Bitcoin may be making a few people wealthy, but it’s killing us all. The crypto-currency that’s caught the world by storm has a dark side: its carbon footprint.
At today’s value of roughly $1,000 per bitcoin, the electricity consumed by the bitcoin mining ecosystem has an estimated carbon footprint – or total greenhouse gas emissions – of 8.25 megatonnes (8,250,000 tonnes) of CO2 per year, according to research by Bitcarbon.org. That’s 0.03 percent of the world’s total greenhouse gas output, or equivalent to that of the nation of Cyprus. If bitcoin’s value reaches $100,000, that impact will reach 3 percent of the world’s total, or that of Germany. At $1 million – which seems farcical but which may not be out of the realm of possibility given the artificially limited bitcoin supply – this impact rises to 8.25 gigatonnes, or 30 percent of today’s global output, and equivalent to that of China and Japan combined.
Bitcoins aren’t mined from the earth’s crust like most physical commodities – although at least that leaves tangible evidence of its environmental impact. Rather, they are “mined” by computers solving a set of complicated computational problems. These problems are designed to get more difficult over time, until the year 2140 when the 21 millionth (and final) bitcoin is mined. Early in bitcoin’s existence, it was feasible to run a successful mining operation with a standard PC. Now the task requires custom mining rigs that can run orders of magnitude more processes per second.
The top of the line model, which is currently made by a Swedish company called KnCMiner, costs around $13,000 and can mine at a rate 550 gigahashes per second: They’ve sold $28 million worth, and soon these too will be obsolete. The total computational power of the global bitcoin mining network today is more than seven million gigahashes, and climbing. That’s 256 times greater than the world’s top 500 supercomputers, combined.
These computers are consuming so much electricity that it’s already unprofitable to mine in some regions of the world. According to Blockchain.info the total electricity cost of all mining acticity conducted over the last 24 hours was $19,652,986.38, as the system consumed 131,019.91 megawatt hours. In April, Bloomberg Sustainability called bitcoin mining it a “real-world environmental disaster.” At the time, the system was consuming just 7,000 megawatt hours per day – things have increased 142-fold in the last eight months.
Bitcoin’s brilliance may also be its downfall. The entire system is built on a “proof of work” algorithm in which miners race to find the simplest and shortest piece of data to represent the ever-growing bitcoin transaction record, or blockchain. Proof of work solves the biggest challenge facing all preceding cryptocurrencies: How do you build a financial system among distributed nodes without trusted centralized clearinghouse, aka a bank? Chris Dixon recently noted that this problem, which is called the byzantine generals problem in computer science, was previously thought to be impossible.
The answer to this problem, it turns out, was to pay miners a non-trivial amount to solve these problems and thus verify each block of bitcoin transactions. With enough miners, the system rolls on. But invisible to the naked eye, so does the massive carbon output. In fact, the cost of electricity is a systemic design consideration that bitcoin’s creators realized would regulate the pace at which bitcoins were mined. The thinking goes that as computers get more powerful, per Moore’s Law, the cost of mining bitcoin will fall back into reason – and then the race will begin again in earnest.
The exact carbon footprint of the bitcoin system is unknown. The above Bitcarbon figures are mere estimates based on several simplistic assumptions. First, the calculation assumes that miners will be willing to spend 90 percent of the value of a single bitcoin to mine it. This could be a gross underestimate if miners are willing to bet on appreciation. Second, these figures are based on the assumption that 50 percent of all mining activity takes place in the US and 50 percent in China. This is a deliberate oversimplification for arriving at a reasonable estimate of the blended cost and carbon output of first-world and second/third-world mining activities. It also raises the interesting point that, from an environmental perspective, not all bitcoins are created equal. Chinese bitcoins are “dirtier,” yet less expensive economically to produce than those mined in the US.
But, even if taken as just order-of-magnitude accurate, Bitcarbon’s math makes it obvious that we have a real problem on our hands here. Bitcoin’s carbon output impact threatens both the environment and it’s long term viability as an economic system. In fact, it’s inconceivable that major world governments would allow bitcoin (or any other system) to consumer a tenth or a third of the world’s carbon output, as is predicted.
There are things that can be done to offset or arrest bitcoin’s carbon footprint, but none are likely enough to make up for the design choices made by the system’s creators. Bitcarbon has introduced an offset program through which miners can voluntarily purchase carbon credits created from clean tech projects. But it’s unlikely that the desire for a clean conscience will be enough to drive such behavior.
Bitcoin could also follow in the footsteps of other alternative currencies, or altcoins, several of which have implemented alternatives to the proof of work system that don’t demand such computational heft. For example Litecoins, which many have referred to as “silver to bitcoin’s gold,” uses a different type of algorithm that is said to negate the benefit of utilizing specialized mining hardware. This doesn’t eliminate the carbon output of the system, but reduces it dramatically. Peercoin, on the other hand, is built upon a proof-of-stake system that distributes new coins based on the size of an individual’s holdings. This has its own drawbacks, but eliminates the need for mining rigs alltogether.
Unfortunately, the bitcoin ecosystem is likely too big and too distributed to implement significant changes to its proof of work system now. Such changes would require the majority (likely 80 percent) of all mining nodes to agree and to implement the shift simultaneously in order to preserve the systemic integrity. Without a central governing body or even leadership council, this is highly implausible.
For those concerned about bitcoin’s carbon footprint, the best recourse may be to promote the use of one of these altcoins in favor of bitcoin. The Litecoin system is currently less than 10 percent that of bitcoin in terms of total value, and its underlying infrastructure and level of public awareness both pale in comparison. But as the second largest digital currency it may have the best shot of all existing altcoins at reaching such meaningful scale as to challenge bitcoin’s dominance.
The Bitcoin phenomenon has reached fever pitch. And it’s only because of this mass adoption that we even need to have this environmental discussion. When bitcoin was just a curiosity shared by a few of the Web’s most fervent cypherpunks, the environmental impact of the system posed little cause for concern. But as this freight train powers ahead, and the values of both the overall system and individual coins continue to grow, the incentives to spew a little carbon into the air grow with them.
Now is the time to have this discussion, although, in all likelihood, the time has long since passed.