Can Bitcoin fit into the green economy of the future?

In my own opinion;

The Bitcoin network has a bad reputation as an energy consumer. There is a strong belief that miners use a huge amount of energy to generate new blocks. Until now, the energy consumption of the first cryptocurrency did not affect its development in any way, but more and more crypto market players are  concerned about the high electricity consumption of the blockchain network. The reasons for this lie in the current COVID-19 pandemic and the oil crisis, which have also raised questions about Bitcoin's place in the future. Whether the MTC network will be able to integrate into the new world that awaits us after the revolution for an environmentally friendly future, we understand the material.

Investment risks from investments in non-environmentally friendly industries

For all its decentralization and numerous advantages, bitcoin has an Achilles' heel - it is a high-cost digital asset in terms of electricity consumption. So, in July 2019, scientists from the University of Cambridge  reported that the Bitcoin network consumes more energy per year than the whole of Switzerland.

At the same time, the regulatory oversight of the state in the field of minimizing harmful effects on the environment is constantly growing. Authorities in developed countries restrict the spread of plastic, the amount of automobile and industrial emissions, and also require to sort waste into several categories and monitor industries that consume large amounts of electricity. So, in April 2019, the National Development and Reform Commission of China (NDRC)  included  mining in the list of 450 wasteful and dangerous industries to be liquidated, considering this industry too energy-intensive. Fortunately, in November of that year, the NDRC formally  excluded  mining from the forbidden industries.

It should also be borne in mind that Greta Thunberg's generation takes the fight against climate change much more seriously than their predecessors. A 2019 NYU Consumer Behavior Survey  found that having green items in a product line has a positive effect on sales for the entire product category. According to the findings of the study, when choosing a product or service, modern buyers look not only at the price, but also assess how manufacturers (brands) correspond to their values. So, in 2015, 66% of US consumers  were ready to pay more for products and services from socially and environmentally responsible companies. It is noteworthy that the percentage of such buyers is constantly growing - in 2013 this indicator increased by 50%, and in 2014 - by 55%.

Generation Z people care about how a particular T-shirt is made; they demand ethics from big business and minimize harm to the environment. As a result, in 2018, global leaders in the fashion and sportswear industry,  responsible for 14% of  global waste,  joined  the Circular Fashion System Commitment, which aims to increase the production of products from recycled materials. And since 2017, all Apple factories  have been  Zero Waste to Landfill certified. Naturally, for ecologically minded post-millennials, it will be important how much Bitcoin can fit into such an ecosystem.

High electricity consumption by the Bitcoin network can also become an investment risk for large investors in the first cryptocurrency. According to many experts in the cryptocurrency market, it is institutional investors that will become the key players that will facilitate the adoption and mass distribution of the first cryptocurrency. However, in comments to CoinDesk, head of research at Bitwise Asset Management Matt Hoogan  notedthat in about one out of 20 cases, in a conversation with investors, the topic of the non-environmental friendliness of bitcoin is raised. Thus, institutions may be reluctant to invest in an industry with high energy consumption and, even more so, harmful to the environment. Hugan also stressed that 2020 was a turning point in the fight against the effects of climate change - this topic has become more acute.

This is also evidenced by the fact that businesses have  ESG  (Environmental, Social and Corporate Governance) ratings , reflecting the extent to which, when making decisions, companies are guided by sustainable development in the environmental, social and economic spheres.

“Investors want to know for sure whether the project they are investing in does not harm the society and the environment, whether it contributes to the achievement of the Sustainable Development Goals approved by the UN,” said Alexey Kozlov, member of the board and managing director of Sibur.

Even a conservative energy market that thinks little about ethics and ecology is changing. In a research note Goldman Sachs, one of the largest investment banks in the world,  says that universal quarantine forever change the energy industry, the demand for oil and activates the debate on climate change. And the current oil crisis will lead the industry to " finally come to the restructuring that it desperately needs ." And if this crisis drags on, a number of oil companies could go bankrupt. The first swallow - the American shale oil producer Whiting Petroleum - has already  closed .

When the global economy emerges from quarantine and recession, it will face the need to make large-scale investments in the carbon industries. This is where considerations of climate change will become more relevant and important than ever before. Investors may not want to invest in something that does not fit into the new paradigm, beyond which Bitcoin may well be.

How much energy does bitcoin consume

But before you put an end to the prospects of the first cryptocurrency in the "green" future, you need to understand how much electricity the Bitcoin network actually consumes. But it is rather difficult to correctly assess this indicator  . Almost all the energy is spent on the extraction of new coins - mining, and the energy consumption for confirming transactions is practically free. In some countries, mining is prohibited, in others it is not regulated by the state, and statistics on it are not kept. Therefore, most studies provide a single slice, and the estimates are often in disagreement.

To estimate the energy consumption for the production of the first cryptocurrency, the Cambridge Center for Alternative Financing (CCAF) last year launched the CBECI - the Bitcoin Network Electricity Consumption Index. He estimates how much electricity the BTC consumes and  compares  this figure with other uses of electricity. The authors of the service emphasize that they developed it in response to growing concerns about the environmental impact of mining the first cryptocurrency.

CBECI gives three possible estimates at once: minimum, average and maximum. So, at the end of March, the possible energy consumption of MTC was 36, 57 and 86 TWh, respectively. According to the researchers, the expected average annual consumption level will be 59.72 TWh. According  to a  similar service Bitcoin Energy Consumption Index, all Bitcoin mining takes about 70 TWh per year - 73.121 TWh last year.

Is this a lot? According to  estimates of  the University of Cambridge researchers, is about 0.27% of the total energy consumption in the world. For comparison: the Czech Republic consumes about 62.34 TWh per year, Switzerland - 58.46 TWh, Greece - 56.89 TWh, Israel - 55 TWh, Ireland - 25.68 TWh. Every day, the same amount of energy is spent on maintaining the military-technical cooperation network as more than 500,000 Americans spend on a comfortable life. It seems that spending so much electricity on generating blocks is an unforgivable luxury.

Let's compare the cost of bitcoin with other areas of human activity. So, the volume of electricity spent per year from idle working home appliances and devices in the United States  would  be enough to provide power to VTS miners for 3.7 years. For the whole year, Bitcoin will spend as much energy as the United States in less than a day. Google services spend 10.57 TWh.

It is difficult to say in which case the energy is spent less justifiably. Even gold mining, according to various estimates,  can be  up to 20 times more energy-intensive. The energy spent on repeatedly playing the video for the song “Despacito” alone could be enough  to power  40,000 American homes for a year.

Let's compare the consumed bitcoin energy with other payment systems. Bitcoin loses a lot here. The average Bitcoin transaction requires  several thousand times  more energy than a VISA transaction. The PTS network processes less than 100 million transactions per year - very little compared to the 500 billion payments processed by the traditional financial industry. Bitcoin  uses  more energy for transactions than all other banks in the world combined.

The main problem with bitcoin's energy consumption is that it is growing a lot. So, over the past three years, it has increased more than 10 times. And the appetite of the Bitcoin network will increase. As the block reward decreases, the amount of energy consumed will increasingly depend on the size of the commission and the price of the coin: the more expensive, the more energy is spent. If Bitcoin ever rises in price to $ 1 million, its energy consumption will grow 200 times. The network will burn $ 1- $ 2 million every minute. However, so far this is only a theory. In addition, if the rivalry between miners weakens, and the equipment becomes much more efficient, the level of energy consumption will begin to decline (although now, despite the improvement of ASIC miners, it is only growing).

The rest of the cryptocurrencies spend a negligible amount of energy. The least energy-consuming coins are those that work not on PoW, but on other algorithms. Thus, the consumption of PoS projects is negligible.

Does Bitcoin mining harm the environment?

There is nothing wrong with using energy itself, because, after all, miners pay for it. The environment is influenced by the carbon emissions generated during the production of electricity. What is Bitcoin's carbon footprint? And there is no definite answer to this question.

Mining itself is, of course, harmless. Only electronic waste appears from it - miners become obsolete in two years, they need to be written off, but cannot be used for something else. According  to  Digiconomist, the mining industry generates 8.89 kilotons of e-waste per year. The same number of devices are thrown away in a small country like Luxembourg.

It is not known exactly how much energy is spent on mining. In addition, it is difficult to determine for sure exactly how the electricity used for the miners is generated. Therefore, accurate estimates of this impact vary  greatly . So, according  to  Joule, the annual emissions of carbon dioxide from electricity produced for mining bitcoins reach 22.9 megatons (the same amount, for example, emitted by Jordan or Estonia). According  to a  study by Suzanne Koehler and Massimo Pizzol from the University of Aalborg in Denmark, the figure was 17.29 megatons in 2018. And according to   Digiconomist calculations - 33.62 megatons, which is more than the carbon emissions of countries such as Denmark, Austria and the Czech Republic. Moreover, some researchers have come to claims  that mining can raise the temperature of the earth by 2 degrees. But these are very incorrect calculations. Most likely, Bitcoin's carbon footprint is closer to the lower bounds of the estimates.

At the same time, scientists note a high level of use of "green" energy to maintain the health of the Bitcoin network. According  to a  2019 CoinShares study, 74.1% of the electricity used by Bitcoin miners comes from renewable sources such as wind, solar, and hydropower. Another study by CoinShares from December 2019  shows that regions with the cheapest electricity are usually chosen to launch Bitcoin farms - most often, it is obtained from renewable sources, and power plants are located in hard-to-reach places.

Obviously, miners will continue to look for the cheapest electricity - mainly from renewable energy sources. And mining in large cities and industrial centers using energy from fossil fuels will remain unprofitable.

Note, however, that the CoinShares data are inconsistent - they don't agree with other studies. For example, according  to  2018 University of Cambridge scientists, despite the fact that most mining farms used renewable energy to some extent, the average share of such electricity was only 28%. The study authors warn that the same factors that pushed miners to use clean energy could one day lead them to return to energy from fossil fuels. More than half of all BTC is  produced  in the Chinese province of Sichuan, which has a developed hydropower industry. But due to the decrease in the flow of rivers, hydroelectric power plants are already  producing 30% less energy in the off-season. Also, many regions in China where mining centers are concentrated  depend  on the coal-fired power industry. Therefore, some researchers believe that renewable energy  will not solve the  problem of bitcoin's electricity consumption.

Bitcoin has the potential to go greener

As we can see, studies show that Bitcoin mining does not threaten the planet's ecology, and its energy costs are comparable to other digital human activities. However, the "gluttony" of BTC must be borne in mind if the crypto community wants cryptocurrencies to become as widespread as possible.

The good news is that bitcoin has every chance to fit into the green economy.

Bitcoin miners are nomads. They follow the cheapest energy source. Most likely, they will continue to operate on renewable energy sources in the future. According to CBECI, there will be enough hydropower to power the entire Bitcoin network for 70 years, wind and solar energy for 24 years, and biofuel and waste energy for 10 years.

Much will depend on the actions of local authorities. So far, the most striking example is the activities of the administration of the city of Missoula in Montana, where officials banned the extraction of bitcoins from "dirty" energy and  demanded  that all future mining farms build their own renewable energy sources.

Mining farms can use energy waste. For example, production units can be installed on oil wells and use associated petroleum gas as an energy source (now it is either burnt or released into the atmosphere). It is inexpensive for oil companies, but it could become a source of additional profit, as well as reduce methane emissions into the atmosphere. Thus, the Upstream Data mining company  plans  to test similar mining in Canadian oil and gas fields.

Ultimately, Bitcoin can be switched to a different, less energy-consuming, consensus-building algorithm. In any case, you shouldn't expect a Bitcoin network shutdown in the coming years.