Looking for the truth about Bitcoin and pools

If you hit YouTube looking for the truth about Bitcoin and whether the cryptocurrency is harmful to the environment, the results paint a confusing picture. In the play queue, you’ll find no shortage of videos on the theme, which sounds like a good thing – until you look at the titles. First we have ‘Why BitCoin is so bad for the planet’, followed directly by ‘Myth: Bitcoin is bad for the environment’. And the list goes on, varying a bit between whether the world’s most famous cryptocurrency is going to save or kill us all.

What has flooded the internet most recently has been concern not only about the energy consumption that comes from using Bitcoin, but how much water is used to cool all those hot-running miners (the computers used to make additions to the blockchain to validate). The trigger for the debate was a paper published in Cell Reports Sustainability, ‘Bitcoin’s Growing Water Footprint’, which reported that a single Bitcoin transaction today can cost as much water as a backyard swimming pool.

A single #Bitcoin transaction today can cost as much water as a backyard swimming pool.

Read more in “Bitcoin’s Growing Water Footprint” published now in @CellRepSustain: https://t.co/DwoFU6QmAz

Alex de Vries @Digiconomist pic.twitter.com/zRZuOm7A7n

— Cell Press (@CellPressNews) December 1, 2023

Of course, cryptocurrency proponents have been quick to deny those claims, which doesn’t help anyone search for the truth about Bitcoin and seek consensus on whether the cryptocurrency is harmful to the environment. So how do we arrive at an answer?

To get to the answer

At the heart of the issue is the amount of energy used by Bitcoin miners to validate additions to the blockchain. And, as a reminder, computers that successfully complete this challenge (which involves finding leading zeros on a hash of the digital ledger) are currently rewarded with 6.25 Bitcoin.

However, the protocol includes a halving schedule that periodically reduces the reward by 50%. Back in 2009, successful Bitcoin miners received 50 Bitcoin for their efforts, and three so-called halvings have occurred since then, with a fourth expected in the first half of this year. And it has an impact on anyone looking for the truth about Bitcoin and whether the cryptocurrency is harmful to the environment.

Despite the disagreement between analysts online, there are still useful energy consumption figures to be found that help frame the problem. To find an answer, we need to know – at least – how much electricity a typical miner consumes. And one way to do that is to look at the stats of BITMAIN’s popular S19 model, which – depending on whether it’s air- or liquid-cooled (no more noisy fans) – puts out between 3 and 5 kW at the wall consumption.

Running just one of these machines (and large-scale Bitcoin farms can have thousands of them) 24 hours a day equates to 72 kWh of energy, at the lower end of the scale. To put that into perspective, this is already more than double the energy consumption of an average American household. And Bitcoin enthusiasts have calculated that you would need 14 solar panels (or more, if the weather is less favorable) to power such cryptocurrency mining equipment.

Miners who want to profit from their activities, rather than just hoard Bitcoin, will have a keen interest in the price of electricity – and the cheaper, the better. Without a supply of cheap electricity, the economics of Bitcoin mining are not favorable – and this is before the expected halving of rewards. Miners will therefore seek out areas with readily available, low-cost power such as hydroelectric sources.

High fossil fuel prices pushing up electricity prices will mean miners run at a loss. Searching for the truth about Bitcoin and whether the cryptocurrency is harmful to the environment then becomes a question of how long operators can sustain those losses. When clean energy becomes cheaper than power generated by fossil fuels, you can bet miners will want to take advantage of it. In addition, profits can be dipped in other ways.

Cryptocarbon

Organizations such as the International Monetary Fund are considering a corrective tax to address the issue of what they call ‘cryptocarbon’. Their concern is based on a scenario where the value of Bitcoin, or other cryptocurrencies based on a proof-of-work consensus mechanism, rises significantly and involves the use of large amounts of low-energy-efficiency mining hardware.

Bitcoin mining has become a search for cheap energy – which includes sources of natural gas that must be vented into the atmosphere for safety, but can be reused to power blockchain validation. According to operators, there are environmental savings that can be engineered through the exploitation of what is called ‘stranded energy’.

Some Bitcoin farms have entered into agreements with energy providers to shut down when there is a peak demand for electricity and power is needed for more critical uses. Conversely, mining hardware can help balance electricity grids that are flooded with clean energy – for example, on sunny days, in the case of solar power systems, and on stormy ones, where power comes from wind turbines.

Bitcoin farm operators like to point out that their infrastructure is interruptible and can benefit energy firms as a buyer of last resort. In the middle of the night when demand is low, Bitcoin farms can buy excess power that would otherwise be turned down at a loss to energy companies.

To be clear, cryptocurrencies pitting millions of mining machines against each other to collect a single prize wastes energy in the name of securing the network. But it may not be the apocalypse some imagine, as long as cheap clean energy can be found and market forces deter miners from connecting their operations to generators fueled by fossil fuels.