No, Bitcoin Isn’t Bad for the Planet
Critics say the cryptocurrency is an energy glutton that produces too much CO2, but they couldn’t be more wrong
Some people really don’t like Bitcoin.
People like the Bloomberg columnist Lionel Laurent. Last week he called it a predatory hoax on desperate people. Worse, he sniffed, this speculative gold rush is consuming more energy than entire countries.
He’s right about the second part.
The computerized calculations that are used to create Bitcoin consume more energy than some countries, including the UAE and the Netherlands.
And this energy consumption does create a lot of CO2.
Laurent cites a figure of about 37 million tonnes, which is about the same amount of CO2 produced by New Zealand.
It’s actually quite difficult to pin down CO2 emissions from the Bitcoin industry. The industry is made up of small sites scattered all over the world and they use a diverse and always-changing mix of energy sources.
But let’s assume that figure of 37 million tonnes of CO2 is true. Does this mean Laurent and other critics are right that Bitcoin is bad for the planet?
No, not even close.
Bitcoin isn’t just a superior form of currency and wealth to anything we have today, it is also considerably more energy efficient and, yes, better for the environment.
The cost of cash
There are generally two types of paper money in the world today, though neither actually uses paper. One is made of a cotton/linen material like the type used in the US, while a newer type of money is made of polymer and can be found in Australia, Canada and the UK.
A few years ago the Bank of England commissioned a study on the carbon footprint of their new polymer-based money.
Thanks to this research, we have a good idea how much CO2 is produced by the use of ‘paper’ money around the world. A typical polymer bank note (which emits less CO2 over its lifetime than the cotton/linen version) will produce 0.0436 kg of CO2 a year .
Multiply this amount by the number of notes in circulation in the UK and you come up with a total of 174,000 tonnes of CO2 being produced by British bank notes every year.
Now the interesting thing about this study is it that the vast majority of this CO2 — at least 90% — is due to the movement of cash through ATMs. The CO2 produced by the manufacture of money is actually not that significant.
So this helps us make a pretty good guess about the CO2 emissions of money around the world. Extrapolate the emissions from the UK’s 61,000 power-hungry ATMs to the more than 3 million ATMs around the world and it turns out that ‘paper’ money emits at least 8.6 million tonnes of CO2 every year.
This is almost a quarter of the 37 million tonnes of CO2 attributed to Bitcoin every year.
But this doesn’t tell us the whole story about the carbon footprint of the money. The UK study left a lot of things out of their calculations.
They didn’t include the energy from:
the manufacture, transport and maintenance of the machines that make the money
the manufacture, transport and maintenance of the ATMs
the human bank tellers that handle cash
or the bank branches themselves where the tellers work
They also didn’t account for things like cost of driving in a car to an ATM. The Federal Reserve estimates that there are about 5 billion cash withdrawals from ATMs in the US every year.
It also doesn’t account for the energy cost of coins. The US alone creates over 12 billion coins every year. They use tens of thousands of tonnes of zinc and copper, which not only produce many thousands of tonnes of CO2, the mining of these metals contribute to some of the worst air and water pollution in the world.
Then there is the carbon footprint of the 6.5 billion debit and credit cards linked to all of that money. This adds up to another 136,500 tonnes of CO2 a year.
The physical infrastructure required to support the use of money today is massive, as are the CO2 emissions that go with it.
But money isn’t the only problem.
The cost of gold
Bitcoin is often called digital gold.
People use gold as a hard physical asset to protect their wealth from the steady erosion of wealth caused when government enormous amounts of money.
But gold has its downsides. It’s supply fluctuates as it continues to be mined, it’s expensive to store, and it isn’t easy to use for payment. Try paying your phone bill with gold.
Bitcoin meanwhile is a hard asset that will have a finite supply (just 21 million Bitcoins will be produced and not a single coin more). It’s easily stored and of course it’s very easy to use as payment.
Bitcoin will replace gold. And when it does, the benefits to the environment will be profound.
Let’s run the numbers.
In 2019, the world produced about 3,400 tonnes of gold.
The World Gold Council estimates that producing one tonne of gold results in 32,689 tonnes of CO2.
Now, not all gold is used for finance, so we have to make sure we calculate only that gold which will be replaced by digital gold (ie, Bitcoin).
This is a bit tricky. Investment and central banks add up to a total of 44% in the chart below, but there is a good-sized chunk of jewelry that is also used as as store of wealth, especially in India.
I can’t break out this store-of-wealth component from jewelry so let’s just ignore it and go with the 44% that is used for finance.
So if the world produces about 3,400 tonnes of gold a year, and 44% or 1,524 tonnes of that amount is used for finance, then we come to a rather astonishing conclusion.
The production of gold just for the purposes of supporting traditional money creates almost 50 million tonnes of CO2 a year.
This is a lot to digest so let’s recap.
Bitcoin is estimated to produce 37 million tonnes of CO2 a year.
Money produces at least 8.6 million tonnes.
Gold used for finance produces 50 million tonnes.
It’s clear that the amount of CO2 produced by our current system of money and wealth dwarfs the CO2 created by Bitcoin.
And we’re not quite finished yet. Bitcoin has another advantage over traditional money.
Bitcoin uses energy differently than how traditional money and gold use energy.
The ATMs, gold mines and other infrastructure of traditional money must use the electricity where they are located, which often includes a high share of fossil fuels.
But Bitcoin mining centers can be located anywhere. They can be sited in very remote locations where there is a source of renewable energy.
And they are.
Bitcoin facilities are increasingly located next to isolated hydroelectric power stations like this one in Sweden and others in Siberia.
In the US a cluster of Bitcoin miners has formed in Washington State near the Columbia River hydro dam, while another cluster is forming in Texas to take advantage of the state’s rising production of wind power.
A study by Coinshares says an incredible 78% of the electricity used for Bitcoin already comes from renewable energy.
The rise of Bitcoin isn’t a problem for the planet. It’s a solution.
While our traditional system of money and wealth depends on traditional sources of energy and pumps massive amounts of CO2 into the atmosphere, Bitcoin is an ideal companion to renewables.
According to the Cambridge Centre for Alternative Finance, the electricity from hydro alone could power the entire Bitcoin network 36 times over.
Bitcoin has a lot of critics. But so much of this criticism is rooted in misunderstanding.
The digital currency is not just a superior alternative to traditional money that will provide stability and anonymity, it is a technology that is perfectly suited for our transition to renewable energy.
A financial news service that claims to care about the environment — like Bloomberg — should know better.
But they don’t, at least not yet.