Bitcoin and pollution — the definitive answer

Someone is wrong on the internet (source)

The problem

The same computing process also validates ~4 transactions per second, or ~300,000 per day, or ~110M transactions per year (source).

This network of Bitcoin nodes currently consumes ~77 TWh per year (source). This leads to many (mostly negative) comments about Bitcoin’s environmental footprint, such as these:

Bitcoin consumes annually the electricity output of a small country. (source)

Most bitcoin mining is using energy at the source that was uneconomical to use for other purposes, because of the loss experienced in transporting the energy to economic centers. (source)

(On the news of Tesla’s purchase of US$1.5B worth of bitcoins) Legitimizing Bitcoin more than offsets the environmental benefits of electric vehicles. (source)

Bitcoin uses as much electricity as Chile and a single transaction has the same carbon footprint as ~700,000 Visa transactions. (source)

So, what’s going on?

Does Bitcoin pollute?

China ranks #1 in the world at 7,225 TWh/year.
The United States consumes ~3,989 TWh of electricity per year.
My home country, Italy, is at 297 TWh/year.
Chile? 75 TWh/year, slightly less than the Bitcoin network. (source)

Yes but… Is that mostly renewable energy?

Is the VISA network way more efficient than Bitcoin?

  • VISA handles US$30B/day
  • Mastercard handles US$11B/day
  • Bitcoin handles US$10B/day

So, no, VISA is not more efficient than Bitcoin. VISA is simply a completely different thing. In fact…

Bitcoin is still mostly a store of value

We know the energy required to run Bitcoin’s network: 77 TWh/year. The average cost paid by miners is US$0.046/kWh, which means that the Bitcoin network costs US$3.5B per year on energy alone (source). 61% of it is powered by non-renewable energy, equal to 47 TWh/year, or ~US$2B.

Currently, 328,500 BTC are mined per year, with an existing total supply of ~18,623,000 (source). At the current price (Feb 10th, 2021) of $46,000 per bitcoin, ~US$15B worth of bitcoin are mined per year.

It is much better, in my view, to compare Bitcoin to another store of value that the world is already using: Gold.

Bitcoin vs Gold in terms of pollution

There are ~190,000 tons of gold stored somewhere in the world. Each year, ~3,000 tons of gold are mined (source).

The cost of mining gold each year is therefore US$97.6B.

The cost of storing gold is much harder to calculate; I’m going to use a simple approximation here, and say that it equates to 10% of its mining costs.

It’s pretty clear by now that, looking just at costs (without getting into the detail of the actual type of pollution), mining gold is ~50 times more expensive than mining bitcoins AND running the bitcoin network. Bitcoin pollutes far, far less than gold.

mining gold is ~50 times more expensive than mining bitcoins

It’s even harder to compare the type of pollution created by mining gold versus mining bitcoin. What’s easy to do is to simply state that mining gold is MUCH WORSE than mining bitcoins. Mining gold is an environmental disaster. Poisoned waters, solid waste, endangered communities, and so on.
Producing gold for one wedding ring alone generates 20 tons of waste.

Bitcoin pollutes far, far less than gold.

If we consider the hypothesis that Bitcoin (current market cap: ~US$800B) might one day replace Gold (current market cap: ~US$10,600B — source) as store of value, the environmental effect of this switch would be a significant reduction in total pollution.

The end of pollution: From Proof-of-Work (PoW) to Proof-of-Stake (PoS)

For the non-nerds reading this, it means that instead of requiring complicated calculations to prove that a certain block in the blockchain is confirmed (and therefore, consuming a lot of energy), you need to “stake” your existing assets, therefore consuming much less energy compared to the current “Proof-of-Work” consensus mechanism.

Conclusions

But wait, there’s more.

I hope that in a few years Bitcoin will have fully replaced gold as the global reserve. I hope that Gold will fall in value, so much that mining gold becomes anti-economical. The result will be a cleaner, greener world, and a much more flexible store of value.

Hope, unfortunately, is almost always never enough. This innocent, naïve dream of Bitcoin replacing Gold needs to face the reality of our complex financial system, our complex global politics, and so on.

This is still a remote hypothesis, for many reasons. I would give it a <10% chance of happening by the end of year 2030 (~10 years from now).

And let’s not pretend that Bitcoin HODLers are tree huggers; as I wrote earlier in this post, the vast majority of Bitcoin transactions are simply speculation.

We are driven by greed, not by green.

But still, we can be hopeful: our planet would be really lucky if, for once, green is an unintended consequence of our true nature.

Final note: I explicitly decided NOT to talk about the environmental impact of having a global currency like the US dollar. It’s a huge topic and I don’t feel prepared to dissect it properly.

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