“Bitcoin consumes more electricity than Ireland, Finland or several other countries in the world.” As you know, the media has not been kind to the Queen of cryptocurrencies. Often decried for its energy-consuming side, Bitcoin struggles to distance itself from this tainted image among the general public. As Coinpri likes to tickle the preconceived notions, we propose you today to think about this issue from another angle. Stay with us until the end, I assure you that you will come out of this reading with a more nuanced opinion on the issue.
Global Warming is here, but Solutions are not….
After the publication of the various IPCC assessment reports, the emergency situation in which we find ourselves is no longer a secret to anyone. The world political summits on climate are trying to find solutions to slow down this infernal spiral, but the lack of cohesion of the States on these themes makes the task complex. Yet, one question deserves to be raised: what if, in the face of this emergency, Bitcoin was one of the best weapons against global warming?
This solution may already exist: Bitcoin (BTC)
How the currency works
To understand the first point of this development, let’s take a look at how money works.
In 1944, the Bretton Woods Agreement established the dominance of the dollar and made it the world’s standard currency. However, there is still a parity between the dollar and gold: if you have a gold bar, you can deposit it at the bank to receive a bank bill, which is the simple counterpart of your gold deposit. So far, you may say, nothing unusual.
However, when the Nixon administration broke the Bretton Woods agreement in 1971, the world’s financial machine went haywire. It is now possible to create money without gold, moving from a model in which the dollar is the proof of past work, the harvesting of gold nuggets, to the proof of a more crucial future work necessary to repay interest: this is the beginning of debt money (and of a certain snowball effect).
The Covid crisis only accentuated this phenomenon. With the world economy at a standstill, central banks have to “create” growth to keep the financial system afloat. But everything has to be paid for at some point, and the war in Ukraine is complicating this exit from the health crisis.
As you can see, one of the main consequences of the way our current financial system works is the transformation of behaviors. By combining with inflation, central banks have pushed people to spend their money rather than save it, and this is understandable!
How can we resist the urge to spend immediately when we know that at current inflation levels in the Eurozone, our purchasing power is melting like snow in the sun as time goes by. We have gradually entered a model of overconsumption that is harmful to the environment, producing more and more in a world where growth is not an option.
However, is it possible to envisage a happy ending with this model in a world of finite resources?
Bitcoin to alter our behavior
Bitcoin’s value proposition is to alleviate this problem.
By offering an algorithmically controlled, auditable and uncountable currency, Bitcoin lays the foundation for the modern currency paradigm. The theoretical limit of 21 million Bitcoins issued by 2140 assures anyone who wishes to hold Bitcoins that their Bitcoins will continue to become scarcer as time goes on.
By using Bitcoin as a store of value, it is now possible to digitally transfer purchasing power over time: the limited supply facing ever increasing demand since 2009.
We’ve been around Bitcoiners for a few years now, and we can’t count the number of people who regret having spent Bitcoins earlier in their lives.
The most striking example is Laszlo Hanyecz, who has become a legend in Bitcoin history. This American paid 10,000 BTC in 2010 to get 2 pizzas delivered. He is considered by many to be the first person to use Bitcoin as a payment system.
More modestly, some people have reported paying for their drinks in Bitcoins at the first Parisian bar that accepted cryptocurrencies as payment, making their drinks probably the most expensive in history!
What we want you to understand with these examples is that a model in which Bitcoin would be the global standard would favor saving instead of exaggerated spending.
By bringing our consumption habits closer to a model consistent with the resources the planet has to offer, we could reduce our environmental impact, and thus work against global warming. Indeed, one of the major conclusions of the 6th IPCC report concerns our need for sobriety. The experts behind this report have indicated that changes in behavior and lifestyles could allow a reduction of 40 to 70% of greenhouse gases by 2050.
One of the necessary conditions for this transition is of course the recognition of Bitcoin as an international currency. However, the movements started by El Salvador, the regulation on these subjects, the attraction of the populations for these new means of payment gain a little more ground every day on the traditional financial system. There is still a long way to go, we admit, but Coinpri is also here to help build it!
Bitcoin mining, the never-ending quest for cheap energy
We’ve provided a lead on the systemic aspect of Bitcoin: retaining the value of one’s work over time and changing one’s consumption habits.
The second point of this development will focus on the functional side of Bitcoin, namely: Does Bitcoin consume as much as the collective unconscious thinks?
Well, yes, Bitcoin consumes energy: machines make calculations and secure the network. In exchange for their work, the network pays them a portion of the transaction fees and freshly created Bitcoins.
This exchange of goodwill has been going on for 14 years, and bitcoin mining is now a full-time job for many modern entrepreneurs. They organize shipping containers as mobile mining labs and travel the globe in search of cheap electricity. Indeed, like any business, these miners are looking to make a profit and have only one lever to do so: reduce their energy expenditure.
Contrary to popular opinion, cheap electricity is usually found in renewable energy sources. Since they are unable to conserve energy in the long term, these prime sites often have to produce energy even if the grid cannot use them.
Let’s take the case of a hydro dam subject to severe weather conditions. To avoid a catastrophe, you have to let the water flow through the turbines and therefore produce electricity even in the middle of summer, when consumption in the area is at its lowest.
The same phenomenon is observed on oil wells around the globe. In 2022, the World Bank’s Global Gas Flaring Tracker Report stated that 144 billion cubic meters of methane were flared in 2021 to release “only” CO2 (less polluting than methane). This gas is simply burned and released into the atmosphere.
To make a parallel as our traditional media know how to do, this quantity of methane represents about 1400 TWh of electricity, that is to say nearly 3 times the consumption of a country like France over one year. Miners installed on this type of installation thus participate in the decarbonization of the site by increasing its profitability.
In these cases, connecting a bitcoin mining container to the electrical surplus of the network has a considerable advantage: you avoid wasting energy, secure the largest decentralized payment system on the planet while allowing the miner to benefit from preferential rates for the service provided.
For all these reasons, despite the difficulty of gathering this information, much of the Bitcoin network is powered by green energy. For example, the Bitcoin Mining Council reported in its 2022 report that the amount of renewable energy used in securing the Bitcoin network was around 58%. So Bitcoin appears to be a player in the ecological transition, helping to boost the profitability of renewable infrastructure.
Let’s put the church back in the center of the village
Finally, we need to turn our attention to the amount of energy consumed by the Bitcoin network, and more specifically to what we are talking about when we talk about energy consumption.
The Bitcoin network is built to be self-sustaining: the energy consumed strengthens the security of the protocol and keeps it alive. So it’s simplistic to explain that a transaction on Bitcoin consumes so much electricity, because that energy is used for so much more than just that transaction. But, granted, it’s much easier to serve up on a platter.
Let’s make the analogy with the traditional banking system. If we look at it through the prism established by the collective unconscious, we spend far less electricity making a wire transfer than we do using the Bitcoin network.
However, you must also take into account all the components that allow the traditional financial system to stand. So add up the energy spent by: money conveyors all over the world, banking infrastructure, electricity in the offices, employee travel, securing transactions, printing cash, etc… The bill is high.
The payment consulting firm, Valuechain, has focused on these issues in its report Bitcoin: Energy Efficiency of Crypto Payments, published mid-2022. According to their study, and putting the above together, the current financial system would consume about 56 times more than the Bitcoin network. While probably questionable at some points, this in-depth study shows that all is not so clear when comparing Bitcoin to the traditional system.
Again, it seems foolish to imagine replacing the current system with Bitcoin overnight. But as explained above, Bitcoin provides an alternative and is part of this inevitable transition.
Also, special attention should be given to comparisons with Bitcoin’s energy consumption. Some elected officials want to ban Bitcoin’s consensus mechanism, the proof of work, because it consumes too much energy. This amounts to banning an efficient alternative to traditional payment systems.
However, a 2018 study by the International Energy Agency estimated the electricity consumption of residential clothes dryers worldwide to be over 185 TWh per year. Since the role of a dryer is to spit out hot air to dry laundry, which would naturally dry in the sun, should we also ask ourselves the question of eliminating dryers? We are exaggerating, but you understand the irony of the situation.
In light of these observations and the place Bitcoin has taken in the global economy, some initiatives are reinforcing Bitcoin’s role in the energy transition.
For example, we are seeing the emergence of home heating solutions built around Bitcoin miners. A variation of this system also exists in the world of domestic water heaters. Imagine living in a world where you can amortize your expenses by heating your home, that’s what these innovations are all about.
On another note, some farms in the Netherlands are using bitcoin miners to temper their greenhouses. By replacing their heating systems with these facilities, these farmers can use their energy more efficiently while cashing in on the market.
The purpose of this article was to provide a different lens on how Bitcoin-related energy issues are being addressed in the mainstream media. As explained, adopting Bitcoin as a global standard currency would accompany the energy transition, which is necessary to ensure a sustainable future for younger generations. However, just as Rome wasn’t built in a day, we are still far from imagining global trade being conducted in cryptocurrencies.
There are many counter-arguments to be made and we invite you to use your social media to express your views: we will be delighted to exchange with you.
Our ambition is to create a series of articles to dispel preconceived notions about Bitcoin and cryptocurrencies. Please feel free to share them with others to spread a different point of view on these major issues, which are essential for the general public to understand. Finally, for more information on these topics, we invite you to read the different resources in the article and to follow the work of Sebastien Gouspillou and Alexander Stachtchenko who usually popularize these issues.