Does Crypto Have an Energy Problem?
Here's the story about Bitcoin's energy usage.
Bitcoin: Gas guzzler or clean consumer?
See our previous posts about Bitcoin and Ethereum. We hope to provide you with important information and resources for learning more about cryptocurrencies. We are your first watch in the sea of crypto, a sea that is revealing a brand new world.
"Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel." - Elon Musk
Bitcoin uses energy. Most of this energy is consumed through its transaction verification process (called mining) that ensures the security of the network. Think of it like the brainpower required to solve and check your second-grade math problems. Those solutions take energy: in the form of juice boxes and thinking reaallly hard.
Bitcoin's energy usage is both highly controversial and topical, with many differing narratives. Mr. Musk rocked the crypto world with the statement above. He also tweeted, "Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment."
So is he right? Well, it's complicated.
Bitcoin currently consumes 0.55% of global electricity production, roughly equivalent to Sweden's output. This sounds like a lot, but how the energy consumed is just as important: ~39% of bitcoin's energy consumption comes from renewable sources 1 compared to ~36% globally2.
Bitcoin Going Green?
There is an important distinction between energy usage and carbon efficiency. Carbon efficiency is a measurement to help reduce the carbon emissions of a given process. Bitcoin is slightly more carbon-efficient than the global economy and almost two times as efficient as the U.S. economy because it relies heavily on renewable energy. There are actual reports of Bitcoin being around 75% carbon neutral due to a focus on hydroelectric power usage in China and Scandinavia.
As common in many other industries, the energy mix of Bitcoin grows less reliant on carbon every year.
In the U.S., publicly-traded, ESG-focused (environmental, social, and governance) miners have been gaining market share.
China has shut down mining in one of the world's largest coal-heavy regions.
The mining industry has launched the Crypto Climate Accord and the Bitcoin Clean Energy Initiative to tackle carbon emissions.
Members of the Bitcoin ecosystem are evolving faster than their legacy counterparts. Bitcoin mining and the innovative spirit of cryptocurrencies have the potential to increase research into and adoption of renewable sources and quickly advance energy storage technologies. See the resources at the bottom for more.
Back to Elon
No one is sure what goes on in Mr. Mars' head, but the bottom line is this: Bitcoin's energy usage is not currently a big enough issue to outweigh its benefits to tens of million of users worldwide.
Some key stats:
Bitcoin consumes as much electricity as Sweden.
Bitcoin's mix of renewable energy sources to carbon-emitting sources is reported as anywhere from 39% to 75%.
Bitcoin consumes significantly less total energy individually than the Gold industry and the Banking system.
Bitcoin Energy Resources:
Peeling back the FUD (fear, uncertainty, doubt) around Bitcoin's energy usage.
For the visual learners: visualize Bitcoin's energy consumption.
Bitcoin is key to an energy-efficient future.
Crypto Climate Accord: who and what they are.
A paper by the Bitcoin Clean Energy Initiative on a clean energy future.
About FirstWatch Crypto
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Electricity Information Overview from the IEA
Disclaimer: None of the above is investment advice. This blog is published for entertainment and informational purposes only. The ideas expressed are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. Nothing on this blog constitutes investment advice, performance data, or any recommendation that any security, portfolio of securities, investment product, transaction, or investment strategy is suitable for any specific person. You should not use this blog to make financial decisions. We highly recommended you seek professional advice from someone who is authorized to provide investment advice. You should always do your own research before investing in cryptocurrencies. It is a volatile market.