'The annual carbon emissions from bitcoin mining are worth 3.4 billion yuan

Recently, bitcoin has attracted a lot of attention at home and abroad on the issues of energy consumption and carbon emissions. Tesla CEO Elon Musk, who holds more than $1 billion, also recently said his company would resume allowing bitcoin transactions when miners use more than 50 percent clean energy for mining.

In today's international environment, carbon emissions are extremely important for Both Tesla and Bitcoin. For the full year of 2020, Tesla made $721 million in net profit, and it made $1.58 billion from selling carbon credits alone.

Previously, BitMEX, one of the largest crypto derivatives trading platforms, announced that for every $1 paid in fees, users would donate at least $0.0026 to offset their carbon footprint. Trading platform FTX says carbon offsets aren't the only way to address the environmental footprint of cryptocurrencies, but they're a good start.

On July 16, China's carbon emission trading was officially launched at the Shanghai Environment and Energy Exchange, with the first matching price of 52.78 yuan per ton. A total of 160,000 tons of carbon emission trading volume was 7.9 million yuan. It also marks the first step towards carbon trading in China.

According to a report released by the United Nations Environment Programme in 2019, global carbon emissions by 2030 are expected to be 56 billion tons of carbon dioxide equivalent, which could lead to global warming of more than 1.5 °C. There is a chance of limiting global warming to 1.5°C if emissions are reduced to less than 25 gigatons equivalent.

For this reason, it is important to understand the carbon emissions of bitcoin mining. Of course, not all new technologies are perfect, just as Bitcoin has had a huge impact on the environment. Digiconomist, a platform dedicated to revealing the unintended consequences of the wave of digital change, recently published an article on bitcoin's sustainability and carbon emissions.

Bitcoin consumes energy

The minimum energy consumption is calculated according to the entire network computing power of Bitcoin. The data before February 13, 2019 is uniformly calculated using the Ant Miner S9, which consumes 1500 watts of power. From February 13, 2019 to November 7, 2019, ants mining machine S15 is used for calculation. Ant miner S17e shall be used after November 7, 2019, and Ant miner S19 Pro shall be used after October 31, 2020.

Annual Bitcoin carbon footprint

A single Bitcoin carbon footprint

Bitcoin's total annualized carbon footprint is now 64.44 million tons, equivalent to the carbon footprint of Serbia and Montenegro; The total annual consumption of electricity is 135.66 terawatt-hours, equivalent to 135.66 billion kilowatt-hours of electricity, equivalent to the electricity consumption of Sweden; At the same time, 6,350 tons of e-waste was produced. If calculated according to the Shanghai Environment and Energy Exchange's 52.78 yuan per ton, the total annual carbon footprint of Bitcoin is worth about 3.4 billion yuan.

The total annual carbon footprint of a single Bitcoin is 817.02 kg, equivalent to 1.81 million transactions using a VISA card or 130,000 hours of online video watching; An annualized 1,720 kilowatt-hours, or 58 days' worth of electricity for an average American home; At the same time, 80.5 grams of e-waste was produced.

On bitcoin's sustainability

As bitcoin mining continues to provide a steady stream of income, miners are willing to buy machines and participate in the game by consuming electricity. This has led the bitcoin network to record levels of resilience and energy consumption. If Bitcoin were a country, it would rank 28th in the world in energy consumption.

Of course, consuming a lot of energy may not be bitcoin's biggest problem. Perhaps bitcoin's biggest problem is that most of the mining equipment in the bitcoin network is located in areas that rely heavily on coal power.

Clean energy still accounts for a low share of bitcoin mining's energy consumption

Determining the carbon impact of the Bitcoin network has been a challenge in recent years. Because you need to know not just how much electricity the bitcoin network consumes but where it comes from.

One way to learn about the power source is by looking at the location of the bitcoin miners. Of course, locating bitcoin miners isn't easy.

Initially, as you all know, bitcoin miners were primarily located in China, due to the average emission factor of the Chinese power grid being 700g CO2/kWh. From this coefficient, it is possible to estimate the carbon intensity of the electricity used for bitcoin mining. Assuming that 70% of bitcoin mining takes place in China and 30% of it uses clean energy, the weighted average carbon intensity is 490 gCO2eq/kWh.

Later, more detailed information emerged in a 2017 study of global cryptocurrency benchmarks by Garrick Hileman and Michel Rauchs. In the study, they identified a lower limit of about 232 megawatts of total energy consumption for devices that account for about half the computing power of the Bitcoin network. Mining facilities in China account for half of that, with a lower limit of about 111 megawatts.

The energy consumption breakdown of the mining equipment investigated by Garrick Hileman and Michel Rauchs is shown below. The weighted average carbon intensity of the Bitcoin network was calculated to be 475 gCO2eq/kWh by the carbon emission coefficient of each national power grid.

39% of energy consumption comes from renewable sources

Some users say specific areas of some countries could provide less carbon intensive energy. In 2018, Coinshares said that most of China's mining machines are located in Sichuan and use cheap hydropower to mine. However, subsequent research could not support this claim. Faced with this, the lead author of the Coinshares paper admits to "mistakes."

Specifically, although Sichuan generates three times as much electricity during the rainy season as during the dry season, hydropower is not produced consistently. Fluctuations in hydroelectric power have left miners with limited access to cheap hydropower.

In a 2019 study on the carbon footprint of Bitcoin conducted by Christian Stoll et al., miners were located according to IP addresses, and the weighted average carbon intensity of the entire Bitcoin network was calculated to take into account regional differences. The calculated value was 48-500, which was less different from 475 above.

Similarly, using a similar approach, the University of Cambridge in 2020 provided a map of the location of bitcoin miners over time. Through the location data and the carbon intensity of different power grids filled with different colors, the proportion of mining activities in each region during the dry season can be obtained as shown in the figure below. As a result, the annual contribution of renewable energy to the bitcoin network remains low. According to a 2020 Cambridge University interview, miners say about 39 percent of their energy consumption comes from renewable energy.

Who uses more energy, Bitcoin, VISA or gold?

To better measure the energy consumption of the Bitcoin network, use VISA as a reference. In 2019, VISA processed 138.3 billion transactions. VISA says its operations around the world consumed 740,000 gigajoules. That means VISA consumes the same amount of energy as 19,304 U.S. households. The carbon footprint of each VISA transaction was calculated to be 0.45 gCO2eq.

These data show that bitcoin is still far behind VISA, with every bitcoin transaction being more energy intensive than VISA. And the difference in their carbon footprints is huge.

Of course, VISA is not a complete representation of the global financial system. But even bitcoin transactions use more energy than non-cash transactions in the conventional financial system.

If we look at Bitcoin as "digital gold", then we can compare bitcoin mining with gold mining. Currently, about 3,531 tonnes of gold is mined each year, emitting about 81 million tonnes of CO2. However, there are some drawbacks to this type of comparison, such as gold mining can be suspended while bitcoin mining cannot.

Limited scalability leads to extreme carbon footprints

The main reason for the exaggerated carbon emissions generated by each bitcoin transaction is that the underlying blockchain is not only built on energy-consuming algorithms, but also has extremely limited transaction processing capacity. In an optimistic scenario, bitcoin could process about 220 million transactions a year. While the global financial system processes more than 700 billion payments a year, payment providers like VISA can process more than 65,000 transactions per second. Due to the speed of transaction processing, bitcoin has not been able to achieve any form of mainstream adoption as a global currency or payment system.

There is also no real solution to the scalability problem for Bitcoin. Some backers of digital currencies argue that Layer 2 solutions such as the Lightning network could help expand Bitcoin's scale, but this clearly contradicts the impossibility of large-scale transfers. In order to transfer money to the Lightning network, the money must first be traded on the main network. At current network performance, it would take 35 years for the Bitcoin network to conduct one transaction for each of the 7.7 billion people on the planet. So far, the only practical solution to bitcoin's scalability problem has been to use trusted third parties to process transactions internally, rather than using the Bitcoin blockchain. But this is just a repeat of the wheel.

PoW was the first corporate algorithm to prove successful, but he wasn't the only one. In recent years, more energy-efficient algorithms such as PoS have been developed. Compared to PoW, THE energy consumption of PoS is negligible. It is estimated that if Bitcoin switched to PoS, it could save 99.95% energy consumption compared to the current PoW.

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