How Bitcoin’s energy consumption compares to other “useless” industries
Bitcoin's energy consumption is neither ideal nor entirely unreasonable.
This article was originally published on 3 March 2020.
Digiconomist founder and PwC blockchain specialist Alex de Vries has spoken out (repeatedly over the years) against Bitcoin's undeniably exorbitant energy consumption. The latest angle, which has as usual attracted criticism, is that 98% of Bitcoin mining machines will never validate a transaction.
Instead, most mining machines just spend a short life gargling electricity and then being disposed of. It's easy to split hairs about mining pools, but at the end of the day, the numbers don't lie, assuming they're correct.
There's no doubt that Bitcoin is not energy efficient. But whether it's a "waste" of energy is an ongoing debate.
One person's trash is another person's garbage
Bitcoin's energy consumption is naturally kept in check by one factor – the price of Bitcoin. This constantly acts as a ceiling for the network hashrate, and therefore sets a ceiling for its energy consumption. As long as Bitcoin doesn't actually go to the moon, there's little to worry about.
In this way, Bitcoin's energy consumption is naturally capped by demand for Bitcoin, the same as many other "useless" industries.
"Useless", in this case, refers to anything that isn't strictly necessary and doesn't provide an essential need. Whether Bitcoin's energy consumption is proportionate to its economic output is another question.
Bitcoin: Carbon footprint of 37 million tonnes per year
The current Digiconomist Bitcoin energy consumption index puts it at about 78 Twh per year, roughly comparable with the power consumption of Chile. In the process, Digiconomist estimates its carbon footprint to be 37 million tonnes per year, or about the same as New Zealand.
Fashion: Carbon footprint of 5.35 billion tonnes per year
Fashion is an obvious go-to because the vast majority of it is purely cosmetic, it has enormously long supply chains and it uses a lot of raw materials.
Its total carbon footprint is very difficult as a result of these factors, but in 2018, the United Nations Economic Commission for Europe reckoned the fashion industry to be single-handedly responsible for about 10% of the world's carbon emissions and 20% of the planet's wastewater.
According to the UN, total global carbon emissions in 2017 were 53.5 gigatonnes, or 53.5 billion tons per year, giving the fashion industry a final score of 5.35 billion tonnes. Its annual carbon emissions are roughly 143x larger than Bitcoin's.
Even the more generous estimations of how much of the fashion industry is strictly necessary leave it much, much more impactful than Bitcoin.
Tourism: Carbon footprint of 4.28 billion tonnes per year
A 2018 study estimated tourism to account for about 8% of the world's carbon emissions. Using the above estimates, that would put it at 4.28 billion tonnes of CO2 per year – still more than 100x as much as Bitcoin.
Interestingly, only about 12% of that is from flights. So the simple act of existing on vacation apparently emits a lot of carbon. This may be related to the fact that tourism volumes are much higher in developed countries where people consume more energy in their day-to-day lives.
Cash: Carbon footprint of 3.2 million tonnes per year
You know what they say about cash; it's useless because it's only good for drug dealers and tax evasion. Or was that Bitcoin?
Either way, calculating the total carbon footprint of money printing is a complicated affair, especially once you factor in the energy spent distributing notes, the carbon released by disposing of old notes through burning, calculating the energy expended in mining the metals going into coins, the different materials that go into polymer and paper money and so on.
When CoinDesk ran the numbers in 2014, it concluded that the business of printing cash released 3.2 million tonnes of CO2 per year. It's tough to say how much that would have changed since then, but it's probably pretty similar. If we assume it's remained the same, it means Bitcoin's carbon emissions are currently more than ten times as high as cash.
This is also a good time to highlight the almost terrifying pace of Bitcoin's growing energy consumption.
At the start of 2014, Bitcoin's hashrate was about 10,000 TH/s. By the end of 2014, that had grown to 320,000 TH/s. Today, it's about 115 million TH/s.
So if we look at Bitcoin's hashrate in 2014, and (erroneously) assume Bitcoin's carbon emissions relative to hashrate were the same in 2014 as they are now, we can estimate that at the start of 2014, Bitcoin's annual carbon emissions came out to an insignificant 3,217 tonnes. By the end of the year, it might have risen to a more significant 103,000 tonnes per year. And today, it's 37 million tonnes.
Opinion: The "network security" argument is overdone, but Bitcoin isn't useless
Given that Bitcoin is literally a form of digitised wealth, it seems worth noting that wealth is a strong driver of energy consumption. Being able to afford and access cars, fridges, computers, vacations, hot water and electric lights naturally increases one's carbon footprint. Financial inclusion and economic growth are directly responsible for much of the recent growth in the world's carbon footprint.
While Bitcoin itself may not be directly driving too much of that, it probably helped spawn the technologies that are. Similarly, the mere existence of Bitcoin as a well-known alternative currency could help serve as a useful benchmark for innovation. We've very clearly seen that simply by existing and looking suitably threatening, Libra and Bitcoin have promoted innovation.
So even if 98% of miners aren't validating transactions, simply by keeping Bitcoin alive they're still contributing to economic development and the gradual bettering of the world in some ineffable way – just like other not-strictly-necessary energy-hog industries.
The network security argument may be overdone, but Bitcoin's energy consumption today still looks like joules well spent. Its energy consumption seems quite reasonable in light of the impact it's had and is continuing to have. For a sense of perspective, just look at individual companies like PepsiCo, whose carbon footprint was 69 million tonnes in 2015.
Of course, PepsiCo's emissions have decreased since then, while Bitcoin is looking at potentially unmanageable and theoretically unlimited future energy consumption if its prices rise indefinitely.
As we can see from its growth between 2014 and today, Bitcoin's energy consumption can multiply at a ludicrous rate. But this only happens in the face of wild price rises. Things would have to get pretty out of hand for Bitcoin to duplicate its previous rises from its current position.
Disclosure: The author holds BNB and BTC at the time of writing.
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