Rooting for Green Bitcoin
Bitcoin is virtual money, meaning no metal or paper is necessary to produce it. So, why is there a need for a greener approach to Bitcoin mining? The process of creating digital currency is called mining and while it doesn’t entail digging, say, Bitcoin, from the ground, mining crypto eats up a lot of electricity. Solving the complex math problems needed to award Bitcoin (hashing) is highly energy-consuming. Algorithms get more complicated as more Bitcoin miners get connected to the blockchain, which means that computers need to be increasingly potent as the business gets more competitive. However, having a high-powered computer, like ASICs, doesn’t guarantee you’ll earn Bitcoin since only the first miner to solve the hash receives a Bitcoin reward. This highly competitive race towards calculating the hashes necessary to mine Bitcoin pushes all miners to hurry to make the same verifications. This means that a significant amount of electricity is wasted to power a lot of computers that don’t get to mine Bitcoin at all.
With that in mind, in practical terms, two issues are being tackled: the waste of electricity and the fact that processes used to generate electricity are not always clean. They often rely on the burning of fuel or even coal which are damaging to the atmosphere. However, there are a number of ways to produce green electricity. This is why many mining companies are investing in renewable sources like eolic or solar energy since they are not only environmentally friendly, they also allow scalability.
Thousands of other industries create a more significant carbon footprint, so one might wonder where is the motivation behind putting Bitcoin mining in the spotlight?
In numbers, according to the September 2020s Global Cryptoasset Benchmarking Study, 0.59% of the world’s electricity production is destined for Bitcoin mining, while 39% of that electricity is produced with renewable methods like geothermal or hydroelectric energy. Definitely not as damaging as mainstream media portrays it. And what if I tell you that the amount of electricity consumed every year by inactive plugged-in home devices in the USA alone could power the entire Bitcoin network for 1.6 years. Knowing this, while also falling into a bit of oversimplification, we could say that Bitcoin’s energy consumption debate could be solved by asking all the people in the US to unplug their cellphone charges when they are not using them.
In terms of energy efficiency, there are a number of measures that miners have incorporated into the business. For instance, miners that use solar energy to power their equipment benefit from the cheaper electricity costs while eliminating their carbon footprint. There are a few things to consider, though. ASIC computers are not only highly energy-consuming they also overheat if they are not adequately cooled down. So, location is crucial. While the desert might be the ideal place to harvest solar energy, it is the worst spot in the world when it comes to cooling a warehouse full of ASICs running 24/7. To run a profitable business, miners have to operate all day non-stop and while ASICs are getting more energy efficient every day, they still consume the same as large home appliances. While access to cheap and renewable electricity is very important, miners also need to have a fast, uninterrupted internet connection. The only way to get ahead of the competition is to run the most powerful computers available for as long as possible with the cheapest primary energy source available.
To understand why countries like Iceland are almost paradise for crypto mining companies, you need to consider their primary energy source and annual average temperature. You see, electricity is generated with geothermal power in Iceland, which means that vapor extracted from the earth’s magma is used to power generators that produce electricity. This makes electricity sustainable and comparably more affordable than in other countries. Geothermal power is used to heat almost all the house water heaters in the country, and it accounts for 30% of the country’s total electricity supply.
Cooling the rigs is also very cheap since miners don’t use artificial cooling systems. They use the naturally cool air from outside the warehouse and route it to cool the equipment more efficiently and cheaply.
Another explored scenario is to change the current Proof of Work (PoW) based blockchains for more energy-efficient options like Proof of Stake (PoS) or Delegated Proof of Stake (DPoS).
Proof of Stake is an algorithm that aims to solve the energy-wasting problem inherent to PoW by attributing mining power according to the number of coins each miner posses. This way, instead of using electricity to power thousands of computers to chase after the same hashes, the work of a PoS miner is restricted to a percentage of transactions that depends on how much Bitcoin they have. As a guarantee of good work, miners put their own Bitcoin as a contingency for any possible wrongdoing on their part. However practical this sounds, some believe that PoS doesn’t fully solve the problem since is not a completely trustless system that will inevitably create some kind of centralization.
Delegated Proof of Stake is very similar to PoS. The two algorithms only differ in how mining rights are assigned. With DPoS, users choose other trustworthy users, called witnesses, to validate transactions. These witnesses are responsible for validating transactions and, in return, they receive a fee. Both the witnesses and the block mining time are chosen through a democratic voting system. The voting power is directly related to the amount of Bitcoin, or any other crypto, each voting user has. But this doesn’t mean that the witnesses need to have huge stakes to get chosen. This democratic assigning system makes DPoS blockchains more scalable, being able to process more transactions per second.
If we think objectively and analyze Bitcoin as a financial resource, it isn’t productive to criticize its blockchain energy consumption in isolation. As mentioned before, a good part of the electricity used to mine Bitcoin comes from renewable sources, and this percentage is getting more significant through the years, but this is rarely taken under consideration when the matter gets debated. So, how can we get a holistic perspective on the impact Bitcoin has on humanity, both good and bad. A practical approach would be to assess the benefits Bitcoin brings to society, the actual tangible measures the mining community is making to reduce their carbon footprint, the projected impact of those measures, and the net carbon emissions compared with the industries of other financial assets like gold.
After all these factors are considered, we will undoubtedly find out that not every person in the world agrees on the fact that the true financial decentralization offered by Bitcoin and the benefit it brings to struggling societies is worth the energy consumption. But the thing is, financial decentralization as a concept doesn’t mean the same for, let’s say, Nigerian blue-collar workers, trying to save their hard-earned money from inflation and an unstable financial system than to a millionaire banker whose fortune rests in fiat currencies.
The truth of the matter is that no matter where do you stand on Bitcoin, rest assured that when it comes to its impact on the environment, the industry is constantly investing in green technology improving the quality of Bitcoin as an asset to society.