Bitcoin Is Not Inherently Bad for the Environment — But BTC Is.

Bitcoin is destroying the environment.

Bitcoin is a waste of energy.

Bitcoin is causing climate change.

If you've spent much time in cryptocurrency spaces, you've probably heard these arguments time and time again. From environmental activists, from Bitcoin attackers, or from news outlets hoping to get your clicks, BTC finds itself under repeated criticism for the energy used to mine it. And every time, crypto fans leap to its defense. You've probably heard plenty of these before too:

BTC uses energy — but whatabout the banks?

BTC uses energy, but that's actually good for the environment because it encourages sustainable energy.

Or maybe BTC uses energy but it's not really that much so we shouldn't worry about it.

And for this article-writing competition, @SofiaCBCH calls the energy waste a myth, calling on us to explain why.

Unfortunately, it's not a myth. BTC is wasting energy — but that doesn't mean Bitcoin has to.

Before looking into the involvement of Bitcoin and other cryptocurrencies, we first need to understand the danger of climate change in general.

Although few will deny the global threat posed by climate change, regardless of the involvement of cryptocurrencies, notable exceptions in the crypto space make it worth mentioning. Bitcoin.com CEO Roger Ver, among others, has downplayed its importance, claiming climate change as an overblown issue fabricated for government control. While Ver may be an expert entrepreneur and very knowledgeable about Bitcoin, he is not a climate scientist and neither is the average crypto enthusiast. In looking at the issue of climate change, we need to consider what the experts and the evidence have to say. And the consensus is clear: climate change is a serious issue, and human greenhouse gas emissions are causing it.

The specific dangers of climate change are a highly researched topic that goes far beyond the scope of this article, but for the purposes of the discussion on Bitcoin, we need to know that they are both avoidable and tangible. Avoidable so that we know how to prevent them, and tangible so that we know that the dangers are important enough to prevent. And indeed these dangers are both: we have already begun to see the tangible effects in disastrous and deadly hurricanes which disproportionally affect poor and marginalized people whom many early Bitcoin proponents hoped to help (remember banking the unbanked?). Fortunately, we can at least prevent these disasters from getting worse, but only by actually addressing our emissions that are the source of the problem.

That's where crypto comes in.

BTC mining uses energy. A lot of it. More than Chile, or Denmark, or whatever country the latest article named to get your attention. But less than some other country, or gold mining, or the banking industry.

While these kinds of comparisons might make for good headlines or easy arguments for one side or the other, they come far from telling the whole story. Beyond just reducing absolute energy consumption, addressing climate change is about reducing waste.

When the issue of BTC's energy consumption comes up, defenders of the excess energy usage tend to ignore this. Their arguments tend to compare absolute amounts of energy or emissions, with Galaxy Digital for example saying that as BTC uses around half the energy of the banking industry, its emissions need to be considered not harmful but beneficial. Or perhaps you've seen someone arguing that, as BTC produces only a small percentage of global emissions, it's not a problem for the environment. These arguments are bullshit, ignoring what that energy actually does and where it can be used more effectively.

That's not to say that everyone who uses them is trying to spread disinformation — of course many will have seen these arguments from someone else and repeated them, believing them either naturally or because it would threaten their investments not to. But either way, these arguments grossly misrepresent the situation to make BTC look better than the reality. That's what myth busting needs to address anyway: it won't help much with the people who knowingly spread false information, but it can help to inform their victims. We need a broader understanding of how specifically BTC is indeed wasteful, and from there we can see how to fix it.

By looking not at absolute figures of emissions or of energy consumption but looking instead at efficiency, we can far more accurately pin down areas of waste.

Consider what this energy is used to achieve:

For the fiat banking industry, energy is used to provide a real service in processing transactions, storing money, and providing an exchange for borrowing and lending. Note that I by no means want to praise the banking industry — it is highly corrupt and has done a great deal of harm to many people out of greed. The '08 financial crisis commemorated in the first Bitcoin block stands out as an example of the devastating harm caused by banks' corruption. Regardless, for its many flaws, the energy used by the banking system does go towards providing a real service. Non-cash fiat payment services processed 785 billion transactions in 2020, with that number only expected to increase. Handling these payments provides the core service of any kind of money as a medium of exchange,* allowing it to be transferred for goods or services in a market economy at a cost of roughly 260TWh per year.

While Galaxy Digital's report concludes that BTC has less total climate impact than the banking industry, it declines to take into genuine account this actual usage of the banking industry or that of BTC. This is where their report, along with most other arguments against mining being wasteful, falls short.

While the banking industry is able to achieve decent energy efficiency by processing a large volume of transactions, BTC here as everywhere else runs into its fatal flaw: the block size cap. BTC's biggest failing, as anyone in the BCH community knows all too well, is its limit on the volume of transactions the network is able to process. This harms adoption, causes high fees, and means that the energy poured into mining is restricted from being used to its full potential. There is the waste: while BTC uses half the energy of the banking system, it is only able to process around 100-200 million transactions a year† with typical transaction sizes, compared to the 785 billion of the banking industry. BTC processes something on the order of one in five thousand non-cash transactions handled by banks. Now that we're looking at efficiency, that 1/2 energy consumption ratio doesn't look so good anymore. Even if only a small portion of energy comes from harmful sources, as BTC fans like to theorize, that still represents hundreds or thousands of times as much environmental damage per transaction as the fiat system it hopes to compete with. That's waste.

That's what Bitcoin should be trying to avoid, not defending in the name of short-term greed. And there certainly is also waste in the banking industry, and the gold mining industry, and pretty much everywhere else. We should of course do our best to address waste in other areas of our lives, but when in cryptocurrency spaces we need to first look inward to address the obvious harm of BTC mining.

Fortunately, waste isn't the only option.

In the title and throughout this article, I make the distinction between BTC and Bitcoin for this reason. While BTC is indeed wasteful and inefficient, it is far from the original goal of Bitcoin or the best that Bitcoin can be. Bitcoin Cash, while of course not a perfect network either, continually works to improve while staying true to the spirit of Satoshi's whitepaper. Peer-to-peer electronic cash: a system designed to be better than banks, not worse. And while it may not have been the driving factor in the 2017 chain split, energy waste is among the many issues it addressed.

By working to increase the network's capacity to fit the needs of users instead of constraining capacity via an artificial limit, BCH enables miners' energy to be used to its full potential. In the long run, the diminishing block reward and BTC's limited capacity requires high fees from a very small amount of transactions in order to maintain security. BCH, on the other hand, will rely on large amounts of transactions, each paying more reasonable fees (one US cent or less tends to be a good estimate). In terms of energy usage, this means that even if total fees are the same, BTC miners become incentivised to be inefficient, using large amounts of energy for each transaction. BCH miners do not, instead being able to use a far smaller and more efficient amount of energy for each transaction while still profiting due to the greater scale. The increase in capacity on the BCH chain allows for, in addition to a plain increase in usability, a reduction of waste from the arbitrary limits on the BTC network.

But being better than BTC isn't really a particularly high bar. If BCH is trying to be a legitimate competitor to banks and other fiat payment processors, we need to consider its energy efficiency relative to them as well. Fortunately, it measures up far better than BTC: at a transaction fee of 1 cent, 785 billion transactions a year would translate to roughly 8 billion USD in fees paid to miners. Even if all of this money went into electricity, miners would be using around 80TWh annually — 3 times as efficient as banks (and on the order of ten thousand times as efficient as BTC). And any potential benefits of BTC energy usage, such as methane flaring or consumption of energy that would go to waste anyway, would apply to BCH just the same.

If we want to reduce waste — and we should — we don't need to get rid of Bitcoin mining entirely. Although many of the common defenses of BTC mining are simply wrong, and waste does exist, it is not a feature inherent in the nature of Bitcoin. It is a feature of the inefficient artificial constraints on the BTC chain, the same constraints BCH is designed to address.

By using Bitcoin Cash, we can get rid of those limits, making the network accessible to many more users while reducing inefficiency and waste.

Notes

* (I wasn't able to figure out how to do superscript to add endnote numbers, so I guess I'm using symbols.) Many proponents of BTC like to argue for it as purely a store of value now that it has been stripped of any real utility, but the main use case worth looking at is a medium of exchange (and the nearly 100 trillion USD money supply shows far more value being stored with the fiat banking system anyway). @Fexonice1 gives an effective description of the problem with considering an asset to be purely a store of value, in that any store-of-value asset gets its value from its use.

† But what about the lightning network? There are many problems with the current state of LN that go well beyond the scope of this article, but even assuming those problems were addressed it still would be ineffective due to the limits on the base chain. With the BTC network only able to process 100-200 million transactions a year, the ability for users to open and close LN channels is severely limited. For example, very generously assuming every on-chain transaction is for LN channels and each user makes just one such transaction a year, that still limits LN users to 100-200 million, far below the amount of people served by the fiat banking system. If Bitcoin wants to compete with fiat banking in usability, scale, or emissions, it needs to offer something better, and we can find that in Bitcoin Cash.