What are the Climate Concerns Around Bitcoin?

Mining Bitcoin and other cryptocurrencies could leave adverse impacts on the environment, some fear. Tesla CEO Elon Musk said, “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.” And in what can only be called a sudden “U-turn”, announced that he was reversing course on the decision to use Bitcoin as an acceptable form of payment for the purchase of vehicles. Citing climate change concerns, Musk declared that the electric vehicle manufacturer is suspending purchases with the cryptocurrency, sending its rates down a free fall.

Mining Bitcoin and other cryptocurrencies could leave adverse impacts on the environment, some fear. Here’s the gist of the argument relating to climate concerns:

Energy-intensive process

Bitcoin is a cryptocurrency, a decentralised digital currency created as a reward for a process known as ‘mining’ by miners — which involves using high-powered computers to compete against each other to solve complex mathematical puzzles and it is an energy-intensive process that often relies on electricity generated with fossil fuels, particularly coal. As the currency was mined more and more, the algorithms kept getting longer and more complex, and soon average computers failed to keep up.

Special computers with colossal processing powers now go into mining Bitcoin. Naturally, these consume a massive chunk of the electricity supply. It is an immensely energy-intensive process that currently often relies on electricity generated with fossil fuels, particularly coal. A 2021 estimate from the University of Cambridge suggests bitcoin consumes more than 178 (TWh) annually, ranking it in the top 30 energy consumers if it were a country.

Adverse impact on global temperatures

Moreover, studies claim that Bitcoin stands a significant chance to single-handedly drive global warming, producing enough carbon dioxide emissions to push the global temperature “above 2°C within less than three decades.“ At current rates, such bitcoin “mining” devours about the same amount of energy annually as the Netherlands did in 2019, the latest available data from the University of Cambridge and the International Energy Agency shows.

The dominance of Chinese Bitcoin miners and lack of motivation to switch from cheap fossil fuels to more expensive renewable energy sources could mean there are few quick solutions to the emissions concerns over Bitcoin. China accounts for more than 75% of Bitcoin mining around the world, according to recent research. The cryptocurrency’s carbon footprint is as large as one of China’s 10 largest cities, the study found. That is because those Bitcoin miners tend to use electricity produced with fossil fuels, primarily coal, for most of the year, only shifting to renewable energy, mostly hydropower, during the rainy summer months.

Supporters of Bitcoin point out that the mainstream financial system, with its millions of workers and computers in air-conditioned offices, also uses large amounts of electricity, which is usually produced with fossil fuels.

Musk’s tweets “inevitable”, investors say

News agency Reuters quotes a few investors who cast aspersions on Tesla’s purchase of Bitcoin months ago. “We are of course very concerned about the level of carbon dioxide emissions generated from bitcoin mining,” Ben Dear, CEO of Osmosis Investment Management, said in February, shortly after Tesla’s bitcoin holdings became public. Osmosis is a sustainable investor managing around $2.2 billion in assets that hold Tesla stock in several portfolios.

“The environmental impact from mining bitcoins was one of the biggest risks for the entire crypto market,” said Edward Moya, a senior market analyst at currency trading firm OANDA. “Over the past couple of months, everyone disregarded news that Bitcoin uses more electricity than Argentina and Norway.” Mark Humphery-Jenner, an associate professor of finance at the University of New South Wales, said he was more concerned about Tesla management’s precipitous decision-making, given the climate concerns were well known “before Tesla accepted bitcoin.”

However, Elon Musk maintains that he still remains a strong believer in cryptocurrency. “We are also looking at other cryptocurrencies that use <1% of bitcoin’s energy/transaction,” he tweeted.