Assessing whether Bitcoin’s energy consumption makes sense

After Tesla’s initial Bitcoin investment and payment support for Tesla purchases on 8 February 2021, many critics followed up on the company’s position by alleging that the car-maker is supporting an asset that is presumably heavily reliant on fossil fuels.

Over the past few years, various studies have reported different aspects of BTC’s carbon footprint, but that methodology has been a little sketchy. As the network’s power is drawn from determining hash rate, the kind of equipment used by different miners makes a whole lot of difference. Hence, studies have usually assumed a data set between the upper and lower bound of efficiency.

Now, the question arises between renewable and non-renewable sources. One of the best research indices in this respect was developed by the Cambridge Centre for Alternative Finance, one which suggested that Xinjiang in China contributes to 30% of the total BTC hash rate.

Sichuan, Inner Mongolia, and Yunnan followed up with 19%, 7.5%, and 7%, respectively.

Now, the difference in the national ratio of renewable and non-renewable electricity production underlines the primary issue with the generalization of data. This report drafted by the Economists’ Intelligence Unit, for instance, found that more than 85% of the electricity used in Yunnan and Sichuan is generated through hydroelectricity.

Such narratives only got pushed under the radar when mainstream institutions such as the Bank of America cited in 2021,

“Nearly 60% of Chinese electrical generation is from coal-fired power plants, with less than 20% coming from natural gas or renewables. In other words, the main input into Bitcoin mining is coal, not exactly the cleanest source of energy on planet Earth.”

The data set produced by each entity reads a different opinion so, it is better to observe the consumption from a utility point of view.

Now, according to the Bitcoin Energy Consumption Index, every Bitcoin transaction is responsible for 545 kg of carbon emissions, 1,147 kg-watt of consumed electricity, and 104 grams of electrical waste. In comparison, a Visa transaction uses a fraction of the power. While, factually, it is true, here is the key difference.

Bitcoin and Visa are both different monetary settlement systems. Bitcoin is completely self-contained and it is a network of its own where all functionality from one peer to another peer takes place on the blockchain. Nic Carter explained the multitude of levels associated with Visa recently. He stated,

“Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve, and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.”

Hence, when you compare a large wire transfer power consumption in context with Bitcoin, the results are more comparable rather than picking one visa user to a visa merchant.

The next part of this article will look into if Bitcoin is depriving other projects of energy or not and whether the recent mining outrage is justified by those who claim that Bitcoin is wholly dependent on coal power.

In the first part of this article, we discussed the difference between the power consumption of Bitcoin v. Visa transfers. We also introduced the idea of how much of BTC’s energy is actually coming from coal-powered sources and renewable energy.

Most critics jump the gun on Bitcoin’s energy usage and claim that its power intake can be better used. However, the levels of electricity wasted on Earth each year gives a clearer picture.

A recent report by the World Economic Forum found that the amount of energy consumed in 2018 was less than the amount rejected or wasted. For instance, the transportation sector wasted 22.2 quads of energy (one quad is equivalent to 8,007,000,000 gallons of gasoline).

On the contrary, Bitcoin miners usually position themselves in geographically strategic positions to reduce power wastage. Many mining operations are located next to hydroelectric facilities in Canadian ghost towns or in Norway where renewable energy is in surplus.

Now, China’s Xinjiang provinces were flagged for their coal-powered sources. However, China also produced 17 TWh of wind energy in 2015.

This, according to some accounts, may have been enough to power the entire Bitcoin network.

Additionally, the total curtailment of Chinese electricity generated from solar and wind for 2019 was around 4.6 TWh and 16.9 TWh, respectively. Taken together, wasted wind and solar energy from China alone could have contributed 28% of the total energy required for Bitcoin.

Hence, enough power is being produced around the world for Bitcoin’s network. It is not taking a lion’s share of power away from any industrial setup either.

In fact, according to Sergi Gerasymovych, EZ Blockchain’s Founder and CEO,

“I strongly believe that Bitcoin mining’s huge power consumption can be used as a tool to solve the global waste energy problem with solutions like utilizing flared gas for mining or stranded natural gas. This area has to have more coverage and research.”

When Bitcoin’s hash rate dropped during the flooding of a Xinjiang coal mine, it fell from ~20 ETH/s to ~10.5 ETH/s. The ensuing dump even fueled the likelihood of a vector attack on Bitcoin.

While no such incident transpired, critics were eager to jump the bandwagon yet again. By looking at Xinjiang sourcing most of its electricity from fossil fuels, they assumed the network’s environmental impact.

Castle Island Ventures’ Nic Carter shared a similar sentiment, stating, “The takeaway for me is that Xinjiang is most likely smaller in terms of its contribution to hash rate than we thought. That’s unequivocally positive. Second, it seems to me that China is harassing miners, and making sure they know who is in control. Inner Mongolia already banned mining, and this seems like an early move at potentially banning mining in Xinjiang too.”

According to Carter, this “would obviously be very positive for Bitcoin, especially for U.S.-based miners.” Regardless of this debate, it is clear that greener mining needs to be established. Curiously, one can argue that the situation has already improved.

According to the Bitcoin Mining Council, 56% of the mining power during the end of June quarter came from renewable resources. The report also claimed that the U.S. wastes 65% of all energy used to generate and distribute power. On the