As you may have seen in the news recently, or more unfortunately if you’ve felt it in your portfolio, Bitcoin has taken quite the extraordinary tumble. Almost every investor or firm who is selling, including Elon Musk, cites ‘environmental reasons’ as the cause. So what are these reasons? And why is it that most firms that are selling are probably lying?
Well, cryptocurrencies like Bitcoin consume an almost unfathomable amount of energy. Bitcoin on its own used around 121 Terawatt-hours’ worth of energy in 2018. To put it in perspective, that’s around the energy consumed in Argentina, an entire country. Or to bring it closer to home, it's 55% of the energy used in South Africa in 2018 (loadshedding included). And there are thousands of cryptocurrencies out there. This high energy usage comes from crypto mining, a complex process by which new coins are made through computer problem solving, but it is not too necessary to know the specifics. What is important to know is that this is an incredibly energy-intensive process. And the problem is that this energy often uses fossil fuels like coal as its power source.
There is a lot of debate as to the exact amount of fossil-fuelled energy that’s used for crypto mining. Crypto critics point out that most mining happens in China, an infamously opaque and coal-powered country. But crypto advocates claim 76% of miners use renewable energy in their energy mix. They also claim that the transformative power cryptocurrencies can have on global finance outweighs its energy superfluity (which could have some merit, but is the subject of another post). So who do you believe? Well, it seems like the evidence is still being uncovered and the verdict still under consideration, even if investors are publicly claiming the truth on both sides. But even if the crypto advocates are right on the 76% statistic, that’s still 29 terawatt-hours’ worth of energy being used for Bitcoin a year (or Ireland’s consumption of electricity in a year). And it shouldn’t be this way. Crypto mining is an easily mobile business and could be moved to where there are renewable sources. It’s admirable for those that have sold out of principle and are waiting until Bitcoin and other cryptocurrencies are mined more sustainably.
But, unfortunately, most are not doing it for that reason. This is the main point of this post. Many of those who have dumped Bitcoin in the current slump have claimed to do so for environmental reasons. But their suspiciously convenient timing shouldn’t be ignored. This information about crypto energy usage is not new at all. Hal Finney, an early Bitcoin pioneer, tweeted concerns over Bitcoin’s carbon emissions when he bought the first Bitcoin in an open transaction. Rather, it seems like these firms and investors want a cosy and PR-friendly reason to cash in and make their tidy profits off the back off of the dirty energy of Bitcoin. This is because, following the logic of crypto mining, the more you buy, the higher the environmental costs of Bitcoin and other cryptocurrencies. So these firms meaningfully exacerbated crypto’s problem, then as soon as they saw the price drop (and their potential profits), then suddenly they were concerned for the environment. It doesn’t add up, and I don’t like companies faking caring about being green. I have a feeling all these environmental concerns are unfortunately going to disappear once the price inevitably bounces back. And don’t be surprised when those same people who rail against it now are going to buy all they can get their hands on when Bitcoin hits a new mob-fuelled record high in the future, regardless of whether mining has successfully transferred to more sustainable energy sources. For better or worse, just don’t forget what most people are in it for – the profit. But I guess we’ll see, I hope I’m proved wrong.
If you’re interested:
Cryptocurrencies that don’t use as much energy
Some advocates, such as Don Wyper, COO of Digital Mint, say crypto should be measured against other stores of value, like gold, instead of countries
The energy wasted by plugged-in but inactive home devices in the US alone could power bitcoin mining for 1.8 years, according to the Cambridge Bitcoin Electricity Consumption Index.
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