Searching for the truth on Bitcoin and swimming pools

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If you hit YouTube searching for the truth on Bitcoin and whether the cryptocurrency is harmful to the environment, the results paint a confusing picture. In the play queue, you’ll find no shortage of videos on the theme, which sounds like a good thing – until you look at the titles. First up, we have ‘Why BitCoin is so bad for the planet’ followed straight afterward by ‘Myth: Bitcoin is bad for the Environment’. And the list goes on, bit flipping between whether the world’s most famous cryptocurrency is going to save or kill us all.

Flooding the internet most recently were concerns not just about the energy consumption arising from the use of Bitcoin, but how much water is used to cool all of those hot-running miners (the computers used to validate additions to the blockchain). The trigger for the debate was a paper published in Cell Reports Sustainability, ‘Bitcoin’s growing water footprint’, which reported that a single Bitcoin transaction today could cost as much water as a backyard swimming pool.

A single #Bitcoin transaction today could cost as much water as a backyard swimming pool.

Read more in "Bitcoin's growing water footprint" now published in @CellRepSustain:
https://t.co/DwoFU6QmAz

Alex de Vries @Digiconomist pic.twitter.com/zRZuOm7A7n

— Cell Press (@CellPressNews) December 1, 2023

Naturally, cryptocurrency advocates were quick to debunk those claims, which doesn’t help anyone searching for the truth on Bitcoin and looking for a consensus on whether the cryptocurrency is harmful to the environment. So, how do we get to an answer?

Getting to the answer

At the heart of the issue is the amount of energy used by Bitcoin miners to validate additions to the blockchain. And, as a reminder, computers that are successful in completing this challenge (which involves finding leading zeros on a hash of the digital ledger) are rewarded with, currently, 6.25 Bitcoin.

However, baked into the protocol is a halving schedule that periodically drops that reward by 50%. Back in 2009, successful Bitcoin miners received 50 Bitcoin for their efforts, and three so-called halvings have taken place since then, with a fourth expected in the first half of this year. And this has a bearing on anyone searching for the truth on Bitcoin and whether the cryptocurrency is harmful to the environment.

Despite the disagreement between analysts online, there are still useful energy consumption figures to be found, which help to frame the problem. To find an answer, we need to know – at the very least – how much electricity a typical miner consumes. And one way to do that is to look at the stats for BITMAIN’s popular S19 model, which – depending on whether it’s air or liquid-cooled (no more noisy fans) – consumes between 3 and 5 kW at the wall.

Running just one of these machines (and large-scale Bitcoin farms could have thousands of them) 24 hours a day corresponds to 72 kWh of energy, at the low end of the scale. To put this in perspective, this is already more than double the energy consumption of an average US household. And Bitcoin enthusiasts have calculated that you’d need 14 solar panels (or more, if the weather is less favorable) to power such cryptocurrency mining equipment.

Miners looking to profit from their activities, rather than simply hoard Bitcoin, will have a keen interest in the price of electricity – and the cheaper, the better. Without a supply of cheap electricity, the economics of Bitcoin mining are not favorable – and that’s before the expected halving of rewards. Hence, miners will seek out areas with readily available, low-cost power such as hydroelectric sources.

High fossil fuel prices that push up electricity prices will mean that miners run at a loss. Searching for the truth on Bitcoin and whether the cryptocurrency is harmful to the environment then becomes a question of how long operators can sustain those losses. When clean energy becomes cheaper than fossil fuel-generated power, you can bet that miners will want to tap into that. Plus, profits could be dented in other ways.

Cryptocarbon

Organizations such as the International Monetary Fund are considering a corrective tax to address the issue of what they dub ‘cryptocarbon’. Their concern is based on a scenario where the value of Bitcoin, or other cryptocurrencies based around a proof-of-work consensus mechanism, rises significantly and brings about the use of large amounts of low-energy efficiency mining hardware.

Bitcoin mining has become a search for cheap energy – which includes sources of natural gas that have to be vented into the atmosphere for safety, but can be repurposed to power blockchain validation. According to operators, there are environmental savings that can be engineered by exploiting what’s termed ‘stranded energy’.

Some Bitcoin farms have struck agreements with energy suppliers to shut down when there’s peak demand for electricity and power is required for more critical uses. Conversely, mining hardware can help to balance electricity grids that find themselves flooded with clean energy – for example, on sunny days, in the case of solar arrays, and on gusty ones, where power comes from wind turbines.

Operators of Bitcoin farms are keen to point out that their infrastructure is interruptible and can benefit energy firms as a buyer of last resort. In the middle of the night when there’s little demand, Bitcoin farms can purchase excess power that would otherwise be rejected at a loss to energy companies.

To be clear, cryptocurrencies that pitch millions of mining machines against each other to collect a single prize do waste energy in the name of securing the network. But it may not be the apocalypse that some suggest, as long as cheap clean energy can be found and market forces deter miners from hooking up their operations to generators fed with fossil fuels.