Alex de Vries has received a lot of hate for saying that bitcoin is bad for the environment. A Google search reveals a plethoric pushback against his research. People are not happy. Crypto bros have devoted entire subreddits to discrediting the economist’s reporting as propaganda linked to his job at the Dutch central bank. Speakers at cryptocurrency events name-check him in their conversations. Blockchain boffins argue against his conclusions in columns and articles.
“Let’s just say I have plenty of fans in the bitcoin space,” de Vries shrugs when Verdict brings up the critique. “Over the years, I [have] learned not to pay too much attention to it.”
Despite the predominantly online abuse, he’s not shutting up. Not only is he still publishing new insights on his site Digiconomist, but he’s also picking up the phone whenever journalists call. His phone has rung red hot with reporters asking about his research in the lead-up to Earth Day on 22 April. They’re asking him for good reason: he is one of the world’s foremost authorities on the environmental impact of cryptocurrencies.
“I guess my research kind of put this topic on the map because I started doing it six years ago when nobody was talking about it,” de Vries says.
However, it was someone else’s writing that put him on the path. He remembers reading a story on Motherboard from 2015 that shook him to the core. “[It] suggested that a single bitcoin transaction on average consumed as much electricity as a US household in one and a half day at the time,” de Vries says. “That’s a lot of energy for something that is ultimately as simple as me sending your money – that should not be the case.”
He decided to investigate the matter. The resulting research paints a bleak picture about the impact of bitcoin on the environment. According to de Vries’ research, the digital dosh has a carbon footprint the size of the Czech Republic, consumes as much electrical energy as Thailand and produces 32,27 kilotons of electronic waste per year, which is roughly the same amount generated by small IT equipment waste in The Netherlands. He believes bitcoin’s burgeoning popularity is only going to make it worse.
“It was one US household’s worth of power for one and a half days [per bitcoin transaction] back in 2016,” de Vries claims. “Now you’re talking two and a half months [for the] same metric – [and that is] just the average energy use. That’s because the energy use keeps growing [as the] price keeps growing. But there’s no extra transactions taking place.” In other words: when the price of bitcoin skyrocket, its impact on the environment balloon too.
Bitcoin boom and bust
Investment interest in cryptocurrencies shot up during the pandemic. In their hurry to explain the trend, researcher have put forward a selection of factors that could've cause the bitcoin stampede. Some suggested that people saw it as a form of digital gold, a safe haven asset to inject cash into during times of uncertainty. Bitcoin's reputation as a safe haven asset took a beating earlier this year when the price dropped despite the war in Ukraine.
Others have propounded the rise of bitcoin investment as a result of lockdown boredom, that people just bet on it as an alternative against apathy. Whatever the reason, the value of the digital dosh jumped to record heights during the Covid-19 crisis, culminating in a $68,000 all-time high in November 2021.
Venture capital investors have taken notice. While interest in cryptocurrency startups had seemingly dropped after the record year of 2018, VCs returned in force in 2021. They injected over $26.2bn into blockchain money projects in 2021, according to VC deals data from research firm GlobalData. 2022 is also set to be a corker, with $9.58bn having already been injected into the sector to date.
Both investor interest in cryptocurrency projects and the price of bitcoin have boomed in the past few years. de Vries estimates that the amount of electricity used by the blockchain network has blown up in tandem with the skyrocketing price.
However, the price of bitcoin has slumped since its November peak and is now trading at just under $40,000. While that may calm some market watchers buying into the notion that a cryptocurrency winter is coming, it doesn't explain what will happen the next time bitcoin speculation will see the value of the blockchain asset grow. It also doesn't explain how bitcoin is supposedly use all of its electricity.
So let's dig into that, shall we?
How does bitcoin burn electricity?
Bitcoin uses a lot of electricity. Most of this electricity is burnt when a new block to the bitcoin blockchain is created. Each block includes a record of all new and all historical transactions made on the bitcoin blockchain. The process of producing these blocks is called mining. A new block is created every 10 minutes or so. This happens when collections of computers solve complex puzzles. These collections of computers are called nodes or miners.
Miners compete to solve these puzzles. The miner that solves the puzzle then presents their proof-of-work, evidence for the computational efforts made, to the rest of the network. Once enough nodes have verified the work, a new block is created. The miner who solved the puzzle gets a set amount of bitcoin as a reward. The process then starts again. That's how bitcoin miners make money.
This mining process forms the basics of bitcoin's decentralised nature. No one is in charge of the creation and running of the network. Instead, it runs on a consensus model where each node is accepted by the majority of miners. Arguably, it is what makes the blockchain safe from attacks. The process is also where the the bitcoin network burns through most of its electricity.
"Determining energy consumption for crypto mining is straightforward: you look at the hash rate, the combined computational power used to mine bitcoin and process transactions, and estimate the energy requirements of the hardware used by the miners," Nicklas Nilsson, thematic analyst at GlobalData, tells Verdict.
This is essentially what de Vries has done as part of his research. He puts the annual electricity usage at 204.50 terrawatt-hours (TWh). Eggheads behind the University of Cambridge's Cambridge Bitcoin Electricity Consumption Index (CCAF) put the annual electricity consumption of bitcoin at a more conservative 139.59 TWh.
Figures like those have perpetuated the notion that bitcoin is bad for the environment. Concerns about the sustainability of it last year saw electric car maker Tesla stop people from buying cars with crypto – if they ever did – in an effort to clean up its green chops.
How bad is bitcoin really for the environment?
Should be a slam dunk then, right? Bitcoin is bad for the environment – case closed. Not quite. As Verdict has pointed out in the past, it's not as easy to get a clear image of how bad cryptocurrencies' sustainability chops are. While most researchers agree that bitcoin uses a mammoth amount of electricity, their estimates differ when it comes to how big the impact on the environment is. Why? Because it's really tricky to get right.
"Estimating carbon emissions is more difficult as you need to know the exact energy mix, and this is why its environmental damage varies greatly depending on the source," Nilsson says. "A renewable energy of between 30% adnd 75% is often stated, so it varies greatly."
There are several reasons for this. The CCAF warns that the data available is limited and often unstandardised. Consequently, estimates can differ significantly depending on each researcher's methodology. The Cambridge researchers also alert against presenter bias, suggesting researchers may only see what they want to see.
"For instance, contrasting bitcoin’s electricity expenditure with the yearly footprint of entire countries with millions of inhabitants gives rise to concerns about bitcoin’s energy hunger spiraling out of control," the CCAF researchers write. "On the other hand, these concerns may, at least to some extent, be reduced upon learning that certain cities or metropolitan areas in developed countries are operating at similar levels."
The researchers also suggest that the energy usage isn't that massive, especially if compared to regular home appliance. Bitcoin uses less electricity than the combined usage of all fridges (104TWh) and TVs (60TWh) in the US, according to the CCAF.
Nilsson adds that other factors make these estimates even more uncertain. "For example, most energy consumption takes place close to where it is consumed, but crypto mining doesn't have that constraint, it can be mined from anywhere, for example, in areas where large quantities of hydro power are wasted due to oversupply," he says.
de Vries has, however, argued that the amount of renewable energy being used by the network decreased from 41.6% to 25.1% in the last year. This, he says, is due to Beijing banning bitcoin mining in 2021.
"[Before the ban] these miners were physically moving their equipment around throughout the year," de Vries says. "During the summertime, they were actually located in the south of China using accesses of hydropower during the rainy season. And then they would physically move to the north of China to use coal based power during the winter dry season."
He claims the ban put a stop to that. Miners emigrated to places like the US, where electricity grids predominantly rely on fossil fuel.
"Miners located in Texas or Kentucky are not moving around, [they are] just gonna stay put," de Vries says. "But there's just not that much renewable energy on those grids, especially not in in grids like Kentucky, but also in Texas, it's just mainly natural gas."
Can bitcoin make electricity greener?
CoinDesk columnist Nic Carter has argued that this view may be bit unfair to Texas. Instead, he suggested in a recent opinion piece that miners increasingly use "behind the meter" mining for their production. He argued that bitcoin miners buy energy from wind and solar energy providers when these resources are abundant, and only rely on the fossil-heavy grid for the rest of the time.
The American Clean Power Association reported in February, 2022, that Texas is also installed 7,352 megawatts of wind, solar and energy projects in 2021. That's more than any other state. Still, though, 90% of its energy is derived from fossil fuels. Make of that what you will.
"The problem is not just energy usage, but the use of nonrenewable resources that are scarce and finite," Oleg Fomenko, co-founder of Sweatcoin, the cryptocurrency company compensating customers for walking instead of using transport, tells Verdict.
Apart from the energy usage, bitcoin arguably affects the environment by producing tons of electronic waste. As the hash rate climbs with the popularity of bitcoin, miners must update their hardware in order to stand a chance. Usually, that means throwing away the old processors. de Vries estimates that the electronic waste created by each bitcoin transaction is equivalent to throwing away two iPhones. He says each piece of equipment has a lifecycle of about one and a half years.
Industry stakeholders are aware of this. They have increasingly started to big-up the idea of "lifecycle mining." In short, the idea is that miners should hook up older hardware to renewable energy sources and keep their fresh purchases on the grid. Renewable energy tends to be more unsteady and unreliable. However, miners could arguably save more money by hooking up these old machines to renewable power sources when the conditions are right. We haven't been able to find any figures on how common lifecycle mining is. Others suggest that bitcoin could speed up the adoption more green energy.
“I’m not buying this argument that bitcoin is bad for the environment. It’s flawed and short-sighted,” Nigel Green, CEO of financial advisors deVere Group, tells Verdict. "Bitcoin mining could speed up the transition from fossil fuels to renewables. Clearly, clean energy is the way forward, but their sources are sometimes irregular and there’s not enough storage capacity for when these sources generate excess energy.
"Bitcoin miners, who need huge amounts of energy, could act as major buyers of last resort, providing substantial profit for investment and expansion. This would then enhance the renewables supply, which would go on to bring down prices for consumers and further drive demand."
Is it really bad that bitcoin uses a lot of energy?
No matter what estimates one uses, it's clear that bitcoin uses ginormous amounts of electricity. Yet, not everyone believes that is really such a bad thing, all things considered.
"Everything we do digitally uses energy. There's a lot of grief given to bitcoin for its carbon footprint," Erica Stanford, author of Crypto Wars: Faked Deaths, Missing Billions and Industry Disruption, tells Verdict.
She suggests that while bitcoin uses a lot of electricity, so do regular fiat money systems. However, she says that "one of the benefits of [bitcoin using a lot of energy is that it] means that it's incredibly secure." The crypto expert has a point. The decentralised nature of the bitcoin blockchain makes it incredibly difficult to abuse.
"The bitcoin lockchain is seen as the safest way to store money – it has never been hacked," Stanford says. "It's seen as being infinitely safer than storing money in a bank or anything else, you know. So the fact that it uses so much energy does add to its safety."
Taking a slightly more aggressive tone, the deVere Group's CEO suggests that the people battering bitcoin for its impact on the environment are the same people who have been cynical about it for a long time.
"The bitcoin bashers are on the wrong side of history," Green says. "For 13 years, people have been attacking Bitcoin and they’ve been proven wrong time and again. In a big way."
Some critics have already changed their mind. Investment tychoon Warren Buffet once compered bitcoin to rat poison, but his firm Berkshire Hathaway invested $1bn into a crypto-friendly neobank Nubank earlier this year. Admittedly, though, Nubank also provides the same savings and banking accounts as other digital lenders, with cryptocurrencies being just an infinitesimal part of its bottomline.
Similarly, JP Morgan’s CEO Jamie Dimon is no fan of bitcoin either. In the past he's compared it to smoking and scams. Frauds like BitConnect and OneCoin have made little to dissuade him of this fact, nor has the ubiquity of ransomware gangs using bitcoin to get paid. Investment banking Goldman Sachs has made similar statements in the past.
"Now it has a major crypto trading department," Green says. "I think Alex de Vries, amongst other crypto cynics, will one day have to do a similar u-turn on his stance. Cryptocurrencies have been embraced by major corporations such as Apple, Tesla, Microsoft and PayPal."
Could new cryptocurrency projects be the solution?
Cryptocurrencies are becoming more accepted among incumbent financial market stakeholders. Regulators are also increasingly suggesting that the asset class shouldn't be banned, but that it should face tougher policing. However, that doesn't necessarily mean bitcoin will the digital dosh used by most people in the future.
"Bitcoin is the first cryptocurrency," Stanford says. "I would see it like the tube in London. It's the oldest and it was built a long, long, long time ago when there weren't so many people around and using it. It's safe, but slow, it often runs late, is very expensive and loses money. And then you go to Hong Kong or Singapore and the trains are all but instant, fast, don't use a lot of energy, are cheap, efficient and everything is good."
There has been no shortage of pretenders over the years. A plethora of new digital monies have launched in the wake of bitcoin founder Satoshi Nakamoto penning the whitepaper that would set off the crypto revolution in 2008. Some memecoins have been created as a joke, often referencing Elon Musk. Examples include the likes of Elon Sperm of Floki, which is named after the Space X founder's dog.
Others, like the world's second biggest cryptocurrency, Ethereum, are more serious. And then there's the countries around the world exploring launching central bank digital currencies such as the UK, Sweden and China.
Many of them also attempt to do so without wreaking the world. Ehereum, for instance, still runs its transactions on a power-consuming proof-of-work blockchain like bitcoin. At the same time, it has begun to faze in q chain that runs on proof-of-stake. Instead of solving puzzles, miners offer collateral for the chance to validate blocks. The validators are then randomly selected. This way of verifying new blocks is eats less computational work, meaning it needs less electricity. The NEAR Foundation's blockchain is an example of a chain that runs entirely on a proof-of-stake validations method.
"The industry as a whole recognises the importance of protecting the environment and that climate change is a global crisis that increasingly demands our attention," Marieke Flament, CEO of the NEAR Foundation, tells Verdict.
Sweatcoin, which runs on the NEAR Foundation's blockchain, tries to encourage greener habits by minting its own SWEAT token on the numbers of steps its 63 million users take. Every 1,000 steps earns the user another SWEAT token. CEO Fomenko tells Verdict that the goal is to "make physical activity part of the global GDP."
Then there are projects like Cowa, which claims to be a zero-carb on mining blockchain, that are trying to cut the cryptocurrency industry's emissions. The startup NuPay Technologies has similarly created the Helo blockchain, claiming it's "the world most environmentally friendly blockchain." But rather than being altruistic, these efforts aim to make digital dosh more palpable for everyday Joes.
"If we want to encourage a future in which blockchain, cryptocurrency and NFTs are used widely we need to be better, greener, smarter, and more efficient than previous technologies," Brad Wilson, CEO and founder of NuPay Technologies, tells Verdict.
Bitcoin has clearly made an impact on tech wonks, the environment and the next generation of blockchain entrepreneurs. Only time will tell if that will be enough to clean up the industry's bad reputation when it comes to sustainability.
GlobalData is the parent company of Verdict and its sister publications.