Coinbase clarifies: Is Bitcoin mining really harmful to the environment?

This article is from Coinbase Pro, compiled by: Bitcoin Home.

First, a basic fact: Bitcoin mining is an energy-intensive process. There is no debate about this. As the price rises, new miners are encouraged to participate, thereby increasing energy consumption (at least until the next halving, when the number of new bitcoins issued will be cut in half).

However, understanding the actual impact of this energy use on the environment is complex, like many things. In this article, we will explore some of the main questions that are often raised and understand their truthfulness.

Misunderstanding: Bitcoin is a significant contributor to climate change

According to the best science, this is simply not true. While Bitcoin's energy consumption is enormous, that does not mean Bitcoin is a significant driver of climate change. To understand why, it helps to have a little insight into how mining works.

Mining is the process used by Bitcoin and some other cryptocurrencies to generate new coins and validate new transactions. A massive decentralized network of computers around the world secures the blockchain (the virtual ledger that records cryptocurrency transactions). In return for contributing their processing power, miners are rewarded with new coins. This is a virtuous cycle: miners maintain and secure the blockchain, the blockchain grants coins, and the coins incentivize miners to maintain the blockchain.

In April, a series of headlines warned that emissions from Bitcoin mining in China could push global warming out of control. However, the reports these articles were based on had serious flaws. The figures came from the overall mix of fuels used in China—the actual energy mix that miners use. Since much of China's power grid is coal-powered, these researchers assumed that Bitcoin must similarly rely on coal. This is why that is inaccurate:

Facts:

• Miners are incentivized to seek the cheapest energy. This often means surplus power and/or sustainable energy, which is becoming increasingly cheap.
• Half of global mining occurs in Sichuan, China, where surplus hydropower fuels 95% of renewable energy for mining.
• 75% of miners have already incorporated renewable energy as part of their energy mix.
• Most importantly, researchers behind the Cambridge Bitcoin Electricity Consumption Index concluded: "Currently, Bitcoin's environmental footprint is at best still negligible."

Misunderstanding: Bitcoin is incompatible with a healthy environment

As crypto technology and green energy technology mature, the likelihood of the opposite scenario seems greater. Bitcoin miners are incentivized to go where electricity is cheapest. While this may mean some use of fossil fuels, the best way for miners to maximize profits is to seek out places with surplus supply. In fact, Bitcoin has a unique advantage in making renewable energy cheaper and more accessible for everyone:

Facts:

• Renewable energy often has surplus supply. When the grid cannot support that power, electricity is wasted.
• Natural gas producers use a process called "flaring" to simply burn off excess product, harming the environment without benefiting anyone. Bitcoin can convert this excess energy into value without net increases in emissions.
• By placing mining operations at sources of green energy, utilities can monetize their surplus supply. In fact, at least one publicly traded power company has explored directly participating in mining to extract value from surplus supplies that can be used to build sustainable energy operations.
• By ensuring a viable market for renewable energy, Bitcoin incentivizes companies to build more green infrastructure, further lowering the price of clean energy. This virtuous cycle can actually contribute to combating climate change.

Misunderstanding: Bitcoin is inherently less efficient than traditional financial systems

Many of the most shocking headlines stem from a fundamental lack of understanding of how Bitcoin works. You might hear surprising claims like, "Bitcoin requires 14 times the world's total electricity just to process the billion credit card transactions that occur daily." These figures often conflate the energy costs of Bitcoin mining with transaction costs.

Facts:

• Energy consumption primarily comes from mining blocks on the blockchain, not from transactions. (The "mining" process serves multiple purposes, including generating new bitcoins and validating new transactions. However, the primary function of mining, as the name suggests, is to generate new bitcoins.)
• Due to a process called halving, the energy required to mine a block is expected to decrease every four years, during which the issuance of new bitcoins is cut in half.
• The energy spent is per block, not per transaction. As tools (like batching, SegWit, and the Lightning Network) allow parties to aggregate more transactions in each block, the energy cost per transaction will decrease.

Misunderstanding: Bitcoin consumes "too much" energy

Because Bitcoin is relatively new, the idea that it consumes as much energy as a country like Norway seems shocking. But consider this: Norway's GDP is about $400 billion USD. The total economic value secured by Bitcoin (its market cap) is up to $1 trillion. Direct comparisons are not easy, but an important point to remember is that energy consumption is reasonable. Whether energy use is justified largely depends on the value derived from resource use. By this measure, Bitcoin is much more efficient in its resource use than many industries. Here are some points:

Facts:

• In the U.S. alone, the energy wasted annually from inactive household devices could power Bitcoin mining for 1.5 years.
• Studies have found that Bitcoin's consumption is far less than other financial systems: half that of the gold mining industry, and less than one-fifth that of bank branches and ATMs.

Misunderstanding: The cryptocurrency space cannot address environmental impacts

As the largest cryptocurrency, Bitcoin is often seen as a proxy for the entire crypto space. This overlooks the ongoing upgrades of the second-largest cryptocurrency, Ethereum. The ETH2 upgrade aims to make broader economic activities (from lending and saving to minting NFTs) greener, cheaper, and faster.

Similarly, newer cryptocurrencies like Cardano are designed from the ground up with sustainability in mind.

In mining, key stakeholders in the space are actively encouraging the procurement of sustainable energy in various ways, including the launch of the Crypto Climate Accord earlier this year, which aims to achieve 100% sustainable energy production by 2025.

Facts:

• Elon Musk recently tweeted that Tesla would suspend accepting Bitcoin as payment due to fossil fuel issues; he met with North America's largest mining companies (including Argo Blockchain, Hive Blockchain, and Riot Blockchain) on May 23. The two companies announced the formation of the Bitcoin Mining Council, which aims to accelerate the adoption of sustainable energy mining globally.
• Ethereum is currently undergoing an upgrade that will transition the second-largest cryptocurrency from a mining-based system to a more energy-efficient one called proof of stake. Proof of stake has already been adopted by many cryptocurrencies.
• Square recently announced a $10 million Bitcoin clean energy investment plan to promote the use of clean energy in Bitcoin mining.
• Just about a week ago, several large mining companies announced green initiatives: Greenidge Generation Holdings stated that its New York Bitcoin mining operation would achieve carbon neutrality by June 1. Argo Blockchain announced that its new operations in Canada primarily use hydropower.
• Argo has also recently joined the Crypto Climate Accord (CCA) with DMG Blockchain Solutions. The CCA is a private sector initiative committed to helping the mining industry transition to 100% sustainable energy production by 2025 and achieve net-zero carbon emissions by 2040.
• Coinbase Ventures recently invested in Crusoe Energy, a company that utilizes excess "flare" energy from natural gas producers for crypto mining and other productive uses.