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Whenever I talk about cryptocurrency to someone, I always hear at some point: “it’s for criminals” or “it’s bad for the environment.”
The first claim is easy to debunk. Blockchain analysis company Chainalysis—which partners with governments to track criminals using crypto—concluded that illicit activities made up only 0.15% of all crypto transactions. That’s ridiculously low. And according to the US Attorney General’s Cyber-Digital Task Force: “the government has legal and regulatory tools available at its disposal to confront the threats posed by cryptocurrency’s illicit uses.”
The environmental question is more complex and mainly focuses on energy consumption. As of today, there are 18,522 cryptocurrencies. Most of them use one of the following mechanisms: “proof of work” or “proof of stake.” Proof-of-stake cryptocurrencies consume ~99.95% less, so there’s no question of energy consumption for them. Bitcoin and Ethereum—the largest cryptocurrencies by market capitalization—use proof of work, though. However, Ethereum should switch to proof of stake this year. So let’s focus on Bitcoin’s energy consumption.
Of course, if you believe that Bitcoin is useless, then any amount of energy it uses is a waste. Recent articles in the mainstream media explained how Bitcoin is helping starving Afghans, allowing Ukraine to raise millions of dollars in a few days for its military, and protecting Turks from hyperinflation. For me, that’s enough to prove that Bitcoin is valuable, but it’s, of course, subjective.
Does Bitcoin use a lot of energy?
It’s not a bug; it’s a feature. It’s Bitcoin’s security model. As Till Musshoff wrote: “To reverse or change a transaction, you need 51% of all the electricity that flows into the network - which again - is extremely costly.” He concludes:
The more electricity the Bitcoin network consumes → The more expensive an attack is → The more secure the network is.
According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin consumes more electricity than Ukraine. If Ukraine wanted to attack the Bitcoin network, they would need to use all their electricity production. Impossible. Bitcoin can resist an attack from a nation state at least as big as Ukraine.
Compared to countries, Bitcoin electricity consumption seems enormous. But what if I told you that Bitcoin consumes less electricity than Christmas lights around the world? Or than the paper industry? Suddenly, Bitcoin electricity consumption looks tiny.
What’s Bitcoin’s energy mix?
If you care about climate change, Co2 emissions matter more than raw consumption. According to the New York Times, Bitcoin’s use of renewables ranges from 40% to 75%. This makes Bitcoin greener than most countries in the world. For instance, in the US, only 20% of electricity production comes from renewables. People who run computers securing the Bitcoin network (called “miners”) get a fixed monetary reward for doing their job. So they are looking for the cheapest electricity sources to be profitable. As renewables are now cheaper than fossil fuels, I assume Bitcoin will soon be 100% low-carbon.
Bitcoin boosts renewables
Crypto bros have long said that Bitcoin was a clean energy stimulus. I didn’t believe it at first. And yet, all scientific papers I found concluded that Bitcoin mining increases the profitability of renewable energy power stations and therefore accelerates the transition to green energy.How come?
Renewables are intermittent. They often produce electricity when no one needs it. Unfortunately, electricity cannot travel long distances without loss, nor can it be stored easily. This overgenerated electricity is wasted today. If you plug computers into that electricity when there’s low demand, power station operators can monetize the surplus supply. So unprofitable sustainable energy projects can become profitable with Bitcoin. And according to the Cambridge Centre for Alternative Finance, Bitcoin could be powered by wasted electricity only!
Another point often overlooked: within an electrical grid, the energy generated must always equal the energy consumed. If more power is generated than consumed, quick adjustments are necessary to balance the frequency disturbances and power outages. So renewables’ intermittent nature demands enormous investments in transmission and distribution infrastructure. Bitcoin can be used as a local buyer of last resort and stabilize the grid so that production never exceeds consumption.
Why not switch to proof of stake?
If proof of stake is so much more energy-efficient, why not use proof-of-stake cryptocurrencies instead of Bitcoin? This debate goes far beyond the scope of the current article, but I believe that Bitcoin is safer and better than proof-of-stake alternatives. As Lyn Alden explained:
Blockchains that use other consensus models with lower energy requirements, like proof-of-stake, make trade-offs to do so. There is no free lunch, and these other forms of consensus are not strictly “better” than Bitcoin’s proof-of-work model, since they have more attack surfaces and greater risks of centralization.
Environmental impact of the petrodollar
Bitcoin critics fail to compare it to our current system. Until the collapse of the Bretton Woods System in 1971, currencies were directly or indirectly backed by gold. After 1971, per Wikipedia:
President Richard Nixon and his Secretary of State, Henry Kissinger, feared that the abandonment of the international gold standard under the Bretton Woods arrangement (combined with a growing U.S. trade deficit, and massive debt associated with the ongoing Vietnam War) would cause a decline in the relative global demand of the U.S. dollar. In a series of meetings, the United States and the Saudi royal family made an agreement. The United States would offer military protection for Saudi Arabia's oil fields, and in return the Saudi's would price their oil sales exclusively in United States dollars (in other words, the Saudis were to refuse all other currencies, except the U.S. dollar, as payment for their oil exports).
That’s the “petrodollar system.” Backed by fossil fuels and enforced by the US military. For instance, in 2000, Saddam Hussein successfully dumped the US dollar for the euro to sell petroleum. Three years later, the US invaded Iraq and overthrew Saddam. In 2008 Gaddafi started selling Libyan oil in euro and yen. Three years later, NATO attacked Libya and killed Gaddafi. More than 500,000 innocent deaths and 3 million displaced and refugees: that’s the cost of the dollar system.
And if you thought that going back to the gold standard was the solution: gold mining is an environmental disaster.
Conclusion: All roads lead to Bitcoin?
Renewable energy will eventually kill the petrodollar and the ability for the US to run up massive deficits without consequences. This will make Bitcoin and other alternative currencies even more popular. If you care about the environment and climate change, you cannot support the existing petrodollar system. And as Bitcoin accelerates the energy transition, you probably have to support Bitcoin as well! 😉
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Cambridge Bitcoin Electricity Consumption Index, by the Cambridge Centre for Alternative Finance
Bitcoin’s Energy Usage Isn’t a Problem. Here’s Why., by Lyn Alden
Why The Proposed EU Bitcoin Ban Would Have Been A Mistake, by Till Musshoff
Uncovering The Hidden Costs Of The Petrodollar, Alex Gladstein
The Fraying of the US Global Currency Reserve System, by Lyn Alden
Bitcoin miners and renewable energy, by Thoralf Gutierrez
Nice job steelmanning the climate argument for bitcoin!
I also looked into this recently, and my take is a bit more nuanced. Yes bitcoin miners accelerate renewables, but is that really good for the planet in itself? I argue that it isn't if most of the renewable energy that bitcoin miners helped finance goes back into powering bitcoin miners instead of replacing existing carbon-intensive electricity generation. See https://climatechain.substack.com/p/bitcoin-miners-and-renewable-energy
I'd also say that the argument for bitcoin as an alternative to petro-dollars is an argument for any other currency, not just an argument for bitcoin.
Excellent summary of the current clearest thinking on the Bitcoin energy matter!
If a person wants a knee-jerk Bitcoin negative to point to re: energy, they will always find that "Bitcoin boils the oceans" convinces people with no prior knowledge. But, as we investigate how energy production works at a grid level infrastructure, we see how mining can be an amazing tool to smooth demand and boost profit margins on waste energy.
I'm confident that the false narrative will slowly crack, Soviet style, and the beneficial technology will win out despite much shunning. I think Exxon and ConocoPhilips have publicly admitted to some trial flare gas mining, which is solving a real and costly problem.
Ultimately, as Antoine so clearly points out, you either find value in Bitcoin or you don't, and that will matter more in your cost/benefit analysis than any other factor.