Is Bitcoin green or black?

Bitcoin is known for its massive energy consumption. According to the University of Cambridge Bitcoin Electricity Consumption Index, the Bitcoin network is currently consuming more energy than Austria. While the accuracy of this estimate is questionable, the carbon footprint remains one of the main points of criticism for Bitcoin opponents.

The bear market has not improved the environmental impact of Bitcoin mining; this year, the total hashrate of the Bitcoin network more than doubled (from 42.10 EH/s to 92.66 EH/s), which in fact also suggests an increase in energy consumption. However, at the same time new hardware was released by Bitmain and Whatsminer this year, respectively the S17 Pro and M20s, which are way more efficient than S9 machines, the most widely used bitcoin miner model (40 W/THs vs. 90 W/THs). While more efficient bitcoin miners present an opportunity to decrease the energy consumption while maintaining the same level of network security (a proxy of total hashrate), such releases have insofar only corresponded with a growth in total hashrate, instead of a reduction of the Bitcoin carbon footprint.

However, according to a research report released by Coinshares this month, 73% of the electricity used by Bitcoin miners is coming from a renewable source, which is mainly hydropower. The research in fact assigns 54% of total hashrate to the Sichuan region in China, which is powered mainly by hydropower. While the figure is most likely an overestimation, a large part, if not the majority, of bitcoin mining relies on hydropower.

* visual credit: Coinshares

Moreover, the total amount of hydropower energy in the world is estimated to be 60 times the total energy consumption of Bitcoin, suggesting that Bitcoin could theoretically be entirely green and have a carbon footprint comparable to or even lower than the one of other payment methods. However, as the PWC researcher Alex de Vries accurately pointed out: “Once a Bitcoin machine is activated, it is not shut down until it fails to continue operating profitably. Nevertheless, while this elevated electricity demand remains constant, the hydropower used to fuel it fluctuates. The Sichuan province of China, where miners are primarily located according to Bitcoin proponents, is generating three times more hydroelectricity during the wet summer months than during the dry winter months. Climate change is only expected to exacerbate this volatility, and coal-based energy is typically used to balance out these fluctuations.”

In fact, Bitcoin miners demand stability in energy production and electricity price which currently cannot be guaranteed by renewable sources of energy such as hydropower, thus, creating a demand for non renewable sources of energy to compensate the gaps. Therefore, Bitcoin is neither green nor black, but by design requires both sources of energy to ensure mining profitability. While other stores of values, such as gold, consume more energy than bitcoin in order to be mined, the environmental impact of Proof of Work mining remains one of the main drawbacks of Bitcoin and presents an opportunity for other cryptocurrencies to gain widespread adoption as means of payments by using less energy intensive consensus mechanisms.