Drying clothes takes more energy than mining Bitcoin

Recent US Senate hearings have once more turned people's attention to Bitcoin's energy consumption. Much has been written about it, and a lot of nonsense at that as well. Reading some of this stuff again sparked me to write this article. I will use mainly non-Bitcoin biased sources to provide perspective and statistics.

A lot of people are being misdirected by statements like 'Bitcoin uses more energy than a small country' or 'A single bitcoin transaction uses the same amount of power that the average American household consumes in a month' or 'One Bitcoin is responsible for a million times more carbon emissions than a single Visa transaction'. Those type of arguments really do not help move the debate forwards, they display a fundamental lack of understanding of how the Bitcoin network works and we need a little more perspective and nuance. This is not to say that nothing should be done. These debates have opened the door towards a greener future for Bitcoin and I will spend some time on that aspect as well. Bitcoin has a role to play in using energy that otherwise gets wasted. It can also return energy to the grid where that is needed.

First, how does Bitcoin use energy?

The energy use of the Bitcoin network originates from four sources:

1. Mining hardware, ie the computers running the network
2. Network?hashrate (the amount of computing power required to mine Bitcoin and process transactions)
3. “Difficulty” (one block is found and validated every 10 minutes. The reward is currently 6.25 Bitcoin. The higher the difficulty of doing this, the more computer power it takes)
4. Energy consumption by non-IT infrastructure, such as cooling and lighting

Second, how does Bitcoin work?

Here is a very brief tutorial on how the Bitcoin network functions. It is useful to know because some of the claims around energy usage appear to be made without such knowledge. I won't go into too much detail here, but if you are interested in how Bitcoin works without going into the weeds, I can recommend this article. There is also a link to a relevant Harvard Business Review article in the Sources & Inspirations section below.

Miners make money from finding and issuing Bitcoins. About 85% of their revenue comes from this activity. This is the activity that needs large amounts of energy. 15% of their revenue comes from processing transactions, for which they earn a fee per transaction. Because of the way Bitcoin is designed, there is only a capped amount of 21M Bitcoins and every four years the block reward (the amount of Bitcoin a miner gets when a block is resolved) is halved, this revenue stream will dry up eventually and therefore the energy consumption with it. Furthermore, about 90% of all available Bitcoin is already mined. To process a transaction very little energy is consumed, almost to the point of being unmeasurable. So there is no such thing as energy cost per transaction really. A Bitcoin transaction is basically similar to a wire transfer. Another thing to understand is that one Bitcoin transaction does not equal one payment. One Bitcoin transaction can contain thousands of payments. (Source, FAQ pages on the University Of Cambridge website).

Energy from Bitcoin mining in perspective - how big is this 'problem'

The International Energy Agency (IEA) is an autonomous inter-governmental organization within the OECD framework. IEA is made up of 30 member countries and 8 association countries. In 2019 they wrote a report about Bitcoin energy consumption. It's worth quoting some numbers from that report. In 2019, estimates of Bitcoin’s electricity consumption were +/- 20?80 terrawatt hours (TWh) annually, or merely 0.1-0.3% of the global electricity use.

The University of Cambridge puts together a live update on Bitcoin's energy consumption and provides us with a current (2022) estimate;

• In terms of global energy consumption they calculate Bitcoin's share as 0.28% (Total global energy consumption is 115575 TWh)
• In terms of global electricity consumption they calculate Bitcoin's share as 0.56% (Total global electricity consumption is 22315 TWh)

When we hear about Bitcoin's 'energy issue' we now know that we are talking about a relatively small percentage of the world's much bigger energy issues.

Bitcoin and climate change

Let's take a look at CO2 emissions emanating from Bitcoin mining. We will turn again to that 2019 report from the IEA. Based on data from IPO filings of hardware manufacturers and further analysis (link posted below), Bitcoin mining was likely responsible for 10?20?Mt?CO2?per year, or 0.03-0.06% of total global energy related CO2 emissions.

For recent data (2022) the University of Cambridge calculates that in a worst-case scenario, the Bitcoin network would be responsible for about 111 Mt (million metric tons) of carbon dioxide emissions, or just +/- 0.35% of the world's total yearly CO2 emissions.

Industrial and residential uses of electricity, a comparison (source, University of Cambridge)

Bitcoin mining as a 'green' strategy

Based on recent research from the Bitcoin Mining Council (ok ok, I know, hardly an independent body :-), as per January 2022, 66.1% of miners use sustainable electricity.

Miners are commercial companies. They need to maximize profits. They seek?cheap and stable power?irrespective of location or power source. The growing focus on ESG (Environmental, Social, and Governance) considerations has led many publicly traded mining companies to actively incorporate sustainability goals into their business model. Having 'Green Bitcoin' has become both a competitive advantage and a necessity to attract (institutional) investors.

Publicly listed mining firms (examples are Cleanspark, Iris Energy, Argo and others) have already started to disclose information about facilities, power mixes, and sustainability efforts. Asset managers and exchanges, increasingly bound by stringent ESG rules, have begun offsetting their emissions via carbon credits in the voluntary carbon markets (see my other article about that topic). There is an increasing environmental awareness in the industry, hence the establishment of the mining council, resulting in many firms reviewing their energy sourcing strategies and reducing their carbon footprint.

Innovations in Bitcoin Mining

When the going gets tough, the tough get creative. This is very true in the tech savy Bitcoin mining industry.

• Liquid immersion mining + whiskey and salt MintGreen, a Canadian cleantech company, in a partnership with Vancouver Island Sea Salt, is using their liquid immersion mining system to heat large evaporation tanks to produce zero carbon gourmet flake salt. Their second site at the Shelter Point Distillery, uses heat from mining in the mash process to make whiskey.? These systems generate persistent and predictable heat loads year-round.
• Mining uses wasted heat to grow vegetables In the Netherlands, a greenhouse tomato farm is co-locating with a liquid immersion cooled mining container. A container full of computers does the cryptocurrency mining, the heat from the equipment is removed, transmitted through a heat exchanger and converted into hot water to heat the greenhouse.

• Water boilers with integrated mining chips can heat homes & earn some money WiseMining, a french start-up, has developed a Bitcoin water boiler with integrated mining hardware. Computer heat is transformed into hot water for your house and according to the brochure, some financial upside by mining Bitcoin (note that the chances of your boiler actually validating a block are remote to say the least :-).
• Using heat from mining to warm a hot tub Somewhat of a fun experiment to prove a point, but someone put mining rigs in an oil bath and the heat absorbed by the fluid is transferred to a liquid-to-liquid heat exchanger, which can be used to heat a spa.
• Have a volcano? You can mine Bitcoin Energy generated by turbines can reach up to 107 megawatts. Some of it is used for the mining of Bitcoin, the rest of the energy is used for the country’s grid. About 300 computers work 24x7. Mining plants using geothermal energy have already been installed in Iceland.
• Flared natural gas, a wasted by-product of oil drilling, is used to mine Bitcoin Companies tapping surplus (and wasted) gas to run their crypto-mining computers see a triple benefit — reducing the negative environmental impact of gas flaring, adding a revenue stream and cutting their carbon footprint. Companies report 63% CO2 emission reductions. One Bitcoin mining system is equal to taking around 1,700 cars off the road.

Bitcoin Miners giving energy back to the grid

During times of abundant energy generation, Bitcoin miners can absorb excess capacity that the grid could not handle otherwise. In turn, they halt operations on-demand when the grid runs short. As a result, grids can manage load more effectively, which should incentivize the deployment of additional renewables-based power generation capacity.

Example: the largest bitcoin mining operation in the US is located in Rockdale, Texas, operated by Riot Blockchain. Riot taps directly into a 5000 MW interconnection to draw 300 MW of electricity, which powers 120000 high-speed mining computers (and a plan to install 130000 more machines).?

Riot has a ten-year contract to buy all its energy at a low 2.5 cents per kwh. This includes 0.5-cent-per-kwh discount for participating in what is called 'demand response'. It also has the option to resell all its power to the grid. During the Texas freeze, Riot Blockchain voluntarily shut down all mining for two days. This earned them extra revenue and more importantly for the people of Texas, they were acting as an extra virtual power plant.

++++----++++

Conclusion - digital asset & energy markets converging

The environmental problems are relative, as we have seen from the numbers above. But they should not be ignored. Perception is reality in this case. Mike Novogratz, founder of Galaxy Digital, observes that 'it looks like the industry is failing to convince people of its green credentials'.

Then there is the commercial necessity of complying with some form of Economic Social & Governance (ESG) mandate. Sustainable investment is soaring to the top corporate and institutional agendas. BlackRock, the world's largest asset manager, with US$10 Trillion (yes, with a 'T' :-) in assets under management as of January 2022, recently announced that all investments the company makes will be partially evaluated based on how projects and companies plan to address the climate challenge.

The World Economic Forum noted that addressing environmental concerns will benefit the entire Digital Asset Ecosystem as it strives to become an integral part of the world economy. New regulatory guidance continues to be released and digital assets like Bitcoin must contend with the growing interest in having ESG credentials. For example, the EU has proposed a regulatory framework specific to cryptocurrency, called the Markets in Crypto-Assets Regulation (MiCA).

The industry is stepping up - one can argue about the pace with which this is happening, but there in no denying that creative solutions are applied to this issue.

Furthermore, there is increasing evidence that the digital asset and energy markets are converging - I quoted examples within the oil & gas industry.

On the left is an example of how mining can aid investment in solar energy (source ARK Invest).

It is in this convergence that lies the solution....

Sources & Inspirations

US Senate hearings, https://www.coindesk.com/policy/2022/01/21/witnesses-debate-crypto-minings-efficiency-in-congressional-hearing-on-environment/

IEA Report about Bitcoin Mining, https://www.iea.org/commentaries/bitcoin-energy-use-mined-the-gap

Statista.com, Bitcoin energy consumption worldwide from February 2017 to October 19, 2021, https://www.statista.com/statistics/881472/worldwide-bitcoin-energy-consumption/

University of Cambridge, Bitcoin Electricity Consumption index, https://ccaf.io/cbeci/index/comparisons

Data from IPO filings of hardware manufacturers and insights on mining facility operations and pool compositions, https://www.sciencedirect.com/science/article/pii/S2542435119302557

Bitcoin Mining Council, https://bitcoinminingcouncil.com/

Forbes on Green Mining initiatives, https://www.forbes.com/sites/christopherhelman/2021/08/02/green-bitcoin-mining-the-big-profits-in-clean-crypto/?sh=77a8815334ce

Reduce flaring & mine Bitcoin, https://markets.businessinsider.com/currencies/news/bitcoin-mining-flare-gas-btc-energy-crusoe-energy-coinbase-winklevoss-2021-6-1030537177

Volcano mining in El Salvador, https://apnews.com/article/cryptocurrency-technology-business-bitcoin-central-america-e0074a2343a3e3a9beb08723ff65ecf5

Innovation in mining, https://braiins.com/blog/green-innovation-in-bitcoin-mining-recycling-asic-heat

Green Bitcoins, https://blogs.lse.ac.uk/businessreview/2021/05/25/how-green-is-my-bitcoin/

Great American Mining, Bitcoin: A way to make the oil and gas industry more resilient, https://gam.ai/blog/bitcoin-a-way-to-make-the-oil-and-gas-industry-more-resilient.html

FT, Novogratz interview, https://www.ft.com/content/8792aed1-703a-4427-b534-865d540f5bea and https://investor.galaxydigital.io/Governance/Sustainability/

WEF, Cop26, https://www.weforum.org/agenda/2021/11/how-to-make-bitcoin-and-cryptocurrency-sustainable-renewable-energy-blockchain-crypto-mining/

Bitcoin Clean Energy Initiative Memorandum White Paper, https://assets.ctfassets.net/2d5q1td6cyxq/5mRjc9X5LTXFFihIlTt7QK/e7bcba47217b60423a01a357e036105e/BCEI_White_Paper.pdf

Bitcoin energy usage, Harvard Business Review, https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume

Links to many relevant articles (Bitcoin Magazine), https://bitcoinmagazine.com/business/bitcoin-energy-per-transaction-metric-is-misleading

CoinShares estimated the carbon emission of Bitcoin mining for 2021 to be 41 metric tons (Mt) of CO2. In comparison, the emissions resulting from the gold industry are estimated to be between 100 and 145 Mt of CO2 annually. Galaxy Digital?estimates?the global banking system used 264 TWh of energy in 2019. Using the average global carbon intensity of 492 gCO2/kWh, CoinShares was able to equate this to 130 Mt of CO2 emissions per year.

NYDIG report, Bitcoin Net Zero, "Even at the peak of the high price scenario, Bitcoin’s emissions only account for 0.9 percent of global carbon emissions.", https://nydig.com/bitcoin-net-zero