According to the Cambridge Center for Alternative Finance (CCAF), bitcoin currently consumes about 110 terawatt-hours per year, representing 0.55% of global electricity production, or roughly the equivalent to the annual energy consumption of small countries such as Malaysia or Sweden. But how much should a monetary system consume?
The question is from crypto expert Nic Carter, partner at Castle Island Ventures, a company that invests in blockchain startups, and cofounder of Coin Metrics, a blockchain analysis company. In an article published on the Harvard Business Review website, he mentions the CCAF statistic and assesses: “those who don’t believe in bitcoin’s potential certainly consider its energy consumption to be high. However, those who see it as a tool to escape monetary repression, inflation, or capital control, probably think that the energy is extremely well spent”.
According to the expert, discussions about the high energy use of cryptocurrencies, especially for the bitcoin system, need to be clarified. Anyway, the theme is a concern for the industry, which has even instituted the Crypto Climate Accord, modeled after the Paris Climate Agreement, aiming to reduce bitcoin’s carbon footprint.
Energy consumption is not equivalent to carbon emissions
In the article, Carter explains an essential distinction between how much energy a system consumes and how much carbon it emits. After all, energy generated from renewable sources is different from that produced by burning coal or fossil fuels.
“The energy consumption required for bitcoin mining is easy to estimate, evaluating the computing power used to extract bitcoin and process transactions. On the other hand, carbon emissions are difficult to determine”, says the expert. According to him, CCAF estimates do not include all mining pools.
In December 2019, a report suggested that 73% of bitcoin’s energy consumption was carbon neutral, mainly due to the abundance of hydropower in significant mining centers such as southwest China and Scandinavia. On the other hand, the CCAF assessed in September 2020 that this rate is approaching 39%.
Is bitcoin worth it?
Most of bitcoin’s energy consumption occurs during the mining process. After the currencies are issued, the energy required to validate transactions is minimal, according to Carter. “So comparing the total energy consumption of bitcoin and dividing it by the number of transactions makes no sense, since the largest energy demand was for mining the currency”, he says.
In the author’s view, the fundamental negative aspect “is probably much less alarming than we imagined”. For Carter, it is up to the encryption community to recognize environmental concerns, take steps to reduce bitcoin’s carbon footprint, and show that the technology’s social value justifies the resources needed to sustain it.
