Introduction
The emergence of Bitcoin and its underlying blockchain technology has revolutionised the way financial transactions are handled, as well as financial information is stored and distributed in the online environment (Baur and Oll, 2022). Since its inception in 2008, Bitcoin has quickly gained popularity as the most profitable digital currency, forcing many enthusiasts and entrepreneurs to invest in so-called mining farms. However, the process of generating or mining new coins is associated with high levels of energy consumption, making the statement that Bitcoin is a sustainable digital currency questionable (Yeong et al., 2022). This essay explores the extent to which the mining of Bitcoin exacerbates the growth in global energy consumption and electronic waste levels and how this problem could potentially be tackled.
The Phenomenon of Cryptocurrency
The birth of Bitcoin dates back to 2008 when Satoshi Nakamoto introduced an open, peer-to-peer distributed network, in which the computer hardware of every network member helped in creating new blocks of transactions (Das and Dutta, 2020). Bitcoin can be described as an electronic cash system that operates through a consensus protocol to ensure there is no double-spending (Truby et al., 2022). To stimulate users’ intention to join the network, the system contains an incentive in the form of a reward attached to the successful creation of a new block. Within the Bitcoin system, consensus over the ledger’s state is maintained through the Proof-of-Work (PoW) mechanism, in which blockchain members compete with one another to solve resource-intensive cryptographic problems. Those users who provide more resources (e.g., time, electricity, and computing power) earn the right to add their block to the chain (Vranken, 2017).
Although Bitcoin has been around for more than a decade, there are still heated debates in the literature about the nature of this cryptocurrency and its purpose (Dogan et al., 2022). Some authors believe that the creation of Bitcoin was a response to the 2008 global financial crisis and an attempt to introduce a more secure and decentralised payment system that would allow for minimising the risk of failure and, hence, the loss of financial resources (Jana et al., 2022). There are also many conspiracy theories surrounding the Bitcoin cryptocurrency. One such theory, for example, assumes that Bitcoin is a secret operation undertaken by the US government that has backdoor access to the cryptographic hash algorithm of the cryptocurrency (Das and Dutta, 2020). This theory is partly supported by the fact that it is still unknown who Satoshi Nakamoto is. Some scholars even argue that Bitcoin was created by a group of authors under this pseudonym (Yeong et al., 2022).
Regardless of its origin and genesis, Bitcoin has become a phenomenon in the financial world due to its enormous growth rates. While high volatility does not allow for stating that Bitcoin is a good investment instrument, Bitcoin mining has surged in popularity all around the globe (Statista, 2022). However, the desire to get a fortune through mining comes with a cost, namely increasing energy consumption and a growing amount of short-lived equipment and hardware. These trends have triggered a considerable debate about the extent to which Bitcoin could be viewed as a sustainable cryptocurrency. As of today, the Bitcoin network consumes more than 87TWh of electricity, which goes on par with countries like Belgium, Austria, and Ireland (de Vries et al., 2022). Therefore, the contribution of Bitcoin to the problem of global warming and climate change is substantial.
Bitcoin’s Sustainability Concerns
The users of the Bitcoin network make millions of transactions daily to exchange their currencies (Kohli et al., 2022). Coupled with the process of Bitcoin mining, the cryptocurrency network consumes a ginormous, over-proportionate amount of electricity as compared to the technical performance of Bitcoin (Baur and Oll, 2022). Consequently, the digital mining of cryptocurrency generates a massive carbon footprint of more than 37 megatons of carbon dioxide (CO2), which is equivalent to that of New Zealand (Browne, 2021). Despite its promising applications, Bitcoin is one of the major contributors responsible for global warming and climate change. According to Mora et al. (2018), Bitcoin alone can raise the global temperature by 2 degrees Celsius within the next two decades. It should be noted, however, that the distributed nature of the Bitcoin network does not allow for obtaining a close estimate of electrical energy consumption, as well as carbon footprint.
The aforementioned energy consumption issue can be linked to the profitability of the Bitcoin mining process, especially when there is a downward trend in its profitability. Das and Dutta (2020) examined whether the rising energy requirements of Bitcoin caused miners to exit the market. By analysing miner revenue and Bitcoin’s energy consumption index, the researchers discovered that the energy costs negatively affected miners’ revenues when they were volatile and low (Das and Dutta, 2020). As of July 2022, the Bitcoin price is equal to around $20,000 per coin, suggesting that its mining is counterproductive from a financial standpoint in countries with relatively high electricity prices (Binance, 2022).
The declining number of Bitcoin miners is likely to reduce the negative externalities of the mining process, including carbon emissions. Thus, the low price of Bitcoin coupled with high electricity prices would inevitably reduce Bitcoin’s adverse impact on the environment while adding to its sustainability (Ren and Lucey, 2022; Yang and Xu, 2021). Still, given the high level of Bitcoin volatility and many users’ opportunistic behaviour when it comes to mining, it is unlikely that the energy costs would play a crucial role in assessing business viability. In other words, miners would rather search for cheaper energy sources and more efficient mining hardware than exit the market (Di Febo et al., 2021).
One of the major criticisms of Bitcoin and similar cryptocurrencies is predominantly centred on the PoW system and related carbon emissions without considering its market value (Yang and Xu, 2021). Cryptocurrency mining could be associated with millions of tons of global carbon emissions (Shin and Rice, 2022). At the same time, as previously hinted, the transaction per carbon emitted is not constant across countries. For example, China is commonly considered one of the global mining centres due to low setup costs and the country’s heavy reliance on coal energy (Dogan et al., 2022). While this energy can be generated in a relatively cheap way, it is highly carbon-intensive, making the contribution of cryptocurrency coins mined in China to the problem of global warming and climate change stronger than in any other country. It is expected that without a direct policy intervention in the process of cryptocurrency mining, China’s energy consumption is estimated to reach around 300 TWh, which corresponds to 130 million tons of CO2 emissions, by 2024 (Jiang et al., 2021).
A relationship between Bitcoin development and environmental degradation was empirically examined by Erdogan et al. (2022). By using the bootstrap-augmented Toda-Yamamoto causality test, the researchers discovered that while there were causal impacts running from Bitcoin demand on environmental degradation, it was impossible to separate the causal effect of positive and negative shocks of cryptocurrency demand on the environment (Erdogan et al., 2022). Alternatively, Jana et al. (2022) reported that Bitcoin demand contributed to climate change and environmental degradation and linked this impact to the increasing number of cryptocurrency transactions and more intense Bitcoin mining activities. However, this relationship was evident only during the period of volatility, which could be explained by market players’ intention to have a speculative profit or avoid the loss of investment.
Despite the aforementioned differences, both Erdogan et al. (2022) and Jana et al. (2022) concluded that increasing cryptocurrency demand contributed to the average electricity amount consumed by the Bitcoin network. As a result, the impact of these consumption levels on the environment cannot be neglected. Moreover, de Vries (2020) argued that Bitcoin’s energy consumption was underestimated because common approaches to its assessment apply static assumptions in defining market circumstances and market participants’ subsequent behaviour. The point is that the reliability of these approaches could be questioned since market circumstances are dynamic, indicating that the choices of those participating in the cryptocurrency mining market will depend on these external circumstances (Di Febo et al., 2021). At the same time, there is still no universally accepted methodology to estimate the amount of electricity consumed and the amount of greenhouse gas emissions generated by the Bitcoin network. Hence, the findings produced by de Vries (2020) should also be considered with caution.
Possible Solutions
Given the environmental sustainability issues discussed above, there is an urging need for a more sustainable approach to the functioning of the Bitcoin network, as well as the cryptocurrency mining process (Kohli et al., 2022). One of the most obvious solutions to the aforementioned problem would be the transition from the PoW design to an alternative consensus mechanism. For example, in cryptocurrency networks that rely on the Proof-of-Stake (PoS) consensus mechanism, the consumption of electricity is considerably lower than that in the Bitcoin network (Vranken, 2017). In turn, this results in much lower greenhouse gas emissions via emission factors of electricity consumption and generation. Nonetheless, PoW remains a dominating consensus mechanism in the cryptocurrency world because of its higher security and reliability as compared to PoS (Truby et al., 2022).
Another potential solution to Bitcoin’s environmental sustainability challenge could be a shift towards renewable energy sources by its network members. In their study, Kohli et al. (2022) noted that the expensiveness of renewable energy was a misconception and its generation was cheaper than any other type of energy. Although this statement is debatable, the transition of the Bitcoin network to solar and wind energy could have significantly contributed to its environmental sustainability. Indeed, the generation of alternative or clean energy is not associated with any greenhouse emissions, making it a highly attractive option for cryptocurrency market players (Yang and Xu, 2021). At the same time, the manufacturing of solar panels and other equipment needed to generate renewable energy is not free from CO2 emissions (Shin and Rice, 2022). Thus, the assumption that green energy generation does not produce any greenhouse gas pollution is not entirely correct.
Even though the Bitcoin network produces a significant amount of greenhouse emissions, its voluntary intention to switch away from PoW is unlikely in the nearest future due to multiple reasons, some of which have already been mentioned in this essay (Ren and Lucey, 2022). Therefore, policymakers could utilise policy intervention to attain the desired results and make the process of cryptocurrency mining and transaction verification more environmentally sustainable. Considering the high energy use of PoW designs, there is no surprise that some jurisdictions have already recognised the need to discourage their usage in cryptocurrency networks (Di Febo et al., 2021). However, given the global nature of these networks, it is important that governments collectively halt PoW blockchain verification methods by introducing relevant regulations. This collective action is expected to encourage a global shift to more efficient consensus designs, such as PoS, away from the Bitcoin-style design. In turn, the environmental impact of and energy consumption by cryptocurrencies in general and Bitcoin, in particular, will be reduced.
Conclusion
Bitcoin is the first cryptocurrency network that is focused on the minimisation of the risk of losing financial resources by utilising a highly decentralised payment system (Dogan et al., 2022). Due to its phenomenal popularity and growth, the resource intensity of running the Bitcoin network has increased, resulting in serious public concern about its potential effect on the environment. Continuously increasing energy consumption and electronic waste levels have created a growing need for mitigation actions that would contribute to the environmental sustainability of cryptocurrencies and reduce their contribution to the issue of climate change and global warming (Erdogan et al., 2022). To tackle this challenge and make the process of cryptocurrency mining and transaction verification more sustainable, Bitcoin could shift to a more energy-efficient consensus design and rely more heavily on renewable energy. Alternatively, governments could implement a policy response to halt PoW blockchain verification methods to make Bitcoin and other cryptocurrencies more environmentally friendly (Ren and Lucey, 2022).
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