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“Criticism is justified, but …”: How damaging to the climate is Bitcoin really?

“Criticism is justified, but …”
How damaging to the climate is Bitcoin really?

By Sebastian Schneider

Bitcoin has a problem: The cryptocurrency is considered a climate sinner. The electricity consumption can be compared with that of a western industrial nation. Tesla boss Musk makes this suspicious and he makes a U-turn. But the damage to the digital currency is unlikely to last.

Tesla boss Elon Musk couldn’t quite commit himself. He actually thinks the concept of cryptocurrencies is good, but the price for the environment is too high. A Tesla can therefore no longer be paid for in Bitcoin since May of this year. That news sent the course on a roller coaster ride. It remains to be seen whether Musk is really interested in the carbon footprint. Nevertheless, he hit a sore point.

It is undisputed that the cryptocurrency is a climate sinner. Because to generate new bitcoins, you need a lot of electricity. Cambridge University predicts that this year alone, a total of around 85 terawatt hours (TWh) will be used for all newly created bitcoins worldwide. For comparison: Germany consumed around 612 TWh in 2019, Finland is currently 84.2 TWh per year. However, the sheer power consumption alone is not the problem.

Christian Stoll from the Technical University of Munich, who is researching the carbon footprint of cryptocurrencies at the “Center for Energy Markets” among other things, explains to that on the one hand, the high power consumption releases CO2 emissions. According to a study, in 2019 they were between 22 and 23 megatons of carbon dioxide. Germany emitted a little more than 700 megatons in the same year. Since then, Bitcoin should have tripled. On the other hand, there is what is known as “e-waste”. This is special, short-lived hardware that is only used to produce new bitcoins.

What matters is where the electricity comes from

“The criticism that is pouring down on Bitcoin is no coincidence,” says crypto expert Philipp Sandner, head of the blockchain center at the Frankfurt School of Finance, However, there is one but: “Of course, you can always immediately criticize everything that consumes electricity.” Those who are serious about the topic are no longer allowed to surf the Internet. The key question is where the electricity comes from, says Sandner.

It is a fact of the currency that the more crypto units are in circulation, the more electricity is needed to mine new ones. This is a kind of protective mechanism for the Bitcoin, because no one else can generate that much electricity. That does not make the network vulnerable, explains Sandner. In theory, this is also possible in a climate-friendly manner. “But then you have to be sure that only clean energy is used – and that it is not compensated for elsewhere by fossil energy sources,” says researcher Stoll.

But that’s where the next problem lurks. In a decentralized system such as the blockchain, on which Bitcoin is based, it is sometimes not possible to prove that renewable energies are used, explains Ulrich Gallersdörfer, scientist at the IT faculty at the Technical University of Munich, “A green cryptocurrency means that all participants who use or operate the network use renewable energies or offset the emissions that arise.” CO2 compensation also has its pitfalls. Gallersdörfer says that it is neither clear whether the electricity demand has been precisely calculated, nor whether it actually fulfills its purpose.

A problem in the short term, but probably not in the future

However, the environmental problems do not endanger Bitcoin. “That doesn’t really harm Bitcoin, because sooner or later it will spread further, there is no getting around it,” explains crypto specialist Sandner. The concern about the Bitcoin existed and it was justified. “That is bad,” he says: “In the short term, it leads to greater skepticism and investors stay away.”

But Sandner is convinced that this does not have to be the case in the long term. On the one hand, he assumes that large mining facilities will join forces in the future and, when looking for capital, will also disclose which energy sources they are using. Investors would then prefer the plants that rely on green energy. During the pandemic, this has not been shown everywhere. In the US, old fracking systems suddenly started mining bitcoins. “The extent to which such energy use is green can be discussed,” says researcher Gallersdörfer.

On the other hand, it is simply a question of money. After all, miners want to make money too. “Mining is particularly profitable when the electricity is particularly cheap,” says Sandner: “Bitcoin has a tendency to use more green energy in the future.” But that still takes a lot of time: “These are trends that are only slowly gaining ground.”

Still, one question remains

But it can be argued about. Whether electricity is cheap or not depends not only on renewability. “Coal-fired power plants were reactivated to mine Bitcoin, since electricity is very cheap thanks to depreciation,” explains researcher Gallersdörfer. It’s not so easy with renewable energies either. Surplus electricity can be used by Bitcoin miners, for example. This works particularly well with geothermal energy or hydropower. But it is more difficult with power sources that are prone to fluctuations, such as solar energy. “Miners cannot switch their hardware on or off at will, otherwise the investment will not be worthwhile,” says Gallersdörfer.

But these are more of the present-day problems. After all, crypto expert Sandner looks hopefully into the future – and especially to Central America. There is an experiment there that makes him confident: “When Bitcoin is used as legal tender in El Salvador for the first time in September, it will show whether the population will benefit or not,” he explains. Then a question arises: “Which is better and more interesting in the end: That a technology enables things such as ‘financial inclusion’ of hundreds of thousands of people in El Salvador or the possibility of transferring values ​​without having to ask someone for permission can become very valuable achievements that may require power consumption. “

Hasan Sheikh
Hasan, who loves technology and games, is studying Computer Engineering at Delhi JNU. He has been writing technology news since 2016.


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