The Fake Environmentalist Attack on Bitcoin
The cryptocurrency is spurring use of renewable energy even as it undermines existing economic, political, and cultural elites.
By now, you've probably heard the environmentalist knock on bitcoin, including apocalyptic claims that it will use up all of the world's energy and will single-handedly increase global temperatures until the planet is uninhabitable.
"Cryptocurrencies like bitcoin are terrible for the environment," declares Sen. Elizabeth Warren (D–Mass.). "It's an extremely inefficient way of conducting transactions," pronounces former Federal Reserve Chair and current Treasury Secretary Janet Yellen. "It's a way to both hide dirty money and destroy the environment at the same time," says Daily Show host Trevor Noah.
Such environmentalist attacks on bitcoin are best understood as a strategy by economic, media, and political elites to undermine a powerful new form of money that they can't control. Critics distort the basic facts about what's known as bitcoin "mining," the process through which a global network of computers maintain the bitcoin network through computation. Though energy intensive, this process is what makes bitcoin a truly decentralized monetary system.
One of the starkest arguments against bitcoin is based on a logically flawed argument that its energy use will increase in a linear fashion as it becomes more widely used. Critics take the total amount of energy usage by bitcoin miners and divide that into the current number of transactions to arrive at a per-transaction cost. They then project that per transaction cost into the future. "A single bitcoin transaction," warns Warren, "uses the same amount of electricity as the typical U.S. household uses in more than a month."
But this analysis is fundamentally wrong, says Nic Carter, a partner at Castle Island Ventures who has written a series of influential articles about bitcoin and energy. "They devise this per transaction energy cost figure. And then they extrapolate bitcoin's transactional load to hundreds of billions per year."
In fact, as the bitcoin network grows to support more transactions, it doesn't require additional energy, just as the Federal Reserve Building's electricity bill doesn't increase with every ATM withdrawal. The electricity consumed by mining isn't used to power individual transactions; it's used to power the foundation layer of bitcoin's monetary network, which can then be extended almost infinitely. "Bitcoin transactions and bitcoin's energy use are not really correlated," says Carter. "An additional marginal transaction doesn't really add much energy outlay to the bitcoin system."
The energy used by bitcoin miners has increased significantly since the cryptocurrency first launched in 2009, and it will continue to grow as more people use it (earlier this year, Deutsche Bank announced that bitcoin was the "third largest currency on the planet, after the dollar and the euro).
But the media's claims are simply outlandish and provably false. In 2017, Newsweek boldly predicted that bitcoin was on track to "consume all of the world's energy by 2020!" One of the most commonly cited figures—that the energy used to power bitcoin will generate enough greenhouse gases to raise global temperatures by more than 2 degrees Celsius—comes from a 2018 two-page analysis published in Nature Climate Change and trumpeted by The New York Times and other outlets.
Nature Climate Change went on to publish three rebuttals (read here, here, and here) pointing out the implausible assumptions used to generate those figures, including the same fallacy of calculating an energy cost per bitcoin transaction and then assuming a linear increase as the network grows.
So how much energy does bitcoin mining actually consume? Critics routinely invoke the idea that bitcoin uses more electricity than whole countries to generate attention-grabbing headlines, but that's also true of many industries, and if bitcoin were a country it would rank 39th out of 59 tracked by the Cambridge Centre for Alternative Finance.
The Cambridge Centre estimates bitcoin uses just over 100 terawatt hours per year, which is less than gold mining and many other residential and industrial activities. And for what it's worth, bitcoin's market cap is over a trillion dollars, far more than the GDP of many of the countries to which it's compared.
More importantly, bitcoin's critics tend to ignore that miners are incentivized to use energy that would otherwise go to waste. That's because electricity is hard to transport over long distances, while bitcoin mining can happen anywhere that there's internet access. So miners gravitate toward energy sources, such as hydroelectric, wind, and solar, that have excess capacity and are intermittent.
Miners "will go to the Amazon, they will go to the Congo. They go to Serbia, Siberia. They will go to Antarctica in the middle of the ocean. They'll go wherever the cheapest energy is," says Alex Gladstein, the chief strategy officer of the Human Rights Foundation. They bring their equipment and plug into systems when the price is right and stop when the price goes up beyond the level at which they can make a profit.
Gladstein points out that bitcoin miners lose money in many competitive electricity markets because the cost of the power they consume exceeds their earnings. Bitcoin miners can only afford to pay 2 cents to 5 cents per kilowatt for the energy, says Gladstein, who notes that in advanced economies consumers pay 10 cents to 15 cents per kilowatt. In developing countries, they pay 20 cents to 40 cents.
In the western U.S., mobile bitcoin miners are already running on electricity derived from unused natural gas from oil wells that can't be captured because there are no pipelines to carry it. Gladstein argues that bitcoin can act as a spur to create more renewable energy in underdeveloped countries, remote locations, and even existing landfills. "Bitcoin miners are like a sponge," says Gladstein. "Any excess energy bubbling to the point where it becomes cheap enough for them, they will soak it up."
A recent industry survey put bitcoin mining's sustainable energy use at around 56 percent, a figure that will likely grow, especially since China, once the location for a majority of miners, has banned the practice. As CNBC reports, miners are heading to the United States en masse, taking advantage of non-polluting nuclear energy and renewable sources that would otherwise not be used. "This shift toward zero-emission, clean energy sources has already begun to recast the narrative among skeptics that bitcoin is bad for the environment," writes McKenzie Singalos.
Bitcoin opponents such as Elizabeth Warren are now invoking arguments that whatever size bitcoin's energy footprint ends up being, it's still too much. She has said that the rule-bound computation involved in bitcoin is "useless." The claim that mining is useless is the essence of the government's attack on bitcoin because it's this component of the system that most directly challenges state power. The work being carried out by this global computer network is what allows bitcoin to be controlled by mathematical rules instead of human actors vulnerable to government or corporate control.
Unsurprisingly, the alternative cryptocurrencies that meet the approval of Warren and other politicians always lack this specific quality. "Bitcoin," says Castle Island Ventures' Nic Carter, "is a vote of no confidence in the monetary and financial system that exists today, a pretty exclusionary system where we are extremely beholden to the opinions of half dozen individuals that all think the same way."
Carter stresses that bitcoin is based not just on a non-inflationary monetary rule but on one that is non-discretionary, meaning no central bankers or elected officials can monkey with the supply. "There's no central banker that can come in and alter the rules and privilege one certain set of society at the expense of another. That is the core of the movement here," says Carter.
Which helps explain why, even as the environmentalist case against bitcoin falls apart, politicians and central bankers are seeking out new arguments against the cryptocurrency.
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Music credits: Vuelta al Sol, by Tomas Novoa via Artlist.io; "Lyke the Robot," by Out of Flux via Artlist.io
Footage Credit: Jim Epstein and Noor Greene
Produced by Regan Taylor; graphics by Isaac Reese; audio post-production by Ian Keyser