Will Bitcoin Be Good for The Environment in The Long Run?
Recently, Elon Musk announced that Tesla will suspend vehicle purchases using Bitcoin due to concerns about the increasing use of fossil fuels for Bitcoin mining. But in the past, the eccentric billionaire has also expressed that Bitcoin will incentivize renewable energy. It is clear that there are many layers to the environmental effects of Bitcoin, none of which is one-sided.
The Problem with Proof of Work
There’s no short of media coverage about how bad Bitcoin mining is, but few people actually understand why. The reason is Bitcoin uses the proof-of-work algorithm (PoW), which makes mining new coins takes a lot of computing power.
Proof-of-work is a concept invented in 1993 to combat spam emails, which, in the case of Bitcoin, is used to reach consensus between multiple nodes on a network to secure the blockchain. With PoW, all nodes have a cryptographic puzzle to solve. Whoever does it first will get the ‘miner reward’.
Because of this competitive nature, many people invest in large mining farms, even combining their farms with others to form a mining pool, ultimately eating up a distressing amount of energy. A study has shown that the energy used in Bitcoin mining can power the country of New Zealand.
Difficulties in Keeping Bitcoin Mining ‘Clean’
Bitcoin miners claim that 74.1% of the energy used in mining is renewable, but this statement alone does not tell the whole story. For instance, hydropower is a cheap and popular source of energy for cryptocurrencies, but the availability is not at all consistent due to regional and seasonal differences. As a result, many people use fossil fuels to back up the mining process when it’s off-season.
Another thing in the way of keeping Bitcoin mining clean is the fact that it’s not considered a legal tender in many countries. If it were, lawmakers can enforce regulations and rules that tax miners according to their energy consumption.
Lastly, the energy consumption of Bitcoin will just keep increasing due to growing demand. In fact, studies show that over 50 million of Americans are likely to make their first crypto purchase in 2022. Crypto in general has integrated itself into all corners of the Internet, from NFTs, meme culture to decentralized gaming.
Can Bitcoin Really Incentivize a Transition To Renewable Energy?
What Drives Bitcoin Miners?
Research from Cambridge shows that 70% of miners consider the reward amount and the value of the crypto asset to be the most important criterias. Meanwhile, only 13% prioritize personal ideology. Therefore, if miners were to transition into renewable energy, it has to go with profits.
Keeping this in mind, it’s important to note that the cost of electricity makes up a sizable amount of a miner’s budget. So it would totally be in their interest to keep this expanse as low as possible. And what are two of the cheapest sources of energy? Solar energy and hydroelectric—all renewable.
For example, Genesis Mining — one of the biggest hashpower providers in the world — has been locating their data centres in countries with colder climates like Sweden or Iceland because of the abundant geothermal and hydroelectric available. Genesis’s Regional Manager, Tillmann Korb, expressed that renewable energy is the inevitable destination for Bitcoin mining.
While Bitcoin’s value may increase, the mining rewards will definitely keep going down. “There is more pressure on the cost side, for the miners and for that reason, only renewables can be the power source,” Korb said.
The Advantage of Bitcoin Mining
What separates Bitcoin mining from many other businesses is the fact that it can be done anywhere in the world. This nature lets it take advantage of renewable energy sources like no other.
Solar power can generate an abundance of energy but only in the daytime. Additionally, many renewable energy stations are built in areas distant from the places with actual energy demands. This creates much difficulty for other businesses since batteries alone are not enough to hold energy on a large scale.
Square Crypto has said that the problem with renewables is they produce too much energy when demand is low but not enough when it’s high, and that a solution where renewable energy and Bitcoin mining coexist is completely possible without sacrificing profitability. In fact, such ecosystems already exist: hydro energy only powers 7% of the USA’s energy source yet it contributes to 62% of the Bitcoin mining energy.
As a result, the more Bitcoin mining operations migrate to these rural areas for cheap (and renewable) energy, the more utility companies will want to invest in renewable developments to satisfy their newfound customers.
Conclusion
No one can deny that Bitcoin mining uses up a huge amount of energy, but the same thing can be said for other mega industries. The nature of mining does make a compelling case for pushing the growth of renewable energy, which ultimately is one step further to saving the environment. Only time can tell whether Bitcoin mining will fulfil its promise.
About the Author
Jack Spade is a crypto enthusiast who loves following and writing about crypto news. Besides, he's an aspiring novelist and has a Medium account where he posts about all kinds of things.