Formatted post here: https://bitconsult.co/2018/02/16/is-bitcoin-really-destroying-the-environment/
Bitcoin and the Environment
Let’s get one thing straight, we here at Bitconsult LOVE our planet. Whether hiking Mt. Rainier, roaming the High Sierra, or snapping pictures of songbirds in our beautiful New Jersey parks, the best experiences come from the great outdoors. Unfortunately, there’s always someone willing to sacrifice the environment in order to make a quick buck. Lately, there’s been a lot of discussion surrounding Bitcoin and the impact that Bitcoin mining has on the environment. Today we’ll dive into the environmental impact of Bitcoin, and try to get a better idea on how BTC will impact our world moving forward.
Environmental Impacts
Environmental impacts are always hard to assess. Take electric cars for example. When speaking strictly about vehicle emissions, it is clear that an electric vehicle emits much less pollution than a gasoline vehicle. The electric vehicle may not need to fill up at the gas station, but the battery still needs to be charged, usually by household electricity. That electricity can come from a variety of sources, perhaps solar power or coal from a local power plant. In addition, there are massive environmental impacts to the production of the car’s battery itself. Electric cars require rare metals that need to be mined and refined. Of course, sucking oil out of the ground is incredibly destructive as well.
The point is that determining energy consumption is a difficult task. There are many products and processes that can be easily overlooked or conveniently ignored in order to make a certain solution look better. On top of that, determining how even one of those processes (drilling, for example) affects local and global ecosystems adds a whole new layer of complexity. Many brilliant scientists dedicate their lives to better define these problems and come up with recommendations to fix them.
In this article, we’ll define some of the products and processes that make up Bitcoin and the traditional financial systems. We’ll provide facts where available, and clearly state when we’re estimating.
“Bitcoin is Killing the Environment”
If you Google “Bitcoin Environment”, you’ll get some pretty terrifying headlines:
“Bitcoin is Terrible for the Environment”
“Bitcoin boom may be a disaster for the environment”
“Bitcoin has a Massive Carbon Footprint”
Most of these articles claim that Bitcoin miners are using coal and other dirty energies to make huge profits off of Bitcoin, a speculative asset that no one is using. They not only use sensational headlines to make the energy used seem bigger than it is (i.e. “Bitcoin mining consumes more energy than 159 countries”) , but most can’t be bothered to explain what Proof of Work (PoW) mining is, and why PoW is critical not only for Bitcoin, but for email, web browsing and other applications that we use daily. And of course, most articles don’t even try to determine the environmental impacts of our existing financial systems.
There’s a lot to unpack here, so let’s start with the facts.
Bitcoin Energy Consumption
There is no hard data on the amount of electricity that Bitcoin uses, but it can be estimated by examining publicly available blockchain information. As explained in our mining article, miners compete to create the next Bitcoin block. These blocks are found approximately every ten minutes. As more miners add computing power to the competition, it becomes more difficult to solve the mathematical equation (finding a “hash” that satisfies the block difficulty, the process is known as “hashing”) required to find a new block. This measure of difficulty is accurately called “Block Difficulty”, and can be conveniently viewed using a blockchain explorer.
A higher difficulty means that miners have to compute more hashes to find the next block. Each hash requires a certain amount of computing power, which requires a certain amount of electricity. The current difficulty (14 February 2018) is 2,874,674,234,415. The number of Hashes required on average to find a block at this difficulty can be calculated using a formula (described in detail in this great post), or can be grabbed from a blockchain explorer. Referencing blockchain.info, the current Bitcoin hash rate is 23,149,934,669 GH/s (Giga Hashes/second, or 2.310^19 hash/s). This is the total amount of hashing (mining work) currently dedicated to the Bitcoin network.
In order to calculate the energy used in all of this hashing, we need to determine the electrical efficiency of the hardware performing the Bitcoin mining. For this, we’ll assume all BTC miners use the Bitmain S9 miner, which produces 14 TH/s (Tera hashes per second or 1.410^13 hash/s) at 1,372 W (Watts). Bitmain produces the most efficient Application Specific Integrated Circuit (ASIC) miners on the market. They claim to provide over 70% of all BTC mining equipment. We simply divide # of hashes needed to compute a block by the S9’s output to get the number of S9’s in use.
Number of S9’s = (2.310^19)/(1.410^13)
Number of S9’s = 1.6 million
Now we multiply the number of S9‘s by the energy usage per S9 to get the total energy consumed by Bitcoin mining today.
Total Power = 1.6 million * 1,372 Watts
Total Power = 2,200 MW (Mega Watts)
There we have it! The current energy being used to mine Bitcoin is 2,200 MW. Over the course of a year this equates to 19,272 GWh. For reference, the total energy used globally is estimated at 158,714,610 GWh. Therefore, Bitcoin mining uses roughly 0.012% of the world’s power. This estimate does not take into account the energy required to produce and ship the mining hardware, or the energy required to run full nodes, Bitcoin exchanges, etc.
We’ve thrown around some big numbers here, let’s find some more relevant comparisons for energy usage.
Energy Consumption Comparisons
Energy and the Environment are hotly politicized issues. As in all politics, facts are often skewed to fit a political agenda. In Bitcoin, this is no different. If you want the amount of energy used to seem very large, you may post something like: “Bitcoin Mining uses twice as much energy as the country of Uruguay”. Want to make Bitcoin energy consumption seem small? “A single dam in China produces 5 times more energy than Bitcoin Consumes”, or “A single U.S. geothermal plant produces more energy than Bitcoin consumes.”
Yearly Bitcoin Energy Expenditure 19.27 TWh
Yearly Electricity Consumed by Uruguay 10.93 TWh
Yearly Electricity produced by Three Gorges Dam 98.8 TWh
Speaking of geothermal power, let’s talk about Bitcoin and clean energy.
Clean Energy
One of the world’s largest mining operations is Genesis Mining, located somewhere in the far reaches of Iceland. It’s not surprising that Iceland has a large mining operation, as they’ve been on the bleeding edge of many advancements in technology, finance and politics. Remember the ol’ 2008 financial crisis? Iceland allowed their banks to fail. Many Icelanders embrace direct democracy, and an anti-establishment mentality which aligns with many in the Bitcoin community. In fact, 6 out of 63 members of the Icelandic parliament are currently aligned with the “Pirate Party”.
Why are we talking about Iceland again? Well, it’s a hotspot for geothermal power, a clean, renewable energy that provides the electricity for Genesis Mining. Bitcoin mining is very profitable if cheap energy is available, leading many entrepreneurs to establish mining operations near renewable energy sources.
Early in Bitcoin’s growth, however, many miners were stationed in China. The Chinese government provided cheap or free electricity, mostly through burning coal. As most of us know, China turned sour on Bitcoin in 2017, banning BTC-Yuan trading and requesting an “orderly exit” of Bitcoin mining operations from the country. While it’s possible that some operations will move to other fossil-fuel burning territories in South America or elsewhere, most new mining facilities are being set up where renewable energy is plentiful. In some cases, countries/cities are even courting Bitcoin miners to assist in their excess energy problems.
Excess Energy
With the United States building pipelines, expanding offshore drilling and trying to revive the coal industry, you’d think that there is an energy shortage. In fact, quite the opposite is true. The price of oil has plummeted over the last ten years as demand has fallen and supply has increased. In fact, many cities, countries, and companies are experiencing a much different problem – energy surpluses. A prime example is Hydro Quebec in Canada.
Hydro Quebec produces clean, renewable energy by utilizing hydropower in Quebec. Quebec has vast hydraulic resources, with over 500,000 lakes and 4,500 rivers in the province. We’re not going to get into the details here, but what is important is that Hydro Quebec is actually producing too much power. The company estimates that they’ll have a surplus of 100 terawatt hours over the next ten years. Too much power is a problem for many power plants. Electricity is very difficult to store, and it is often time consuming and costly for energy producers to turn operations on and off.
For this reason, Hydro Quebec has actually been courting Bitcoin miners. This has not fallen on deaf ears, as over 100 cryptocurrency-related mining companies have expressed interest. In fact, Bitmain has already moved some mining resourced to Canada to take advantage of cheap electricity. It doesn’t hurt that Canada has taken a mostly hands-off or even positive approach to handling cryptocurrencies.
Other countries like Kazakhstan and Venezuela are also looking to bring in crypto mining companies. Countries like Venezuela have large oil reserves, so the energy produced is likely much worse for the environment. It will be interesting to see where the major mining operations will move in the next 5-10 years. Luckily for Mother Earth, countries like Canada who have renewable energy sources are much more likely to attract miners than the not-so-stable oil-rich country of Venezuela.
The Value of Bitcoin Mining
So, we’ve taken a shot at determining the total energy used by Bitcoin mining and the number is likely not as terrifying as you may have thought. It’s clear that mining operations are incentivized to use clean, renewable energy, and that trend is already materializing. But what is the value of this mining? If mining provides no value to society, then it is a waste, no matter how much energy is used or how it is produced.
Most articles state that Bitcoin mining exists so that miners can make money. Every time a miner finds a block, they currently receive 12.5 freshly “minted” BTC and transaction fees for all transactions that they include in their block. This equates to around $125K, not bad! However, the mining reward is not the reason that BTC mining exists, it simply serves as an incentive for miners to secure the Bitcoin network.
Security Through Hashpower
Mining Empty Blocks
Bitcoin’s security is directly proportionate to the amount of hashpower provided by Bitcoin miners. In order to create the next block and decide which outstanding BTC transactions to include, a miner must win that block by dedicating a huge amount of resources, primarily electricity and hardware. This ensures that miners have skin in the game. Want to effectively stall the Bitcoin network by creating empty blocks that contain no Bitcoin transactions? Well, that’s going to cost you. You’ll have to purchase the mining ASIC’s and burn through electricity until you find a block. Your costs could run into the millions before finding a block. When you do find one, you’ll receive the 12.5 BTC reward, but if you choose not to include any transactions, you won’t receive and transaction fees, which can be worth up to an additional 5 BTC.
Let’s say you really want to stall the Bitcoin network and you manage to build a supercomputing system 10x larger than the total Bitcoin mining computing power (already the biggest computing system in the world). You run a sustained attack on the Bitcoin network by mining empty blocks for weeks. If you were successful in taking over the network and mining a long series of blocks, you’d be directly damaging the BTC network, and likely the price. Poof, your block rewards become worth less the longer you stall the network, and you’re running a deficit into the Trillions.
Changing the Past
In addition to mining empty blocks, a malicious actor could also attack the Bitcoin network by trying to change the history of the blockchain and double-spend transactions. Typically, a Bitcoin transaction is completely confirmed after 6 block confirmations. Let’s say you want to screw an exchange over by sending them a large BTC transaction, cashing out, then altering the BTC blockchain’s history to effectively make it so the transaction never happened and the coins are still in your account.
To do this, you’d send 1,000 BTC ($10 million) to an exchange like GDAX. GDAX likely has withdrawal limits, but we’ll ignore them. Before crediting your account, GDAX would wait 6 blocks (about 1 hour) to credit your account with this massive transfer. After confirmation, you cash out to USD. After initiating the USD withdrawal, you set your miners to start mining an alternate history, 6 blocks back from the current time. If you’re able to create a new, forked reality that does not include your transaction to GDAX, you could effectively keep the 1,000 BTC in your original address, and the transaction never happens. For this to work, you’ll have to not only create a block, you’ll have to create 6 blocks on top of that, all satisfying Bitcoin’s current difficulty level. You’d have to “catch up” to the main BTC chain and effectively outrun it. For this scenario to play out, you’d need to control 51% or more of the total BTC hashpower (known as a “51%” attack). In reality, you’d need MUCH more than 51% to outrun the rest of the network in a reasonable amount of time.
Controlling over 51% of the hashpower would mean you control >50% of the biggest computing network in the world. Having this kind of hashpower and electricity at your disposable would cost magnitudes more than the $10 million you are trying to abscond with. Also, you’d likely have to redo 6 days worth of work (800+ blocks), not 6 blocks. Also, why not just mine Bitcoin honestly with that hashpower? You’d make a lot of money! There are many aspects to Bitcoin’s security that were designed with “game theory” in mind.
For more on mining and security, check out our blog post on mining, but we’ll try to wrap up the main points.
Immutability
Cryptocurrencies are valuable not just because they enable fast, borderless transactions. Cryptocurrencies gain value by being immutable. Immutability means that no one can freeze accounts, reverse transfers, or steal your funds. Immutability is achieved through massive hashpower (mining), decentralization of participants (no one controls > 51% of hashpower), and consensus (participants agree on the state of the ledger). For these reasons, Bitcoin is the most valuable cryptocurrency, by far. Any alternative is inherently less secure.
Many people agree that government and financial institutions have too much control over money, and therefore too much control over freedom. Want to leave your country with over $10K in cash? You’ll need to report that. Want to donate money to Wikileaks? You can’t do that with Visa, because the U.S. said no. Running a successful company and want full control over your money? Sorry, Paypal decided to freeze your funds until you raise your cash reserves. Why trust a government to responsibly control inflation when a currency exists with strict inflationary measures, enforced by consensus amount participants?
Bitcoin is sound money. Bitcoin is better money.
Energy Used by Traditional Finance
Speaking of crappy money, let’s not give traditional finance a free pass when it comes to the environment. We’re not going to attempt to calculate all of the energy that goes into traditional banking and financial services, but we do want to remind everyone of the hidden energy costs. This isn’t very scientific, but hey, it’s been a long post.
Some sources estimate that the banking system uses 650 TWh per year to power their branches and ATM’s. That’s over 30 times as much energy as Bitcoin mining. Bitcoin, with a market cap just under $200 billion, obvious handles far fewer financial transactions than the global banking system, but here are some other costs that exist in traditional banking which would be phased out as the world adopts Bitcoin:
-Cash printing (according to the European Central Bank, it takes .025 kilowatt-hours to produce a banknote)
-Coin production (including mining, minting, storage and transportation)
-Cash transportation and storage (8 MPG armored trucks!)
-Credit card processing
Bitcoin Energy Growth
Bitcoin is scaling to handle millions of transactions per second with second-layer solutions like the Lightning Network. The Lightning Network will offer the security of Bitcoin, as any transaction can be recorded in the blockchain, but most transactions can be settled without touching the blockchain. This means that Bitcoin can scale without having to add a proportionate amount of mining (electricity consumption) as the number of transactions grow. There will be electricity associated with running lightning nodes, but it will be much less than the energy used by mining.
It must be noted, however, that Bitcoin mining and energy consumption is growing. As Bitcoin increases in value, more miners are attracted to the space. As more miners compete over blocks, the hashpower and total energy used increases. It’s unclear how fast this energy usage will grow, but it will likely mirror Bitcoin’s overall adoption curve.
Conclusion
Bitcoin mining requires a lot of energy, but for good reasons. Bitcoin was built on the principle that users should control their own money. If Bitcoin’s energy consumption grows from here, it will be due to higher acceptance, as more people believe sound money is worth the energy expenditure. 2018 will see many innovations in Bitcoin, and hopefully a strong focus on clean, renewable energy usage by miners.
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