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What if you bought lunch with a credit card, then your electric utility charged you $100 for the power required for the card swipe? You would probably stop using that credit card. What if that card swipe also emitted the same amount of carbon dioxide as burning 93.5 gallons of gasoline?
Welcome to the energy balance sheet of bitcoin. Do the positive aspects of cryptocurrencies outweigh the environmental downsides?
Bitcoin consumes more energy in a year than 185 individual countries, notes a MoneySuperMarket article (https://bit.ly/3w7vKts). A single bitcoin transaction uses 1,173 kilowatt-hours (kWh) of electricity; the average U.S. household uses about 877 kWh per month. And if you unplug everything in the world associated with computing bitcoin, it would conserve nearly the same amount of energy as turning off the entire country of Norway.
An estimated 40 million people in the United States have invested in or are trading in cryptocurrencies, according to a report prepared by the Biden administration (https://bit.ly/3FGtts6). As the popularity of cryptocurrency grows, so does the associated environmental impact.
Why is bitcoin so energy-intensive? Bitcoin isn’t a centralized bank, a key business model upside yet an energy downside.
Vox explains how bitcoin operates on a simple concept (https://bit.ly/3MfVCZG): “Every 10 minutes, the bitcoin protocol — essentially, the code underlying bitcoin — generates a math equation with a numerical solution. To mine bitcoin, you need to guess what that solution is. As more people (i.e., computers) try to guess that number, the protocol adjusts itself to make the number harder to guess, so more computing power is needed to make more guesses quickly.”
The environmental impact of trading bitcoin isn’t felt at the point of purchase, but a coal power plant often churns away to run the infrastructure.
Why is the carbon footprint so enormous? Forbes writes (https://bit.ly/3l6W2pl): “Even though there may be hundreds of thousands of computers racing to solve the same problem, only one can ultimately receive the bitcoin honorarium. Of course, this is wasteful in the sense that 99.99 percent of all the machines that did work just throw away the result since they didn’t win the race. While this process produces a fair and secure result, it also creates a ton of carbon emissions.”
Not all cryptocurrencies require the same amount of energy per transaction. Roughly 15,000 different cryptocurrencies are in circulation. MoneySuperMarket compared a few of the top crypto coins. Other cryptocurrencies, such as cardano, dogecoin and XRP, use less than 1 kWh per transaction. However, they also have a much smaller market share and price per coin in the cryptocurrency market.
Bitcoin had a market cap of about $800 billion USD at the time this column was written. While bitcoin is still the gorilla in the crypto market, it is the most wasteful in terms of energy per transaction.
Another popular cryptocurrency, named ethereum, touts a version 2.0 process that would change the energy per transaction from 87.29 kWh to 0.87 kWh. Ethereum is in second place for market share, so this would be a big step forward if it can minimize the number of computers using energy to unsuccessfully complete a transaction.
When it comes to the legitimacy of cryptocurrencies, some governments are apprehensive of harming their own currency by embracing cyber money. China’s central bank banned crypto transactions, while El Salvador made it the national currency in 2021.
Nebraska state legislatures passed bills in 2021 allowing banks to essentially handle cryptocurrencies as if they were American dollars (https://bit.ly/3l9acWQ). It is the second state to implement such a plan, similar to Wyoming’s special purpose depository institutions. More states and banks may follow to avoid being bypassed if the average consumer starts moving their savings accounts to crypto.
Kearney, Neb., welcomed a large-scale bitcoin mining operation with open arms. A company named Compute North inquired about a crypto mining location in Kearney, which would use more power than the city’s 34,000 residents. It also needed a $23 million substation to support the shipping-container-housed server farms included in the more than 200,000-square-foot footprint.
The city and local economic development council donated the land to Compute North, which plans to employ 10 people to run the crypto miners.
Elizabeth Shogren, an associate journalism professor at Northwestern University’s Medill School and a freelance reporter, interviewed Stan Klaus in a Reveal podcast episode about the project (https://bit.ly/3LbR854). Klaus is the mayor of Kearney and the local representative of the electric company Nebraska Public Power District.
He describes the situation: “The city makes Compute North’s deal even sweeter. Normally, Kearney gets 12 percent of everyone’s electric bill. But the city offered Compute North a deal. It would keep only 6 percent. That meant, in 2021, for example, the city kept $1 million from Compute North instead of more than $2 million.”
To say Kearney bent over backward to bring this bitcoin mining company to town is an understatement. Unlike a corporate campus or manufacturing plant, the Kearney economy only adds 10 local jobs. The increased stream of nuclear waste from the area power plants is one issue. A long-term issue may arise when more coal is needed for the local utility mix to keep up with power demands.
In total, is this a good trade-off for Kearney to say that a computer outside of town facilitates a bitcoin transaction somewhere else in the world? Conversations like this are happening in any market where power is cheap and local governments are willing to lobby crypto mining firms.
In March, President Joe Biden issued an executive order broadly telling a handful of federal agencies to coordinate their cryptocurrency approach (https://bit.ly/3NenSf8). In some ways, this means cryptocurrencies are important enough to warrant the leader of our country to stop what he is doing and put more resources into the research of how to approach and potentially regulate these digital coins.
This may lead to energy consumption regulations forcing crypto miners and electric utilities to reevaluate their positions and harm the return on investment of these mining farms.
Cryptocurrencies, especially bitcoin, are not worth the environmental toll. I’m not a finance expert and could not put a price on the free-trade-enabling aspect of crypto. However, unless crypto groups exponentially reduce the power required to conduct business, they may revive a dirty energy economy that negatively affects the entire world to avoid a Visa service fee on a sandwich.