(Bloomberg) — Can you love Bitcoin and the environment at the same time? The world’s dominant cryptocurrency relies on so-called miners whose powerful computers run day and night to process transactions. Energy consumption is rising so rapidly that it is worrying environmentalists, governments and other major energy consumers. China has completely banned Bitcoin mining and billionaire Elon Musk will not take the token as payment for his Tesla cars until miners switch to at least 50% renewable energy. With many of them still addicted to fossil fuel electricity, that becomes a daunting task.

1. How much electricity is involved?

Bitcoin’s estimated power consumption rose from an annual rate of 6.6 terawatt-hours at the start of 2017 to 138 terawatt-hours by early 2022 — more than a country like Norway — according to the Cambridge Center for Alternative Finance, which maintains a running estimate. In terms of its carbon footprint, Digiconomist estimates the annual emissions from Bitcoin mining at 114 million tons of carbon dioxide, similar to Belgium’s.

2. Why does it need so much energy?

The largest miners have operations with tens of thousands of computers buzzing in warehouses that resemble data centers. The calculations they perform are used to verify transactions within the network, and their completion unlocks new Bitcoin. The complexity of the calculations increases as the number of miners grows. The amount of computing power required hit a record high in early 2022, forcing miners to invest in even more powerful machines and larger server farms to maintain a competitive advantage. Proponents of Bitcoin say the cryptocurrency still uses a small fraction of global electricity consumption — less than what is needed to power the world’s Christmas lights.

3. Are miners trying to reduce their carbon footprint?

Yes. Some use excess natural gas that would otherwise be “flared” or burned to dispose of it, to generate power for mining. Others have installed solar panels on their server halls or negotiated deals to source low-carbon nuclear power. Many have set up shop in places such as upstate New York, Canada, Iceland and Norway, which have an abundance of zero-emission hydro or wind energy. This is motivated as much by self-interest as by climate concern – renewable energy tends to be cheaper than other sources anyway.

4. So Are Bitcoin Emissions Falling?

It is difficult to estimate. The China ban in June 2021 robbed Bitcoin miners of the country’s clean, abundant hydropower and sent them off in search of cheap, reliable energy they could find. Some settled near renewable resources in the US. Others have appeared in places like Kazakhstan, where fossil fuels still dominate the energy mix. The impact of all this on Bitcoin’s carbon emissions is unclear, as no one knows exactly where all the miners are and what type of power they use. However, a study published by the research journal Joule in February suggested that Bitcoin’s environmental impact has worsened since China’s move, with the share of renewable energy used to power the network falling from more than 40% by 2020 to about 25% by August 2021. And don’t forget the environmental impact of the growing mountain of older computer equipment being thrown away by miners as they try to maintain an edge in processing power.

5. What do governments do?

In some parts of the world that have surpluses of renewable energy, Bitcoin miners are still welcome. Texas, for example, is trying to attract more of them to act as a demand response source to match the state’s variable wind output. In other places they are seen as a threat. The Chinese ban was in response to a power shortage that forced the country to ration electricity supplies and cut industrial production. Kazakhstan, a major Bitcoin producer, imposed limits on the industry after it faced its own energy shortages. The Swedish financial regulator has called for a European ban on crypto mining, saying it “threatens the climate transition that urgently needs to happen”. Some governments prefer to channel renewable energy into older industries attempting to decarbonise, such as transportation and manufacturing. Other major power users complain that Bitcoin miners are sucking up limited energy resources with little return to the host country in jobs and tax revenues.

6. Has the concern affected crypto markets?

Yes. In February 2021, Tesla Inc. that it had invested $1.5 billion in Bitcoin and was going to accept the cryptocurrency as a form of payment. The double move was a catalyst for a rally in the digital currency. But in May of that year, Musk announced a stunning turnaround, suspending adoption of the token due to environmental concerns. The decision sparked a Bitcoin selloff that spilled over into many other digital currencies.

7. What does all this mean for the future of Bitcoin?

Bitcoin’s opponents say the energy-intensive “proof-of-work” system used to verify transactions on its digital ledger or blockchain was never designed to support what is now a trillion dollar asset. Supporters of rival cryptocurrencies have used Bitcoin’s environmental impact as an argument for switching to lower-power alternatives. Many newer blockchains, such as Solana and Cardano, use variations of proof-of-stake, an alternative process that uses less electricity. Bitcoin rival Ethereum is expected to switch from “proof-of-work” to “proof-of-stake” by mid-2022, cutting estimated power consumption by as much as 99%. Bitcoin remains the world’s dominant cryptocurrency, but the energy challenge will grow along with its popularity: a rising Bitcoin price lowers the breakeven point for miners, giving them an incentive to continue using older, less efficient machines.

This post Why Bitcoin’s Energy Problem Is So Hard To Solve: QuickTake

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