The crypto sphere was hit by an Elon Musk-shaped asteroid last week with the announcement that electric car giant Tesla was suspending vehicle purchases using bitcoin.
In a Twitter post, CEO Elon Musk cited the network’s alleged “rapidly increasing use of fossil fuels for Bitcoin mining”. It’s an allegation the Bitcoin community is familiar with and Musk was inevitably hit with a swarm of criticism as they looked to educate him. But is there any truth to what he was saying?
Bitcoin incentivizes renewable energy
The vast majority of all energy used today is produced by fossil fuels. In fact, they account for more than 80% of the world’s energy consumption. Governments around the world have set ambitious targets to change this, but we’re still some way off a world powered by green energy.
One common argument put forward by Bitcoin’s proponents in the energy debate is that the technology is built in such a way that it incentivizes the use of clean power. This is because it’s currently much cheaper than nonrenewables, and in an industry with such significant financial rewards, this matters. Miners will always go wherever they can use the cheapest power, and they’ll move to those regions where power is cheapest.
Elon Musk Twitted
A recent report by payment giant Square further explained that renewable sources typically produce excessive supply when demand is low. Conversely, they struggle to provide enough when demand is high. According to the report, the issue of divergent renewable production and demand for electricity could be mitigated by building an ecosystem “where solar/wind, batteries, and Bitcoin mining co-exist to form a green grid that runs almost exclusively on renewable energy.”
Bitcoin miners would effectively be using up stores of energy that would have otherwise gone to waste. The report argues they would make ideal buyers of last resort for renewables because they “offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection.”
We’re already seeing how Bitcoin can hoover up renewable energy that would have otherwise gone unused. In the Chinese regions of Sichuan and Yunnan where hydroelectricity is abundant, much of it goes to waste. These areas are also Bitcoin mining hotspots, accounting for 50% of global mining in the wet season and 10% in the dry.
But does this argument hold up? Currently, 39% of bitcoin mining is performed with renewable energy and 76% of miners use renewables as part of their energy mix so the numbers certainly seem to stack up in its favour. Equally though, you could also argue that Bitcoin simply incentivises cheaper energy, and should the prices flip, then so too will the energy mix they use.
The solution here is for all of us to ensure that renewable energy remains the most financially efficient means of powering everything we do. If crypto can incentivise this somehow, as Square believes, surely it would be worthwhile?
Everything requires energy
Kraken’s Head of Growth, Dan Held argues that our economy is based not on money, but on work and energy. Energy attributes value, and to a certain extent, the cost of most goods reflects the energy used in producing it.
Bitcoin’s transparency works to its advantage in many ways, but it also inadvertently works against it in this regard. It gives anti-bitcoiners a stick to beat it with, making it far easier to estimate bitcoin’s carbon emissions over others – including currencies such as the US dollar. And if Held’s data is to be believed, the world’s reserve currency is as dirty as it gets.
This Elon Musk post on Twitter that causes many reactions
Recent research by Yassine Elmandjra, an analyst at ARKInvest, also supports this. Elmandjra found that traditional banking consumes 2.34 billion gigajoules (GJ) per year and gold mining 500 million GJ. Bitcoin, on the other hand, consumes 184 million GJ – less than 10% and 40% of traditional banking and gold mining, respectively.
But, comparing the banking system to Bitcoin is a bit like apples and oranges. Traditional banking mechanisms require multiple settlement layers whereas Bitcoin offers a final settlement. It’s almost impossible to account for the data centers, branches, and card networks (and much, much more) that cumulatively all contribute to the system’s carbon emissions.
Bitcoin could replace all the energy used by economic activities
The argument that other industries are bigger polluters isn’t simply to indulge in an exercise in whataboutery. There’s no disputing bitcoin uses energy and is responsible for its share of carbon emissions. What is important is that it has the potential to replace and combine many of these systems in a way that could benefit everyone, and in doing so, help global emissions eventually drop at an exponential rate.
How many cleaners would the world be without gold mining and storage, central banks, cash withdrawals, and the dirty diesel trucks that transport pieces of paper around almost every city in the world? Your guess is as good as ours. But we’ll let Saylor ELI5.
The real question here is really whether you think simply that bitcoin is a waste of energy, that it’s not making a tangible impact on the world and it won’t improve the financial system. We strongly believe that it will change the financial system for the better and that it is already helping millions around the world, and will only help benefit more.
In the past few months, for example, Belarusian activists have sent bitcoin worth more than 3 million dollars directly to striking workers so it can’t be blocked by the government, which is then converted locally to rubles to feed their families as they protest the country’s dictatorship. This isn’t just the future anymore, this is the here and now.
Bitcoin has a valuable role to play, and while it may use a lot of energy, relative to other sectors, it is a vast improvement and will only get more energy efficient over time. This is also an area that Musk can help greatly in. He seems to realize the benefits of crypto, and hopefully, now he has had fun tweeting, he can start constructively engaging in developing solutions that even further increase the renewable mix used by miners.
Culled from Luno blog