Cryptocurrencies managed to come down a long way since their relatively obscure origin. While the mainstream finance sector once considered digital currencies as the tools for speculators and criminals, the crypto industry has built significant progress in establishing itself as a legit and, of course, potentially world-changing space. However, there are doubts about the consequences of mass crypto coin adoption. Several environmentalists and skeptics have raised serious concerns regarding the energy consumption of cryptocurrency mining, including bitcoin mining (the most prominent one) that may cause a hike in carbon emissions and climatic changes. They believe Bitcoin Environmental Impact is more towards the opposing side.
Bitcoin Environmental Impact: The Crypto Climate Debate
In this interview, the Castle Island Ventures Founding Partner, Nic Carter, has explained or rather debated on the Bitcoin Environmental Impact and managed to carry forward the Bitcoin Environmental Impact debunked session. There has been a huge amount of controversy on the topic as the environmentalists put their views and opinions. The followers have created numerous Bitcoin Environmental Impact Reddit threads in this regard.
So, here are the harmful effects of Bitcoin (or not!) session from the expert himself.
Interviewer: Why is Bitcoin not as bad for the environment as many people like to allege?
Nic Carter: Thanks for having me back, and I will start by saying, look, bitcoin absolutely is an industry that consumes a lot of energy. That is by design, we needed to find a way to issue the units fairly. So to create a unit of Bitcoin (BTC), miners have to burn some energy. Satoshi thought about alternative ways to do it, but there wasn’t really a better way to fairly distribute a monetary unit from scratch. Now, the Cambridge Center For Alternative Finance has some good estimates on Bitcoin’s renewable versus non-renewable share of energy. They find that it is about 39% as of their most recent study.
The Chinese element is very interesting. Certainly, some bitcoins are mined with coal in the Xinjiang Province and inner Mongolia. But if you look at the other provinces where it is actually, there is a lot of bitcoin mining (BTC Mining) activity on a seasonal basis. If you are looking at Sichuan Province and Yunnan Province in those places, there is a lot of hydropower that was overbuilt over the last decade, and that is hydrogen power which would otherwise be curtailed, and so, you see that is being put to use mining bitcoin and so that is a cleaner way to mine it. So it is sort of a more nuanced picture than some of the critics.
“Bitcoin is an industry that consumes a lot of energy” – Nic Carter.
Interviewer: So sticking with that “nuance” Nic, I mean a lot of people would when they sort of talk about how dirty Bitcoin is, they compared the idea of sort of you know how dirty sort of cash would be or swiping a credit card would be, and that’s the comparison they are making. Is that a fair apples-to-apples comparison?
Nic Carter: It’s just very different. I mean, a credit network is a small layer in the broader payments. Clearing and settlement monetary stack and ultimately those networks depend on the US dollar. So I would argue that since Bitcoin proposes an entire self-contained monetary and payment system, you should probably be comparing that to the whole dollar system and all the externalities that entails. And you could even if you wanted to stretch the analogy a little bit to represent that the US military is one of those pillars that supports the dollar system. Of course, that is a big consumer of oil. So it really is a function of what you compare to a lot of people compared to individual payments networks like Venmo or Visa. I am not exactly sure if that is a fair comparison because those are just small layers in the broader dollar system.
Interviewer: Nevertheless, I’m sure we are all hoping for a cleaner, greener future. You talked about how Satoshi had sort of thought about ways in which the whole structure, the whole mining concept, could be more energy efficient. But what are some of the couple of ways in which people are trying to adopt clean energy within the whole mining process?
Nic Carter: Yeah, so the interesting thing about Bitcoin and proof of work is that Bitcoin is a geography independent buyer of energy, and we have never actually had that before. Generally speaking, we have to create energy near population centers, which is not the case with Bitcoin. All you need is the internet in order to mine it. So you have this interesting geography arbitrage situation where Bitcoin is a buyer of energy in those places where it might be curtailed otherwise, where energy might be abundant, but there is not a buyer for it. So that was the case, for instance, in the southern provinces of China that I mentioned where there was far too much hydropower, and China has not done a good job of building the infrastructure to transport that to population centers. So that is the reason partially why Bitcoin is so abundant in China because they have overbuilt that hydro capacity.
There is another really interesting movement here represented by a number of American companies to mine Bitcoin with otherwise vented or otherwise flared natural gas, which is a by-product of oil mining and so in a number of places we see in the US, in Alberta, Canada where there is a lot of oil activity, and the natural gas cannot easily be captured because it is not very economical to put in pipelines to transport it. You see entrepreneurs setting up mining rigs off the grid where they mine Bitcoin, they capture the natural gas, and that is effectively neutral from a climate perspective or actually positive from the climate perspective because vented methane is a far worse greenhouse gas than carbon dioxide, which is what you get when you combust it, so there is some very interesting externalities or emergent qualities of the fact that Bitcoin is a sort of geography independent energy buyer.
Interviewer: So, on the one hand, let’s say there is a mix. Some of it is renewable, some of it is perhaps energy that would have gotten wasted. Others some of it is sort of classic hydrocarbons. You know, in your vision and the vision of many bitcoiners, Bitcoin is just getting started. It is not, you know, its a fraction of the size of the gold, let alone the size of the US dollar. Does Bitcoin’s total energy consumption source regardless? It does not scale right. Will it just continue to grow linearly, essentially along with the price?
Nic Carter: This is yeah, so it is a great question, Joe. This is a point that a lot of the critics and actually the academic papers on the topic get wrong. So they assume a standard energy footprint on a per transaction basis, and then they extrapolate this, and that is probably not the way you should be running that analysis. The reason miners spend so much energy and so much effort on mining bitcoin is because, for the most part of their revenue comes from the new issuance of Bitcoins. So right now, about 85% of their revenue comes from new bitcoins being issued to them, but the interesting thing is that we are 88% done with that process.
So in the future, most of the revenue from miners will accrue from fees from users paying to use the Bitcoin network. And those fees depend on how you model it out. But I would actually expect that the fee intensity would cause a lower structurally minor revenue in the distant future as the subsidy trails off. So the subsidy is not going to be with us forever. It gets cut in half every four years, as we discussed earlier. So, it is a very interesting change and dynamic where you really do have to consider the fact that Bitcoin is going to be fee-based in the future, and you can use that to model out the minor revenue.
To Sum Up
The advent of cryptocurrencies has given rise to cryptocurrency mining, of which Bitcoin mining or BTC mining is quite popular. Mining needs a lot of energy that environmentalists say to disrupt the environmental balance. But Nic mentions that people these days are more triggered by the idea of a cleaner and greener environment. Thus, they are utilizing the abundance of their geographical location, not causing massive bitcoin environmental impact in the opposing perspective. Crypto mining is the sole method to generate new crypto and revenue. Thus, it is not possible to stop the process altogether, but an environment-friendly approach can be implemented.