Almost all of the energy used worldwide must be produced relatively close to its end users — but Bitcoin has no such limitation, enabling miners to utilize power sources that are inaccessible for most other applications. Hydro is the most well-known example of this. In the wet season in Sichuan and Yunnan, enormous quantities of renewable hydro energy are wasted every year. In these areas, production capacity massively outpaces local demand, and battery technology is far from advanced enough to make it worthwhile to store and transport energy from these rural regions into the urban centers that need it. It's no coincidence that these provinces are the heartlands of mining in China, responsible for almost 10% of global Bitcoin mining in the dry season and 50 per cent in the wet season.
Another promising avenue for carbon neutral mining is flared natural gas. The process of oil extraction today releases a significant amount of natural gas as a byproduct — energy that pollutes the environment without ever making it to the grid. Since it's constrained to the location of remote oil mines, most traditional applications have historically been unable to effectively leverage that energy. But Bitcoin miners have seized the opportunity to monetise this otherwise-wasted resource, and some companies are even exploring ways to further reduce emissions by combusting the gas in a more controlled manner. This is still a minor player in today's Bitcoin mining arena, but calculations suggest that there's enough flared natural gas in the U.S. and Canada alone to run the entire Bitcoin network.
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Mining Bitcoin consumes a lot more energy than using it
Many journalists and academics talk about Bitcoin's high "per-transaction energy cost," but this metric is misleading. The vast majority of Bitcoin's energy consumption happens during the mining process. Once coins have been issued, the energy required to validate transactions is minimal. As such, simply looking at Bitcoin's total energy draw to date and dividing that by the number of transactions doesn't make sense — most of that energy was used to mine Bitcoins, not to support transactions.
Runaway growth is unlikely
Because Bitcoin's energy footprint has grown so rapidly, people sometimes assume that it will eventually commandeer entire energy grids. But there's good reason to believe this won't happen. As has become common in many industries, the energy mix of Bitcoin grows less reliant on carbon every year. Many organizations within the mining industry have launched initiatives like the Crypto Climate Accord to advocate for and commit to reducing Bitcoin's carbon footprint. And as renewable options grow more viable for mining, Bitcoin could end up serving as a serious incentive for miners to broaden these technologies.
Miners are also unlikely to continue expanding their mining operations at the current rates indefinitely. The Bitcoin protocol subsidises mining, but those subsidies have built-in checks on their growth. Today, miners receive small fees for the transactions that they verify while mining, as well as whatever profit margins they can get when they sell the bitcoins they have mined. However, the protocol is built to halve the issuance-driven component of miner revenue every four years, so unless the price of Bitcoin doubles every four years in perpetuity, that share of miner revenue will eventually decrease to zero. Bitcoin's natural constraints on the number of transactions it can process (fewer than a million per day) combined with users' finite tolerance for paying fees also limit its growth potential.
There are countless factors that can influence Bitcoin's environmental impact, but many concerns are exaggerated or based on flawed assumptions of how the Bitcoin protocol works. Nevertheless, there's no denying that Bitcoin does consume resources. As with every other energy-consuming industry, it's up to the crypto community to acknowledge and address these environmental concerns, work to reduce Bitcoin's carbon footprint and ultimately demonstrate that Bitcoin's societal value is worth the resources needed to sustain it.
Written by: Nic Carter
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