Alex de Vries was criticized for saying bitcoin is bad for our environment. A Google search reveals that there is a lot of opposition to his research. People are unhappy. People are not happy. 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 during their conversations. Blockchain boffins disagree with his conclusions in articles and columns.
“Let’s just say I have plenty of fans in the bitcoin space,” de Vries shrugs when VerdictThe critique is brought up. “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 insights on his site, Digiconomist, but he’s also picking up the phone whenever journalists call. Reporters have been calling him to ask about his research, as he prepares for 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 can recall reading a story. MotherboardFrom 2015, that shook him to his 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 resulting research shows a dire picture of the effects 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]This is the average energy consumption. That’s because the energy use keeps growing [as the]The price of bitcoin keeps rising. 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
During the pandemic, investment interest in cryptocurrency soared. Researchers have compiled a list of possible factors that could have caused the bitcoin stampede. Some suggested that people considered it a form digital gold, which they could use to store cash during times of uncertainty. Bitcoin’s reputation as a secure asset suffered an early year due to the drop in price despite the war in Ukraine.
Others have suggested that the rise in bitcoin investment could be due to lockdown boredom. People simply bet on it as an option against apathy. Whatever the reason for the rise in bitcoin investment, it reached record levels during the Covid-19 crises, reaching $68,000 in November 2021.
Venture capital investors have noticed. Despite cryptocurrency startups’ interest seeming to have declined after the record year 2018, VCs are back in force for 2021. According to research firm VC Deals data, they poured over $26.2bn into projects involving blockchain money in 2021. GlobalData. 2022 is also expected to be a big year, with $9.58bn already being injected into the sector.
In the last few years, both investor interest in cryptocurrency projects has exploded and so has the price of bitcoin. According to De Vries, the rise in the price and the increased electricity use by the blockchain network have correlated.
The bitcoin price has fallen since November’s peak, and it is now trading at just above $40,300. This may be a good thing for market watchers who believe that there will be a cryptocurrency winter. However, it doesn’t explain how the future bitcoin speculation will affect the asset’s value. It also doesn’t explain how bitcoin is supposedly using all of its electricity.
Let’s dive in, shall we?
How does bitcoin use electricity?
Bitcoin uses a lot electricity. When a new block is added to the bitcoin blockchain, most of that electricity is burned. Each block contains a record that includes all historical transactions and new transactions on the bitcoin Blockchain. Mining is the process of creating these blocks. Every 10 minutes, a new block is created. This happens when computers work together to solve complex problems. These computers are known as nodes or miners.
These puzzles are a challenge for miners. The puzzle is solved by the first miner to present their proof-of work, which is evidence of the computational efforts. Once enough nodes have verified that the work has been done, a new block can be created. As a reward, the miner who solved this puzzle receives a fixed amount of bitcoin. The process starts over again. This is how bitcoin miners earn their money.
This is the core of bitcoin’s decentralised nature. The network’s creation and operation are left to the discretion of its users. It runs on a consensus model, where all nodes are accepted by the majority. It is the basis of the blockchain’s security against attacks. This is also where most of the electricity used by the bitcoin network is lost.
“Determining energy usage for crypto mining is simple: You look at the hashrate (the combined computational power used to mine Bitcoin and process transactions) and then estimate the energy needs of the hardware used,” Nicklas Nilsson at GlobalData tells. Verdict.
This is basically what de Vries did in his research. He calculates the annual electricity use at 204.50 Terrawatt-hours (TWh). Eggheads behind University of Cambridge Cambridge Bitcoin Electricity Consumption Indice(CCAF), bitcoin’s annual electricity consumption was 139.59 TWh.
These figures have perpetuated the belief that bitcoin is bad for our environment. Tesla, an electric car manufacturer, stopped people from buying cars using crypto last year because of concerns about its sustainability. This was in an effort to reduce carbon emissions.
How bad does bitcoin really make the environment?
This should be an easy task. Case closed: Bitcoin is bad for the environment. Not quite. Not quite. VerdictAs has been pointed out, it’s difficult to see how bad cryptocurrencies are at sustainability. Although most researchers agree that bitcoin consumes a lot of electricity, estimates about the impact on the environment differ. Why? Because it can be very difficult to do right.
Nilsson states that it is difficult to estimate carbon emissions because you need to know exactly what energy mix is used. This is why the environmental damage can vary greatly depending on where it comes from. It is common to state that renewable energy should be between 30% and 75%, but it can vary greatly.
There are many reasons for this. The CCAF warns us that the data we have is not always reliable and can be inconsistent. Accordingly, estimates can vary significantly depending on the methodology used by each researcher. Researchers from Cambridge also warn against presenter bias. Researchers may not see the truth.
The CCAF researchers stated that “For example, comparing bitcoins electricity expenditure with yearly footprints of entire countries with millions inhabitant gives rise to concerns about Bitcoins energy hunger spiraling out control.” Write. “On the other side, these concerns may be reduced to a certain extent if you learn that certain cities and metropolitan areas in developed nations operate at similar levels.”
Researchers also suggested that the energy consumption of Bitcoin is not as high as regular home appliances. According to the CCAF in the US, Bitcoin uses less electricity than all other fridges (104TWh), and TVs (60%Wh) in the US.
Nilsson says that there are other factors that can make these estimates more uncertain. He says that while most energy consumption occurs close to the source, crypto mining is not subject to this constraint. It can be mined anywhere, such as in areas where large amounts of hydro power have been lost due to oversupply.
De Vries argues that the amount used by the network for renewable energy has decreased from 41.6% down to 25.1% over the past year. He claims this is due in part to Beijing’s ban on bitcoin mining in 2021.
“[Before the ban]De Vries states that these miners moved their equipment around throughout the year. “During the summer, they were actually located south of China, using hydropower during the rainy seasons. They would then move to the north to use coal-based power during the winter dry seasons.
He claims that the ban stopped him from doing so. The ban stopped miners from moving to the US, where electricity grids rely heavily on fossil fuel.
“Miners located in Texas and Kentucky do not move around, [they are] just gonna stay put,” de Vries says. “But there’s not that much renewable energy on these grids, especially in grids such as Kentucky. But it’s just mainly gas in Texas.
Can bitcoin make electricity more green?
CoinDeskNic Carter, columnist for Texas Monthly, has argued against this view. He suggested that miners use “behindthe meter” mining in a recent article. He suggested that bitcoin miners would only use the fossil-heavy grid to get their energy when they have access to solar and wind energy providers.
The American Clean Power AssociationIn February 2022, it was reported that Texas has also installed 7,352 megawatts in wind, solar, and energy projects for 2021. This is more than any other state. However, 90% of its energy comes from fossil fuels. You can take what you want from that.
Oleg Fomenko (co-founder of Sweatcoin), a cryptocurrency company that compensates customers who walk instead of using public transport, says, “The problem with energy usage is not just energy consumption. Verdict.
Bitcoin, aside from its energy consumption, also has a negative impact on the environment. It produces tons of electronic garbage. To keep up with bitcoin’s popularity, miners need to upgrade their hardware. This usually means that the old processors must be thrown away. De Vries estimates that each bitcoin transaction creates enough electronic waste to throw away two iPhones. He estimates that each piece of equipment has an approximate life cycle of one and a quarter years.
Industry stakeholders are well aware. Industry stakeholders have been increasingly open to the idea of “lifecycle mines.” The idea is that miners should link older hardware to renewable power sources and keep their new purchases connected to the grid. Renewable energy is more unstable and less reliable than traditional energy. Miners could make more money by connecting old machines to renewable energy sources when the conditions allow. We are unable to determine how common lifecycle mining is. Others suggest that bitcoin might speed up the adoption of more green energy.
I don’t buy the argument that bitcoin is bad news for the environment. It’s short-sighted and flawed, Nigel Green, CEO at financial advisors deVere Group tells us. Verdict. “Bitcoin mining could accelerate the transition from fossil fuels and renewables. Although clean energy is the best option, their sources can be irregular and there is not enough storage to store excess energy.
“Bitcoin miners, which require huge amounts of energy, could be major buyers of last resort, providing significant profit for investment and expansion. This would increase the supply of renewable energy, which would in turn lower prices for consumers and drive demand.
Is it really that bad that bitcoin uses so much energy?
It doesn’t matter what estimates you use, bitcoin uses enormous amounts of electricity. However, not everyone believes this is a bad thing.
“Everything we do digitally requires energy. Erica Stanford, author “There’s a lot to be done for bitcoin’s carbon footprint.” Crypto Wars: Faked Deaths and Industry DisruptionTells Verdict.
She suggested that bitcoin uses a lot more electricity than regular fiat money systems. However, she claims that “one of the greatest benefits of bitcoin” is its ability to save electricity. [bitcoin using a lot of energy is that it]It’s extremely secure. The crypto expert has a point. It is very difficult to abuse bitcoin blockchain because it is decentralised.
Stanford states that the bitcoin lockchain is considered the most secure way to store money. It has never been hacked. It is infinitely safer than storing your money in a bank, or any other place, you know. The fact that it uses so many energy does increase its safety.
The CEO of the deVere Group takes a more aggressive tone and suggests that those who are blaming bitcoin for its negative impact on the environment are the same people that have been cynical for a long period.
Green claims that the bitcoin bashers are on “the wrong side” of history. “For 13 years people have been attacking Bitcoin, and they’ve been proven wrong repeatedly time and again. It’s a huge problem.”
Some critics have already changed the mind. Warren Buffet, an investment tychoon and Warren Buffet’s firm Berkshire Hathaway, invested in bitcoin to kill rats. $1bn into a crypto-friendly neobank Nubankearlier in the year. Nubank provides the same savings and banking account as other digital lenders. However, cryptocurrencies are only a small part.
Jamie Dimon, JP Morgans CEO, is also not a fan of bitcoin. He has compared bitcoin to smoking and scams in the past. He has not been dissuaded by frauds like BitConnect or OneCoin, nor the widespread use of bitcoin by ransomware gangs to get paid. Goldman Sachs, an investment banker, has made similar statements in the recent past.
Green said that “now it has a significant crypto trading department.” “I believe Alex de Vries, along with other crypto cynics will one day have a similar u/turn on his stance.” Major corporations like Apple, Microsoft, Tesla, and PayPal have embraced cryptocurrencies.
Are new cryptocurrency projects the answer?
In the financial markets, cryptocurrencies are becoming more popular. Regulators are increasingly suggesting that this asset class should not be banned but that it should be subject to more rigorous policing. This doesn’t mean that bitcoin will become the most popular digital dosh in the future.
Stanford claims that Bitcoin is the first cryptocurrency. “I would like to see it as the tube in London. It’s the oldest, and was built long ago, when there weren’t many people using it. It’s safe but slow, it can often run late, is expensive and loses money. You can then travel to Hong Kong or Singapore by train, which is almost instant, fast and doesn’t consume a lot of energy. They are also cheap and efficient.
Over the years, there have been many pretenders. There have been many new digital currencies launched since Satoshi Nakamoto’s whitepaper, which would launch the crypto revolution in 2008. Some memecoins are a joke and often refer to Elon Musk. Examples include Elon Sperm from Floki, named after Space X founder’s dog.
Others, such as Ethereum, the second-largest cryptocurrency in the world, are more serious. Then there are the countries in the world that are exploring the possibility of launching central bank digital currencies like the UK, Sweden, and China.
Many of them also try to do this without wreaking havoc on the world. Ehereum, for example, still runs its transactions using a powerful proof-of-work blockchain such as bitcoin. It has also started to run in the q chain, which runs on proof of-stake. Instead of solving puzzles and offering collateral, miners can validate blocks by offering collateral. The validators are then randomly chosen. This method of verifying new blocks uses less computational work and requires less electricity. The NEAR Foundation’s Blockchain is an example. It runs entirely on a proof of stake validations method.
Marieke Flament, CEO at the NEAR Foundation, says that “the industry as a whole recognizes the importance of protecting our environment and that climate changes are a global crisis which increasingly demands our attention.” Verdict.
Sweatcoin is a cryptocurrency that runs on the NEAR Foundation’s Blockchain. It aims to encourage greener habits and mints its own SWEAT token based on how many steps its 63,000,000 users take. Each 1,000 steps earns a user another SWEAT token. CEO Fomenko: Verdict The goal is “to make physical activity part the global GDP.”
Projects like Cowa, which claims it is a zero-carb mining blockchain, are another option to cut down on the industry’s carbon emissions. NuPay Technologies, a startup, has also created the Helo blockchain. It claims it is “the most environmentally-friendly blockchain in the world.” These efforts are not altruistic but aim to make digital dosh more accessible for everyday Joes.
Brad Wilson, CEO and founder at NuPay Technologies, says, “If we want to promote a future where blockchain, cryptocurrency, and NFTs can be used widely, we need to make it better, greener and smarter than previous technologies.” Verdict.
Bitcoin clearly has had an impact on tech enthusiasts, the environment, as well as the next generation of blockchain entrepreneurs. It is only time that we will see if the industry’s negative reputation in sustainability will change.
GlobalData is the parent company for Verdict and its sister publications.