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Just how awful is Bitcoin’s carbon footprint?

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When Tesla’s CEO “Elon Musk” announced the company’s suspension of Bitcoin payments in April 2021, he immediately drew increased attention to Bitcoin’s rapidly increasing emissions or, better still, Bitcoin’s horrid carbon footprint.

Although this has been common knowledge across the crypto community, it appears people outside the community, including onlookers and passive observers, now have better knowledge of the bitcoin-climate problem.

But just how enormous is Bitcoin’s carbon footprint? By August 2020, the Cambridge Bitcoin Electricity Consumption Index (CBECI), calculated by the Cambridge Centre for Alternative Finance, revealed that it took approximately 7.5 gigawatts (GW) of electricity to run the bitcoin network.

Now that’s more electricity than Nigeria generated in 2020 at slightly above 5.5 GW.

In another recent analysis by the New York Times, it was revealed that bitcoin mining accounts for roughly 0.5% of all electricity consumption worldwide. Shockingly, this is seven times more electricity needed to power Google’s global operations.

But data from Statista (an online database company, which provides current market figures and forecasts for consumer goods across 200+ markets) show that Bitcoin’s market cap peaked at an all-time high in April 2021 and had slightly surpassed a trillion U.S. dollars but later steadied at 600 billion U.S. dollars. By June 2021, Alphabet (Google’s parent company) had reported the company’s quarterly market cap increased from 1.3 trillion U.S. dollars to 1.6 trillion U.S. dollars.

For comparison purposes, with a market cap half the size of Google, Bitcoin still consumes seven times more energy.

Sustainability issues

While Bitcoin and the broader cryptocurrency community quite generally agree that the sustainability of the digital asset market would over time depend on how quickly we can make crypto mining almost entirely green. Where there is no common ground (at least not yet), is how exactly the community intends to achieve this.

Verifying green energy supply on a blockchain

Among miners, one touted solution to the bitcoin-climate problem is to verify renewable energy supply over a blockchain. Imagine being able to verify all the kilowatt-hours of electricity from renewable plants and then assigning a token or unique identifier to each unit. This way, some bitcoin miners argue that these tokens or coins could then be exchanged for cash, helping to preserve the value of renewable energy and help fast-track the green shift. The setback with this strategy, however, is that it’s hard to predict the acceptance rate among suppliers in the renewable energy sector. Besides the fact that we can’t tell for sure how this strategy would sit among the top green energy players, there’s not yet a detailed plan as to how renewable energy plants can certainly convert their load or excess load into crypto.

From the tokenization of renewable energy supply to the sole use of excess energy for bitcoin mining, enthusiasts and crypto stakeholders have suggested various ways that could “potentially” lead to the use of less fossil fuel in powering bitcoin mining, but it’s hard to notice any significant shift. Rather, the crypto market has seen frequent rocky upheavals.

One of such, bolstered by a crackdown on bitcoin mining farms in China’s Sichuan Province, sent the price of bitcoin plummeting 30% in May 2021.

 Indeed, like many other industries, the crypto industry has its peculiar challenges on the journey to carbon neutrality; but with zero intrinsic value, it’s hard to justify Bitcoin’s enormous energy use, a bulk of which comes from fossil fuel.

 Proof of work Vs Proof of stake

Many crypto stakeholders have touted the proof of stake protocol of mining as the messianic solution to the bitcoin-climate problem. They argue that the proof of stake method is by design environmentally sustainable. This is because the protocol randomizes the mining power of miners on the network, as opposed to a proof of work system, where miners are constantly competing to solve puzzles and add the next block but their mining ability is dependent on the size and sheer strength of their computing resources.

Although the proof of stake protocol has been successfully adopted lately in a new cryptocurrency, like Peercoin, Solana, and most recently, Cardano, the problem with the protocol however remains in its security and secrecy. It is believed that most of the security features of the proof of stake protocol are not generally available to the public. This is a strategy to obscure the system’s security workings as best as possible, to prevent circumnavigation or “gaming”. But secrecy is frowned upon among investors. If someone is going to bet a reasonable amount of money on a novel idea, they’re going to want to understand every part of it (the idea), to ensure their investment is truly safe. This obscurity of proof of stake’s security could propagate doubt among investors, prompting the broader crypto community to stick with proof of work, since we can all agree that there’s perfect knowledge of how the market works with proof of work.

How fast the crypto community can allay the environmental sustainability concerns surrounding the proof-of-work protocol, might be the most crucial factor between crypto, being a bubble or an asset that has come to stay.

Kadiri can be contacted via cephaskeys@gmail.com

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Cephas Kadiri
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