This month, the electric-car company Tesla announced that it bought $1.5 billion in the cryptocurrency bitcoin and would soon accept it as payment for its climate-friendly vehicles. Buoyed by support from the likes of Elon Musk, Tesla’s billionaire founder, bitcoin is attracting increasing interest from those who see it as the future of payments and a store of value, as well as from people who just want to speculate on its price.
But there’s a problem. For environmentally conscious consumers, buying a Tesla with bitcoin would, in fact, be hypocritical — because, as currently produced, the currency has a hugely detrimental impact on the world’s climate.
All told, bitcoin mining is responsible for 0.5 percent of total global electricity consumption, which may seem astonishing to anyone unfamiliar with how Bitcoin is created. The cryptocurrency is “mined” by powerful computers tasked with solving complex computational problems. Solving those problems allows miners to chain together blocks of transactions (hence bitcoin’s “blockchain”) and a miner who completes a block is rewarded with bitcoin. Mining is an extremely energy-intensive process ultimately involving networks of computers stretching around the world.
In fact, the energy required to make a single bitcoin transaction could power an average U.S. household for a month. As a result, bitcoin-associated emissions are soaring, and there is a worrying lack of urgency from policymakers to regulate what has quickly become an international industry in itself. While national governments are making moves to reduce their carbon footprint in more traditional areas (such as manufacturing and transportation), bitcoin’s spiraling energy demand is undermining their environmental goals.
Data from the University of Cambridge suggests that the emissions produced by bitcoin mining are the equivalent of between 53 and 127 million megatons of carbon dioxide. The upper bound of these figures would place Bitcoin as the No. 6 highest-emitting company in the world, according to Arabesque’s emissions database.
Almost all the companies with greater emissions are utilities, extractive and materials companies. While these industries undoubtedly have a huge negative effect on the environment, they are at least subject to governmental regulations mandating decarbonization, unlike bitcoin. Additionally, their emissions are productive — they provide us with the electricity and raw materials that power society, in a way that the opaque bitcoin does not.
So what can we do? Regulation of the energy demands made by bitcoin would be a logical first move. The majority of bitcoin mining occurs in China and the United States. China has committed to a net-zero economy by 2060, and the United States is once again — under President Biden — signaling its commitment to the environment, as well.
If the world’s two largest economies could introduce increased regulation around the bitcoin miners who are using so much power, they would reap rewards from both an environmental and a reputational standpoint.
This will not be an easy process. Increased regulation could well push miners to new regions with plenty of cheap, dirty electricity. And bitcoin is just one of many of cryptocurrencies that rely on the same energy-intensive process. Competitors such as Litecoin or Ethereum will come to pose similar challenges to the environment as they grow in popularity and value. One of bitcoin’s great selling points has been its flexibility and anonymity; if the currency becomes more highly regulated, it may create rancor among investors.
But the hurdles can be overcome. Countries such as the United States or China could make it more rewarding for bitcoin miners to use renewable energy sources. And increased regulation of bitcoin mining, while it may be a short-term inconvenience to investors who enjoy the crypto’s “wild west” image, may also help improve bitcoin’s reputation in the long run, especially around its perceived use as the currency of the dark web.
There is opportunity alongside the challenge, too. Blockchain — the technology underlying bitcoin and other cryptocurrencies — has excellent potential for applications in environmental, social and governance data collection and integrity. Supply chains could be tracked to the individual component, or a plant tracked from seed to table, providing substantially more transparency into sustainable processes and reducing the reliance on corporate self-reporting.
Whatever bitcoin’s future, we have a responsibility to ensure that it is truly a green one.