The annual carbon footprint of Bitcoin is almost equivalent to that of Mumbai or Slovakia

One of Einstein’s theories says that for everything you do to the world there is an equivalent reaction by the world. This applies to inventions and technology as well. With every new discovery, the flora and fauna change a little, sometimes for the good and other times for not so good. The same has been the case with cryptocurrencies or digital money, especially bitcoin. Bitcoin has incessantly been a hot topic of debates and discussions and at a time when investors are scrambling to keep up with the volatility in the stock market and the newest financial trend, Bitcoin has reached a historic landmark of around 1 trillion dollars. Yes, take your time to count the zeros in it.
However, these arguments are generally centred around the volatility, security, and regulation of the currency and rarely about the carbon footprint that it is leaving behind.
Why is Bitcoin’s carbon footprint such a big concern?
To bring into salience why this is actually a cause of concern is the fact that the annual carbon footprint of Bitcoins is almost equal to the carbon footprint left behind by India’s business capital- Mumbai. To give this comparison a global perspective, we might as well compare Bitcoin’s footprint with that of Slovakia.
Alex de Vries, a Dutch economist, did a study recently which showed that Bitcoins leave behind a carbon footprint of as much as 38.10 Mt a year in comparison to the yearly carbon footprint of Mumbai and Bangalore which stands at 32 Mt and 21.60 Mt, respectively. These numbers are quoted according to a study titled ‘CO2 Emissions from Fuel Combustion (Highlights) 2017’. Using the available data Vries has created a “Bitcoin Energy Consumption Index”. It gets interesting simply because it is one of the first systematic attempts to actually record and give due attention to the energy use estimates of the bitcoin network.
Microsoft co-founder Bill Gates talked about the same in an interview with The New York Times. He said, “Bitcoin uses more electricity per transaction than any other method known to mankind”.
How does the bitcoin network consume so much electricity or energy?
The bitcoin tokens are created by a process called “mining”. Mining requires the usage of high-tech computers for long long hours in order to perform complex calculations and functions. The number of coins in the market is directly proportional to the time taken to “mine” a new bitcoin. And, in the process, more amounts of electricity is consumed in every function. Further, this sentiment is buoyed by human greed as mining provides a solid source of revenue. This revenue attracts people to run power-hungry machines for hours and hours to get a piece of the most popular cryptocurrency.
If we go by facts, the Bitcoin network, in the year 2017, consumed nearly 30 terawatt-hours (TWh) of electricity a year in comparison to its current usage that lies between 78TWh and 101TWh, according to de Vries’s estimates. This measurement is more than twice as much energy as used in 2017. It is also the same energy used by the entire Norway. Furthermore, an average of 300 kg of carbon dioxide is required by each bitcoin transaction. This carbon usage is equivalent to the carbon footprint produced when as many as 750,000 credit cards are swiped.
Thus, by using bitcoin we are creating a new wholly digital country that consumes more electricity than Austria or Bangladesh. Interesting enough, right?
How do we calculate Bitcoin’s carbon footprint?
If we put a bigger picture into perspective, the main problem is not the enormous amount of carbon footprint generated by Bitcoin but the fact that most of the bitcoin mining facilities are located in places that generate a major proportion of the total energy from coal-based power systems.
Determining bitcoin carbon impact was difficult earlier because tracking down miners was never easy but in 2017 Garrick Hileman and Michel Rauchs conducted a revolutionary study in which they identified these bitcoin mining facilities across the world. They calculated consumption of these locations and it turned out to be something as huge as 232 megawatts a year out of which De Vries estimated that 60% is the price of the electricity used in the mining process.
Let’s talk about the mining revenue by expressing it in some crystal-clear numbers. In the month of January, when the price of bitcoin was $ 42,000, the mining process was generating a revenue of as much as $15 billion annually.
In his study, De Vries mentioned: “With 60% of this income going to pay for electricity, at a price of $0.05 per kWh [kilowatt hour], the total network could consume up to 184TWh per year.” His research paper assumes the production of 480-500g of carbon dioxide for every kWh consumed. Therefore, taking all these assumptions into consideration we might say that the total energy consumption of 184TWh would produce a carbon footprint of 90.2 million metric tons. This carbon footprint is roughly tantamount to the carbon emission produced by the entire city of London.
What are the other impacts of Bitcoin mining?
The effects of mining cryptos are not generally limited to the mining spots and often spill over to other parts of the economy as well because of the high-tech computers used by the miners for hours. These computers run extravagant algorithms to formulate new blockchains and thus, do not last long.
Interestingly, more bitcoin mining is affecting the production of electric vehicles around the world.
How? Well, let’s give another perspective to the problem stated above.
The manufacturing of Bitcoin mining devices requires a substantial number of chips in the production process. But recently, owing to the supply chain problems posed by the novel coronavirus pandemic, the world has faced a shortage of these chips. These chips are used not only in bitcoin mining devices but also in electric vehicles. So, to put into a clear picture, we have a shortage of chips and an increasing number of bitcoin transactions. And, as you are guessing, this had a negative impact on the production of electric vehicles around the world.
There are only two chip fabricators in the world capable of producing such high-power silicon. Bitmain is the largest provider of mining devices and to produce 1 million such computers, the manufacturing firm needs a month’s capacity of one of the two chip fabricators. Well, this is literally too much because it potentially takes over the demand from all the other sectors needing these chips combined. Thus, it may take a heavy toll on the chip demands of the Artificial Intelligence, transportation and home electronics sectors.
The political perspective to the issue
The story doesn’t end here. Countries like Iran are using cryptocurrency to earn revenues and boost incomes while their export or trade (oil exports in Iran’s case) suffers from the economic sanctions imposed on it by other nations such as the United States. These sanctions have been strategically levied to prevent the country from developing nuclear capabilities or being a threat to global peace. The cheap energy available in these nations has lured many people into mining activity. The gigantism can be seen with the fact that mining activity in Iran represents as much as 8 per cent of the total computational power in the worldwide network of the cryptocurrency.
Is there a solution to minimize or control the carbon footprint?
A solution to the problem has been given out by Québec in Canada. It has proposed policymakers around the world impose a moratorium on new mining operations. This exploits the loophole that even if
Bitcoin is a decentralised currency, a multitude of other factors and aspects of the ecosystem surrounding it are still regulated by the governments or other institutions. The Large-scale mining processes can easily be controlled and targeted with the imposition of higher electricity rates, moratoria, or, confiscations of the devices. Governments also have an option of banning cryptocurrencies from digital asset marketplaces, but this shall only be used as a measure of extreme conflict because it is surely going to drive enormous criticism of the government.
What is the status of cryptocurrencies in India?
India is not isolated from this umbrella of bitcoin and other cryptocurrencies. Currently, there are around 75 lakh investors who have together invested over Rs 10,000 crore into cryptocurrencies.
The prices have seen a skyrocket surge during the last year. In 2020, a single bitcoin used to cost around Rs 4 lakh in comparison to today’s price which is around Rs 41 lakh. Damn, the massive surge in prices is over 900%. Some listed stocks take their whole life to rise by even 100% and bitcoin jumped 900% just in a year’s span.
However, the chemistry between Bitcoin and the Indian government is in its sour phase with the Narendra Modi-government planning to pass the pending cryptocurrency Bill. The Bills shall put a complete ban on Bitcoin and even worse criminalise its possession.