E.Everyone from Elon Musk to Treasury Secretary Janet Yellen is suddenly worried about Bitcoin’s (BTC) Power consumption.
Electricity is the main requirement in Bitcoin mining. According to reports, electricity consumption has increased 66 times compared to 2015. In addition, a stronger adoption rate and rising crypto prices are expected to increase energy consumption in Bitcoin mining processes, and this factor has also continued to raise concerns about the risk of carbon emissions into the air.
In fact, companies that recently embraced the digital coin have pulled out of their position due to the use of fossil fuels in mining and transactional processes.
Elon Musk, CEO of Tesla, who is the biggest fan of cryptocurrencies on social media and a champion of clean energy, announced a ban on Bitcoin as a valid payment method for Tesla products and accused of using fossil fuels for bitcoin mining and transactions . The ban came just three months after Musk declared Bitcoin a valid payment method for Tesla vehicles and other products.
Is Bitcoin Bad for the Environment?
As of mid-May, electricity demand for Bitcoin will be 143 terawatt hours, well above the electricity consumption of several countries, including Argentina.
On the other side of the discussion, Cathie Wood of ARK Investment Management says that the Bitcoin ecosystem uses less than 10% of the energy compared to the energy consumption of the traditional banking system. It is also important to understand that the banking system is very large, serving billions of people.
Source: Portfolio Insider
“The mining and use of these coins are undoubtedly energy-intensive and could be subject to closer regulatory scrutiny with increasing acceptance, especially if the US continues to increase its crypto footprint and market leader China takes action against Bitcoin mining if this adversely affects its own Impacts climate goals. Citigroup Inc. analysts said in a report.
Energy mix reduces the threat of carbon emissions
However, here it is important to understand that energy consumption does not mean the same amount of carbon emissions. This is because a unit of hydropower causes much less environmental impact compared to the same unit of coal power.
While there are no clear estimates of the energy mix in Bitcoin mining, a report found that 73% of Bitcoin’s energy consumption was carbon neutral as it relies heavily on hydropower in major mining hubs such as southwest China and Scandinavia. Another CCAF report indicates that 39% of energy used in mining was climate neutral.
Bitcoin mining can take place anywhere in the world, giving it an edge over other industries that require specific environments and conditions. In addition, Bitcoin miners have the potential to use energy sources that are inaccessible for most other uses.
Hydropower is certainly one of the best ways to deal with carbon emissions, and China, the center of crypto mining, is focusing more on hydropower projects that comply with the guidelines of the Paris Agreement. Chinese provinces like Sichuan and Yunnan are known for their hydropower capacities, which currently make up a significant portion of the Bitcoin hash rate. Data suggests that these two provinces accounted for around 50% of global bitcoin mining in the rainy season and 10% of global bitcoin mining in the dry season.
There are several other cheap and low carbon routes that are still in the pipeline. This includes flare natural gas.
“I see Bitcoin mining playing an increasingly important role in the transition to a clean, modern and more decentralized energy system,” said one such Canadian business consultant, Magdalena Gronowska. “Miners can offer grid balancing and flexible demand services, and improve the integration of renewable energies.”
Bitcoin transactions use less energy
While blockchain technology has emerged as one of the greatest revolutions, offering promising support for numerous sectors ranging from logistics to banking, market experts disagree on the unsustainable energy consumption of blockchain. Inevitably, this notion is wrong that Bitcoin’s energy cost per transaction is higher than the cost of mining.
Bitcoin mining is a more energy-intensive process than validating transactions. Once the coin is mined, the energy required for transaction validation drops dramatically. We cannot come to an exact result if we just divide the total energy demand of Bitcoin by the number of total transactions. This is because mining uses more energy than transactions.
The shift in Bitcoin mining towards clean energy is gaining momentum
Bitcoin and blockchain have attracted both retail and institutional investors, and their adoption at the corporate level has increased. All of this increases the demand for energy and it can be assumed that Bitcoin’s energy consumption could make it into the top ten list of energy consuming countries.
The New York Times reported that Bitcoin’s stronger adoption rate could raise the temperature of the globe by two degrees Celsius. However, it could turn out to be a false projection if the energy mix is used for bitcoin mining. This emerges from the strategy of the company and the countries to reduce CO2 emissions in accordance with the Paris Climate Agreement.
US ESG-oriented miners have piqued investor interest as China shifts its power generation from coal to hydropower. Renewable energy sources have also become one of the best options for adhering to low carbon emissions strategies.
The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.