Bitcoin’s hefty environmental costs are worse than gold or red meat production
Despite all the hype and interest this digital coin has garnered as the modern “digital gold,” a new article says it’s more akin to a “digital steak.”
The environmental cost of mining the digital cryptocurrency Bitcoin, taken as a proportion of its current market price, puts it on par with some of the most energy-intensive products today, including beef, natural gas and crude oil. This environmental cost has only recently been calculated by a new study that analyzes the climate and environmental burden of Bitcoin among a number of sustainability criteria.
The paper comes to better inform our understanding of how Bitcoin, the leading cryptocurrency and one of the most sought-after digital products today, fits into the real world. While it was always obvious that Bitcoin mining is an energy-intensive process, the authors explain, the extent of its real costs – including economic damage from carbon emissions and the impact of climate change on the wider economy – has remained unclear until now.
Dirty money
Bitcoin has had quite an interesting journey. By December 2021, the digital asset had reached a market capitalization of around 960 billion US dollars and led the way for a whole host of other cryptocurrencies to enter the market. Bitcoin currently holds the lion’s share of the global crypto market with a market share of 41%, with the rest just following in its wake.
Each Bitcoin is created or “mined” as the product of a series of increasingly complex mathematical equations. Crunching all these numbers requires enormous processing power and thus electricity. This thirst for electricity is the link between the production of Bitcoin and its negative environmental effects.
Based on the current study, it appears that public perception significantly underestimates how pronounced these effects are.
The authors assessed the climate damage caused by Bitcoin mining across three sustainability criteria: whether the estimated climate damage increases over time; whether the market price of Bitcoin exceeds the economic costs of climate damage; and how the climate damage per mined coin is compared to climate damage from other sectors and raw materials. The research drew on data related to Bitcoin from January 2016 to December 2021.
Overall, the team reports that the environmental cost of the cryptocoin changed over time as a function of retail value and the difficulty of mining new coins. Since 2016, the emissions generated for the production of energy used by Bitcoin mining have increased 126 times, from 0.9 tons of emissions per coin to 113 tons per coin in 2021. This increase per coin translates into huge overall levels of energy use and greenhouse gas emissions. Around 2020, they explain, Bitcoin mining used 75.4 terawatt-hours per year (TWhyear)-1), which is more energy than all countries that Austria or Portugal used during the same year (69.9 and 48.4 TWhair)-1respectively). This makes the cryptocurrency one of the largest single sources of greenhouse gas emissions in the world.
Based on their calculations, the team estimates that each Bitcoin mined in 2021 generated US$11,314 in climate damage, totaling over US$12 billion; this would be around 25% of the market price of all Bitcoins in circulation. This rose steadily, peaking in May 2020, when environmental damage caused by mining each coin reached 156% of each coin’s price; in other words, producing 1 US$ in value as Bitcoin caused 1.56 US$ in damage to the climate and global environments.
When comparing this environmental impact to that generated by other industries and products – including some major offenders, such as electricity generation, crude oil processing, precious metal mining and meat production – Bitcoin did not fare so well. In the period 2016-2021, it caused on average climate damage corresponding to 35% of the market value. This was less than for electricity produced from natural gas or petrol production, which averaged 46% and 41% of the market value respectively as environmental damage. But that figure was higher than for beef production (33%) and gold mining (4%), which themselves have fairly significant environmental footprints.
All things considered, the team does not feel confident that Bitcoin can be described as a sustainable resource. It failed to meet any of the three sustainability criteria the team considered in the paper. They explain that significant changes, up to, potentially, regulation of the asset, are necessary to make Bitcoin mining sustainable in the future.
The authors conclude that Bitcoin does not meet any of the three key sustainability criteria they assessed it against, and that significant changes – including potential regulation – are required to make Bitcoin mining sustainable.
An important factor to consider for digital assets like Bitcoin is that they are essentially just code – so making the right changes to that base code can have huge effects on the viability of the final product.
The article “Economic estimation of Bitcoin mining’s climate damage shows closer resemblance to digital crude oil than digital gold” has been published in the journal Scientific reports.
