The European Central Bank (ECB) published a report on July 14 that covered many points related to Bitcoin and Ethereum mining, including energy consumption and Proof-of-Stake (PoS) as an alternative mechanism.
The report, titled “Mining the environment – is climate risk priced into crypto-assets?,” determined that Proof-of-Work (PoW) mining cannot co-exist with “the green transition” and even hinted at an EU-wide ban by 2025. Specifically, researchers drew concerns over climate change risk, excessive energy consumption, and how PoW mining subverts the EU’s plan to lower carbon output.
In recent times, the debate against Bitcoin, and its mining process, has been gaining increasing prominence. And with the publication of the ECB report, it appears lawmakers are now taking action to curb PoW mining.
However, is there more to this than meeting green targets?
Bitcoin mining and claims of its outsized carbon footprint
Bitcoin mining is the process by which new tokens enter circulation. It is performed using hardware that “guesses” a target 64-digit hexadecimal number (or hash). On average, the target hash is guessed correctly every ten minutes, and the winning miner earns the right to write the block and take a 6.25 BTC mining reward.
To that end, Bitcoin mining has developed into a highly competitive business dominated by large corporations using specialized power-hungry ASIC mining equipment.
Current estimates put the Bitcoin network’s energy consumption at 82.36 TW/h per year. This is more than the annual electricity consumption of “mid-sized” developed countries such as Finland or Belgium. And as the network grows over time, critics argue that the energy resource burden will worsen.
“Some crypto-assets such as bitcoin and ether have a significant carbon footprint and are estimated to consume a similar amount of energy each year to some mid-sized countries.”
The issue has become so pervasive that critics have stepped up their attacks lately, saying Bitcoin mining’s high energy consumption and use of non-renewable energy sources is an ecological disaster in the making.
For example, a recent tweet by U.S. Senator Dick Durbin called out Bitcoin’s “obscene” energy usage while warning that American families and businesses will “pay the price” if action isn’t taken now.
Responding to such criticisms, Bitcoin Magazine likened this to employing a political football strategy, in which lawmakers sacrifice crypto advocates to “position themselves as planet-saviors to a larger audience.”
Comparisons with gold and banking
An article posted by nasdaq.com in May 2021 compared Bitcoin’s estimated energy consumption and CO2 output with that of the gold and banking sectors.
Citing a study conducted by DePaul University, Chicago, which examined gold mining, recycling, and refining, author Hass McCook estimated that the gold industry’s 2020 energy consumption came in at 265 TW/h, while its CO2 output was 145 Mt.
Similarly, by collating data about bank branches, ATMs, cotton, plastic, and metal processes for the manufacture of notes and coins, McCook estimated that the annual energy consumption of the banking sector came in at 700 TW/h, with 400 Mt of CO2.
McCook’s research showed Bitcoin used 113 TW/h of energy per year and output approximately 70 Mt of CO2 annually. The energy consumption figure quoted is higher than the more recent 82.36 TW/h figure from the University of Cambridge. But this makes sense, as the network’s daily demand has decreased since the market peak in November 2021.
Even using McCook’s outdated values, Bitcoin’s energy usage and CO2 output are significantly less compared to the gold and banking sectors. Yet calls for a ban on gold mining or a reduction in the banking sector are unheard of.
In any case, speaking at a recent Bloomberg conference, Strike CEO Jack Mallers shut down the argument that using energy is a bad thing. Specifically, Mallers said energy is there to actuate benefits for us all and is key to progress and development.
“Engineering and the use of energy is implied in the growth of humanity. You know what else uses a lot of energy? An airplane. Next time you and the wife go to Europe, you take a kayak; I’ll fly United… Since when was using energy a bad thing?
Isn’t BTC mining mostly from renewable sources?
The ECB report pointed out that renewable energy sources are limited, accounting for 29% of the total global output. Although the report made no claims on the split of renewables vs. non-renewable sources powering the Bitcoin network, it stated Bitcoin’s use of renewable sources takes renewable energy away from households and subverts the “climate transition” plan.
“Using existing renewable energy sources to mine bitcoin generally implies that less renewable energy can be used for other purposes such as providing electricity to households, as well as to eventually cover the required climate transition.”
The precision make-up of the network’s renewable vs. non-renewable composition is subject to debate. According to research conducted by CoinShares published in 2019, as much as 75% of the network runs on renewable energy sources.
More recently, by surveying members of the Bitcoin Mining Council (BMC) and extrapolating the data on a global basis to account for non-members, researchers estimated that 59.5% of the industry uses sustainable electricity. And that this has increased by around 6% year on year, from Q2 2021 to Q2 2022. This makes Bitcoin mining among the most sustainable industries on the planet.
By email with CryptoSlate, Andy Long, the CEO of White Rock Management, which specializes in sustainable Bitcoin mining, mainly using flare gas from oil wells, said, based on his knowledge of the sustainable BTC mining sector, the BMC data is an accurate reflection of where we are at.
However, Long is confident that the industry will reach a 75% sustainable mix in the medium term. This will come by tapping innovative solutions, such as flare gas, to power mining equipment, which Long pointed out has lower capital expenditure costs than solar mining.
The elephant in the room
According to CoinShares, at January 2022, the energy consumed by the mining network accounted for 0.05% of total global energy consumption. So even if Bitcoin mining disappeared overnight, the truth is there would be no meaningful benefit.
[2/6] Some highlights from the report include: At an annualised energy draw of 89 TWh (December 2021), the Bitcoin mining network uses approximately 0.05% of the total energy consumed globally, measured at 162,194 TWh (2019). pic.twitter.com/3Nvaitdn8H
— CoinShares
(@CoinSharesCo) January 28, 2022
Data showed it is objectively greener than both the gold and banking sectors. But continued attacks from an ecological basis point to an ulterior motive. In many ways, this can be likened to proposed restrictions based on claims of cryptocurrencies enabling money laundering and terrorist financing.
Although posturing over an EU-wide PoW ban is a cause for concern, Long plays down this possibility by calling it unlikely, adding that any such proposal “is doomed to failure.” Instead, he sees EU regulation focusing on exchange regulation rather than PoW mining.
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