoin’s environmental impact is difficult due to the lack of peer-reviewed research on the topic, Rudd says. That’s why he recently co-authored a paper outlining some of the most important unanswered research questions in this area. “There’s no question that Bitcoin mining uses a huge amount of electricity,” says Rudd. “The question is really what type of energy and what are the long-term impacts of that energy use?”

With the cost of renewable energy continuing to fall, it is likely that miners will switch to greener power sources over time, he says. Proponents of Bitcoin have even suggested that it could promote the development of renewable energy. It is difficult to integrate large amounts of solar and wind power into grids because their intermittency makes it difficult to balance supply and demand. But Bitcoin mines can provide so-called “demand response” to network operators by shutting down during demand spikes in exchange for a fee, Rudd says. The Electric Reliability Council of Texas already has several such agreements with miners to help balance the state’s renewable-heavy grid.

“If the bitcoin price is cut in half, most of the industry will be gone by next week. It’s just not a very stable foundation for a long-term renewable energy project.”—Alex de Vries, VU Amsterdam

Some have also suggested that Bitcoin mines could provide a way to monetize the development of renewable energy before they are connected to the grid, which can sometimes take years. Fengqi You, a professor of energy systems engineering at Cornell University, explored the proposal in a paper published last October. Whether or not a project can benefit from it depends on a host of factors such as size, location and local regulation, You says. But in Texas, they showed that 32 planned renewable installations could generate combined profits of US $47 million while waiting to connect to the grid.

“If you can have some of these wasted renewable resources generate some economic value, that in turn can offset the cost of renewable energy and fundamentally help us support the development of renewable projects,” he says.

However, De Vries believes that it is unlikely that developers will factor this into their planning. Most renewable projects are planned many years in advance, but the highly volatile price of a bitcoin means the economics of mining can change quickly. “If the bitcoin price is cut in half, most of the industry will be gone by next week,” he says. “It’s just not a very stable foundation for a long-term renewable energy project.”

Renewable energy is also a scarce resource, he says, so using it to power Bitcoin mining slows down the decarbonization of other sectors of the economy. And crucially, when new demand comes online, it’s usually met by gas plants that can ramp up and down quickly. This means that when miners come to town it is actually more likely to boost fossil fuel use than the local energy mix suggests, says de Vries.

Getting to the bottom of this issue is difficult, says Cambridge’s Neumüller. He leads the Cambridge Bitcoin Electricity Consumption Index (CBECI) project, which provides continuously updated estimates of Bitcoin’s energy use and climate impact. The index gives figures for best- and worst-case scenarios, but its current “best guess” estimate pegs Bitcoin’s annual CO2 equivalent emissions at 77.98 megatons.

Data centers consume about 1 percent of the world’s energy, but they offer clear benefits. Some experts are skeptical that Bitcoin can say the same.

Neumüller admits that the reliance on national energy mixes is a limitation, but he says it is difficult to get more granular data. He also notes that their calculations are based on location data from 2022. Since then, many miners have moved from China and Kazakhstan, and he expects an update later this year to lead to a significant shift in emission intensity. However, it is important that someone tries to estimate the magnitude of these issues, he says, even if the results are a little rough. “Otherwise you’ll be completely in the dark,” he adds.

However, most attempts to predict Bitcoin’s energy use make the same mistake, says Jonathan Koomey, a consultant and widely cited expert on computers’ energy footprint. They assume that electricity consumption grows proportionally to the computing demand. In fact, he says, as technology is deployed at scale, it typically becomes significantly more efficient, so energy consumption doesn’t rise nearly as fast.

Nevertheless, there is little doubt that the energy consumption is significant, says Koomey. But debate about its scope is ultimately irrelevant until society answers a more important question—is it worth it? Data centers consume about 1 percent of the world’s energy, Koomey says, but they offer clear benefits. He is skeptical that Bitcoin can say the same. “The real use cases don’t nearly justify the energy and other impacts,” he says.

Another important elephant in the room, Koomey adds, is the fact that it’s entirely possible to build a cryptocurrency that doesn’t require energy-hungry mining. Last year, the second largest cryptocurrency Ethereum abandoned the practice in favor of an alternative approach called proof of stake, in which users win the right to mint new blocks by putting up large chunks of their holdings as collateral. The switch reduced the network’s energy consumption by 99.9 percent almost overnight.

The idea is anathema to many Bitcoin advocates who argue that the approach is less secure and more open to manipulation. But Ethereum’s continued success makes it increasingly difficult to justify Bitcoin’s energy footprint, Koomey says.