The debate over the environmental impact of the Bitcoin mining ecosystem is getting heated once again as academics provide a new dose of perspective on the subject. In an opinion piece written by Noah Smith, a former assistant professor of finance who turned columnist, he took aim at the Bitcoin mining industry (BTC) in March, suggesting that the energy consumption of the constantly growing network is unsustainable. Smith believes that more countries will clash with Bitcoin mining as they use more power, given that rising BTC prices are always matched by rising hash rates.
While Coin Metrics founder Nic Carter has refuted some of the points raised in Smith’s column, there still seems to be a divided view on how much energy Bitcoin mining is extracting, the sources of this energy and ‘ the carbon footprint the industry has on the planet. .
It is arguable that the mining industry is prone to downgrading the size of its resource intensive work, and some within the industry have suggested that talking about Bitcoin’s environmental impact is not an issue and that data ‘ n suggest that a large proportion of hash power draws energy from renewable sources. Nevertheless, environmental advocates have turned their sights on the industry in return, which has created a seemingly endless debate on the subject.
Cointelegraph has spoken to several academics in this field for alternative views on the issue, for example, those behind the Cambridge Cambridge Energy Usage Index, which has become a reliable reference point for estimating Bitcoin network power consumption, though with some self-confessed limitations.
Furthermore, Aalborg University Ph.D. co-author Susanne Köhler and associate professor Massimo Pizzol study entitled “Life Cycle Assessment of Bitcoin Mining” which provides some data-driven assumptions about the environmental impact of the industry.
The CBECI was eventually built to answer this question
In an interview with Cointelegraph, Anton Dek, Cambridge Center’s alternative finance finance leader, unpacked the CBEC’s history and the methodology used to generate its Bitcoin Electricity Index energy consumption estimates.
A Cambridge research associate said the team had observed that other models looking to create accurate estimates of Bitcoin’s network energy consumption had used a top-down approach, using data such as the amount miners spend on electricity as example.
The CBECI methodology is a “bottom-up approach” that uses data on available mining hardware to generate a lower bound and higher estimate of Bitcoin network energy consumption. Dek explained that the information is: “Based on assumptions of objective figures such as hash rate.” He further added: “All these different machines have efficiency, energy joules they expend to solve hashes. Based on these assumptions, we built the index. ”
The index provides an estimated power consumption range, with its current theoretical electricity consumption bound lower at 43.32 terawatt hours to the theoretical upper margin at 476.18 TWh. The estimate of Bitcoin’s current usage is based on the assumption that miners use a profitable hardware mix.
Although the CBEC has not made any models on the analysis of the energy sources that power the Bitcoin network, the original intention for creating the CBECI index was to provide a carbon emissions model. Dek said his team is still working on that model, which he hopes to see go live later this year.
Excavating renewable power
The CBECI website also provides a global mining map that essentially provides a breakdown of how Bitcoin’s mining network is distributed worldwide. The map provides country-by-country hash rates, while China’s 12 provinces are also accounted for, given that more than half of the world’s Bitcoin hash rate is based in the country.
The analysis of hash rate settings is derived from data provided by mining pools BTC.com, Poolin and ViaBTC, which contribute to 37% of the overall Bitcoin hash rate. Dek also noted that their data set is now over a year old but still allows researchers to make some accurate assumptions about the energy sources used by miners in specific countries or regions.
“This is self-recorded data from mining pits, so we have to trust these guys. But even if all of that is true, we only covered 37% of the total Bitcoin hash rate we covered from those three pools. If we extrapolate it to the total miners, we assume this is the representation of this sample, which may not be the case, given that we have more data from China. That’s something we’re going to improve on. ”
That regional view of China also provides an insight into the energy mix used by miners in different regions. The team has not yet released that specific data visualization because it believes that the current 37% hash rate, which underpins their data, is not representative enough to make accurate carbon footprint estimates the network. Dek added: “If we look at the energy mix of each region, and then each country, we will be able to assume the energy mix and then be able to estimate the carbon emission factor more accurately.”
Nevertheless, Dek said other researchers reached estimates by taking the total annual power consumption of the Bitcoin network, about 130 terawatt-hours, and multiplying that by the average carbon emission factor (~ 0.5kilogram / carbon dioxide per kWh produced). The Cambridge researcher suggested that such an estimate may not be representative, given some assumptions that can be drawn from the regional location data of a mining activity:
“It’s more complicated than this because I think the average Bitcoin energy mix doesn’t fall in the world mix. This is because they use renewable energy, not for their welfare, but for economic reasons alone. Hydropower exists in plenty of some regions, and if you look at the Bitcoin and China mining map, the Sichuan region is still very important for mining. ”
Dek highlighted the presence of widely reported mining facilities in the region operating on electricity generated by hydroelectric dams in Sichuan. The CBECI data also reflects the increase in the hash rate in the region during the wet season, where excessive rains lead to an abundance of power generated by inflated dams. According to him, Sichuan’s share of global hash power is estimated: “In April (2020) it is 9.66%, in September 2019 it was 37%.”
Views from the “Bitcoin Mining Lifecycle Assessment”
Köhler and Pizzol’s 2019 “Bitcoin Mining Lifecycle Assessment” study provides an estimate of Bitcoin’s environmental impact using a well-established lifecycle assessment methodology. He estimated that the Bitcoin network used 31.29 TWh with a carbon footprint of 17.29 tonnes of CO2 equivalent in 2018 using data, information and methodology from previous studies on the subject.
In a conversation with Cointelegraph, Köhler noted that their study shows that the impact of new capacity added to Bitcoin’s mining network is diminishing on the basis of two assumptions. The first is that equipment is becoming more efficient, which proved to be the case some two years later. The second assumption – that miners would move to regions with more renewable energy sources – did not happen as expected: “Even if mining is more efficient, much more mining is being done, and this means bigger impact. ” He further added:
“The assumptions in our study were influenced by rumors that China would crack down on their miners. More recent data on mining locations shows that this did not happen as expected. Still, the impact of improving the energy efficiency of the hardware means that the impact per extra TH mined is reduced (hence, in relative terms). However, we now see that the hash rate is increasing at a faster pace resulting in larger overall effects (hence, in absolute terms) in other words. ”
As Köhler explained, their initial assumption has been partially dismantled, as the pure growth of the Bitcoin network hash rate has led to higher electricity consumption and, therefore, greater environmental impact.
Nevertheless, the Ph.D. Aalborg colleague admits that reaching an accurate estimate of Bitcoin’s mining ecosystem energy consumption along with its carbon footprint is a tall order. This is due to a number of factors, including the exact location and shares of miners, mining equipment used and the accuracy of data from various sources.
Incentives – the prospect of “green Bitcoin”
Another extremely interesting point raised by Dek is the interest his department has received from various players in the cryptocurrency industry. Private companies and fund managers have inquired about data or services that can accurately prove how “green” Bitcoin is, determined by whether or not it was mined using a renewable energy source:
“Fund managers are now interested in things like ‘green Bitcoin.’ More institutional investors are coming in, and many are interested in ESG (environmental, social and governance) consideration of Bitcoin. The ideal for them would be to have a system that colors the Bitcoin. “
Dek also said some miners are looking for ways to prove they are using green energy to mine their BTC. This could potentially create a market for selling “green Bitcoin” for a premium, which could motivate miners to switch to green energy sources. Meanwhile, Köhler believes that many miners focus primarily on profit margins and that cheap electricity, however it is produced, will override the allure of green energy sources if they are not so affordable :
“There are some incentives to use renewable energy as in the case of hydropower in Sichuan that allows miners to use cheap electricity. However, it should be noted that this electricity is seasonal, so availability is not the same throughout the year. Generally, miners are motivated to use the cheap electricity to maximize profits. For example, this also includes electricity from coal in Inner Mongolia and electricity from oil in Iran. ”
Dek shared these sentiments, saying that miners are usually rational about their business decisions. If there is a cheaper source of energy, they are likely to use it regardless of how that energy is created or what incentives are offered to use green energy sources: “I find that miners , especially large Bitcoin miners, are economically reasonable players. I think they will continue to act this way – if there is a cheaper option, they will change, and if not, they will stay. “
Data is key
As Köhler summed it up, increased access to data from industry players could provide answers to a debate that is likely to last for many more years: “Better data and more transparency from the mining industry would allow for models better and less speculation – both within the crypto space and in public, ”he further added:
“As long as the impact of Bitcoin mining continues to increase, I do not see an end to this debate.”
Dek agreed with the assessment regarding the debate on Bitcoin’s environmental impact due to the distributed nature of the network, even when more data and tools become available. It also paints a blatant reminder that the Bitcoin protocol was designed this way for a reason: “Bitcoin must be inefficient by design. If it is very efficient, it would be very cheap to perform attacks on the network. ”