Is bitcoin an environmental friend or foe?

The electricity use associated with bitcoin mining is difficult to estimate. As a rule, miners do not report their exact consumption. However, the manufacturers of specialist machines do give figures for their efficiency. Production in mining farms (where multiple devices – sometimes several hundred – operate on a single site) may also incur costs for cooling the installation.

According to estimates by the University of Cambridge ^[1] and the International Energy Agency ^[2], bitcoin mining will have consumed around 70 TWh of electricity in 2020, equivalent to the total electricity used in Austria in 2015.^[3]

What impact does bitcoin have on carbon dioxide emissions?

With its electricity consumption approaching that of a European country of some 9 million people, we naturally wonder what impact cryptocurrencies have on the environment and their place in the energy transition.

The volume of electricity consumed is one thing, the extent to which the electricity is ‘clean’ is another. This second point refers to how the energy was generated, and the amount of carbon dioxide (CO₂) released for a given amount of electricity produced.

A country that uses decarbonised power sources such as renewable energy or nuclear power will produce cleaner energy than a country that generates electricity from oil or coal. This data needs to be taken into account when calculating the CO₂ emissions from power generation for bitcoin.

A study ^[5] conducted in 2019 based on 45.8 TWh of electricity use in 2018 concludes that approximately 22,500 metric tons of CO₂ equivalent (MtCO₂e) were emitted. This study takes account of the locations of miners and how clean the energy used in their area is. In 2019 Austria (to return to our earlier comparison) emitted 60,040 metric tons of CO₂ equivalent (MtCO₂e) in 2015 ^[6].

How can this consumption be explained?

Blockchain technology

Cryptocurrencies are based on blockchain technology. This technology allows transactions to be managed in a different way to traditional systems: a group of transactions is incorporated into the chain within a block. This block is attached to the previous one and then another block will be added to the chain and so on.

Figure 1 - Graphic representation of a blockchain.

Source: Blockchain France ^[14]

Blockchain offers several interesting aspects for cryptocurrencies:

• Decentralisation: the record is redistributed to all contributors and everyone has a copy of it
• Traceability: all past transactions are recorded in the chain,
• Unalterability: any alteration to the chain requires consensus from all stakeholders

The ‘proof of work’ validation process

In order for a block of data to be included in the chain, it must meet a set of criteria specified in the blockchain's white paper, a document describing how it works. Described in simple terms, it is a matter of solving a complex mathematical equation in order to meet the validation criteria. The first participant to solve the equation allows the block to be included in sequence after existing ones and the blockchain to be updated, and can receive remuneration for taking part. This process, called proof of work, allows participants to prove their involvement in the proper functioning of the chain. Most currently active blockchains work on this basis. The people who take part are known as miners.

Energy-intensive calculations

Each miner therefore contributes to the operation of the chain. As the calculation is performed in a random manner, this means that increasing the computing power raises your chances of validating a block and collecting the reward: it is a race for computing power.

A calculation performed is called a ‘hash’, a term derived from the hash functions used in the calculations. Thus the ‘hash rate’ is the number of calculations performed by a device per second, abbreviated as h/s.

In the early days of the bitcoin blockchain, computing capacity was low (a few hundred h/s) and owned by individuals. Over time, more and more systems have been developed to calculate faster, increasing the chances of receiving the rewards. By the end of 2020, around 140Eh/s (Exa-hashes per second or 140 billion billion calculations per second)^[7] were performed on the bitcoin chain.

Figure 2 - Evolution of the bitcoin hash rate between 2010 and 2018 (logarithmic scale).

Source: International Energy Agency ^[15]

One of the negative aspects of the proof of work consensus is that many machines are working simultaneously to solve the same equation, while ultimately only one will validate the block. This means that not all the energy used by these machines was used to validate the block.

All the computing power is useful

We have noted that several machines calculate in parallel during the block validation process, so that in the end, the block is validated by only one of them. This energy was therefore not directly used to validate the block. Is this wasteful? Not necessarily. The energy used also serves to improve the robustness of the chain. In practical terms, the greater the number of participating miners (and therefore the number of calculations per second), the more difficult it will be to falsify the chain: it will be too difficult to reach a majority to validate a corrupted block.

How can the environmental record of blockchain be improved?

Reinforcing sobriety

This problem of energy use is well-known to blockchain creators. This is why more and more of them are opting for a different block validation consensus: the ‘proof of stake’ consensus. This allows blocks to be validated by asking the participant to prove their interest in the proper functioning of the chain. This can be by owning a certain amount of cryptocurrency, for example. It works because someone who has invested in the chain does not want it to malfunction.

The Ethereum blockchain carrying the Ether cryptocurrency, which is among the best known alongside bitcoin, plans to migrate its mode of operation from a proof of work consensus to proof of stake.^[8]

Improving the efficiency of mining technologies

A lot of time has passed since mining was performed by aficionados using their personal computers. Today, specialised machines have taken over. These are now far more powerful than those used in the early days of bitcoin. Their efficiency has been multiplied a millionfold from the first microprocessors to the specialised machines (ASICs) used today.

The energy efficiency of machines is their ability to perform a certain number of calculations (hashes) for a given amount of energy (in joules). It is expressed by manufacturers in megahashes per joule (Mh/J) or in million calculations per joule used.

Figure 3 - Evolution of mining efficiency for various devices (logarithmic scales).

Source: International Energy Agency ^[15]

The graphic above shows two groups in two different colours

• The green dots represent personal computer components (processors – CPU – and graphics cards – GPU –).
• The blue dots represent application-specific integrated circuits (ASICs).

The blue group presents machines that can not only perform calculations very fast (up to 10,000 million calculations per second) but also perform them using less energy than if they were performed using personal devices like before.

Integrating bitcoin into heating networks

Given these figures, it is reasonable to continue to think that the energy invested is excessive. However, some people are smart enough to use this energy twice.

It is now possible to use your mining machine to heat your living space. The most commonly used device for mining ^[9] today has a power of 1320 W. A radiant element electric fan heater uses between 1000 and 1500 W depending on the model. In this case, the electricity would have been used anyway.

‘Greening’ the energy used

Mining is mobile and it is possible to use surplus (non-storable) energy supplied from intermittent sources. Finally, a report from the University of Cambridge ^[10] finds 39% of the energy used in cryptocurrency mining is of renewable origin. By way of comparison, France's energy mix includes 12% ^[11] of energy from renewable sources.

Bitcoin: a lever for the green energy transition

Blockchain and related technologies are emerging and showing promise in many areas. In the specific case of cryptocurrencies, they certainly use a large amount of electricity, but also allow the emergence of currencies which have many advantages: no inflation, independent of administrative entities, traceable, unforgeable, and more. Now that the problem is known, newly created chains take this energy impact into account and use various strategies to minimise this overhead.

As well as applications related to cryptocurrencies, blockchain is also used as a lever for the energy transition. It makes it possible, for instance, to guarantee the origin of green electricity, reinforcing the European guarantee of origin labelling system. Certification for the uses made of funds collected in green bond schemes (bond issues to finance green projects) is also currently being developed.

This article originally appeared on Mazars.fr as 'Impact environnemental du Bitcoin : ami ou ennemi du climat ?'. You can read it in French here.

^{[1] University of Cambridge, "CBECI - Cambridge Bitcoin Electricity Consumption Index", [online] available: https://www.cbeci.org/}

^{[2] International Energy Agency, "Bitcoin energy use - mined the gap", 2019}

^{[3] Central Intelligence Agency, "The World Factbook", 2016}

^{[4] International Energy Agency, "Global EV Outlook 2019", [online] available: https://www.iea.org/reports/global-ev-outlook-2019}

^{[5] Stoll C. Klaaßen L., "The Carbon Footprint of Bitcoin", Joule, 2019}

^{[6] M. Crippa, D. Guizzardi, M. Muntean, E. Schaaf, E. Solazzo, F. Monforti-Ferrario, J. Olivier et E. Vignati, "Fossil CO2 emissions of all world countries", Publications Office of the European Union, Luxembourg, 2020}

^{[7] Blockchain.com, "Taux de hash total du Bitcoin", [Online] available: https://www.blockchain.com/fr/charts/hash-rate}

^{[8] Ethereum, "Proof-of-stake (PoS)", [online] available: https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/}

^{[9] M. Köhler et S. Pizzol, "Life Cycle Assessment of Bitcoin Mining", Environmental science & technology, 2019}

^{[10] A. Blandin, G. Pieters, Y. Wu, T. Eisermann, A. Dek, S. Taylor et D. Njoki, "3rd Global Cryptoasset Benchmark Study", Cambridge University, 2020}

^{[11] Ministère de la transition écologique, "Chiffres clés de l'énergie", Statistique Publique, Paris, 2021}

^{[12] L. Daumec et J. Hénault, "Google : grand témoin de la transition énergétique", Mazars, 2020}

^{[13] International Energy Agency, "Data and statistics - Austria : Balances for 2018", [online] available: https://www.iea.org/data-and-statistics/data-tables?country=AUSTRIA&energy=Balances&year=2018}

^{[14] Blockchain France, "Qu'est-ce que la blockchain ?", [online] available: https://blockchainfrance.net/decouvrir-la-blockchain/c-est-quoi-la-blockchain/}

^{[15] International Energy Agency, "Bitcoin energy use - mined the gap", International Energy Agency, 05 07 2019. [online] available: https://www.iea.org/commentaries/bitcoin-energy-use-mined-the-gap. [accessed on 20.01.2021]}