Increasing climate damage from Bitcoin –

Bitcoins are often referred to as “digital gold”. A new study now shows that – measured by the climate damage caused in relation to the market value – they are more appropriate compared to crude oil. The “mining” of the cryptocurrency uses a lot of electricity, the majority of which so far has come from fossil sources. Converted to CO2 equivalents, the climate cost of bitcoin sometimes even exceeded its market value. From the researchers’ point of view, a fundamental redesign of the Bitcoin mining system is needed to make the cryptocurrency more sustainable.

In the case of the virtual currency Bitcoin, the individual “coins” are created through complicated arithmetic operations on numerous computers involved. Based on the excavation for precious metals, this process is called mining. The “miners” provide the computing power of their hardware to create the next block of data for the blockchain. This folder, secured by cryptographic operations, stores all transactions and protects them from manipulation. If hardware is the first to crack the encryption for the next block, it is rewarded with bitcoins and can attach the new block to the blockchain. This so-called proof-of-work (POW) method is based on mutual control and is designed to be competitive, meaning that many users try to solve the next arithmetic operation at the same time.

High power consumption during mining

The process requires large computing capacity and consumes a correspondingly large amount of electricity. A team led by Benjamin Jones from the University of New Mexico in the US has now calculated the climate damage caused by Bitcoin mining. “Huge amounts of electricity, mostly from fossil fuels like coal and natural gas, are used around the world to mine or produce bitcoins,” says Jones. “This causes massive amounts of air pollution and carbon emissions, adversely affecting our global climate and health.”

For the period from January 2016 to December 2021, the researchers have calculated how much electricity mining consumes, how many CO2 equivalents this corresponds to, and how high the resulting climate costs are compared to the value of a bitcoin. “We found several cases between 2016 and 2021 where bitcoin is doing more damage to the climate than a single bitcoin is actually worth,” Jones said. “In other words, bitcoin mining in some cases causes climate damage that exceeds the value of a coin. This is extremely worrying from a sustainability perspective.”

The climate balance is getting worse and worse

In 2020 alone, bitcoin mining consumed 75.4 terawatt hours of electricity. For comparison: the whole of Austria consumed around 70 terawatt hours this year. The authors assessed Bitcoin’s climate damage based on three sustainability criteria: How does the estimated climate damage develop over time? What is the connection between the climate damage and the market price? And how does Bitcoin’s climate damage-to-market price ratio compare to other sectors and commodities?

“We found no evidence that Bitcoin mining is becoming more sustainable over time,” reports Jones. “Our findings tend to suggest the opposite: Bitcoin mining is getting dirtier and more damaging to the climate over time. In short, bitcoin’s ecological footprint is moving in the wrong direction.” This is because the calculations involved in mining new bitcoins become more complicated over time and more miners participate, increasing electricity costs.While mining one bitcoin generated 0.9 tonnes of CO2 emissions in 2016, the value in 2021 113 tons of CO2 per bitcoin.

Meanwhile, in 2020 energy consumption increased significantly more than the value of Bitcoin. As a result, as of May 2020, every $1 in Bitcoin market capitalization resulted in $1.56 in global climate damage. Since the value of a bitcoin has risen significantly again since then, the climate damages in 2021 were again relatively smaller, despite the fact that energy consumption remained the same. On average, from 2016 to 2021, one dollar of bitcoin causes $0.35 in climate damage. The climate costs therefore correspond to 35 percent of the market value.

There are alternatives

Thus, in terms of the ratio of climate damage to market value, Bitcoin is roughly in the range of gasoline made from crude oil (41 percent). In the case of gold, the climate damage caused by gold prospecting constitutes only four percent of the market price of the extracted precious metal. “Taken together, these findings represent a set of red flags for sustainability,” the authors write. “While BTC is touted by supporters as ‘digital gold’, from a climate perspective it looks more like ‘digital crude’.” From the authors’ point of view, it is therefore important to reduce the climate damage that is caused. of cryptocurrencies such as Bitcoin. If electricity from renewable sources was mainly used for mining, this could already significantly reduce the carbon footprint of bitcoin.

It would be even more efficient to replace the former POW procedure with another, non-competitive procedure. With the so-called Proof-of-Stake (POS) procedure, the next block writer on the blockchain is drawn according to a weighted random principle. “Because POS is based on randomness and validation data sharing, it does not require large amounts of computing power and therefore uses a fraction of the power compared to POW mining,” the researchers explain. Ethereum, the second largest cryptocurrency, has already started moving to proof-of-stake this year. According to the promoters, it reduces energy consumption by 99 percent. However, from the point of view of Jones and his colleagues, it is not very likely that Bitcoin, the oldest and with a market share of 41 percent, the most widely used cryptocurrency, will be converted to POS in the near future.

Source: Benjamin Jones (University of New Mexico, USA) et al., Scientific Reports, doi: 10.1038/s41598-022-18686-8

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