Cryptocurrencies are currently experiencing a price drop, and many analysts attribute this to Elon Musk. He only recently stated that his company, Tesla, will stop accepting Bitcoin payments. The reason for this is supposed to be its impact on the environment. For the purpose of this article, we decided to omit the fact that Musk is becoming to be known for deliberately influencing the prices of cryptocurrencies through similar statements, which he then uses to his financial advantage. We would rather look at what most debates completely omit – comparing the consumption of Bitcoin with the consumption of the banking system and the consumption of the gold mining industry.
Yes – Bitcoin consumes a lot of electricity and certainly has a negative impact on the environment, but …
Bitcoins´ power consumption is relatively easy to monitor. With tools like the Cambridge Bitcoin Electricity Consumption Index, you can even track it real-time. A study by Galaxy Digital estimates that Bitcoin together consumes approximately 115 TWh per year. This number includes the consumption of mining, pools and also the consumption of individual nodes. To put this into perspective, whole energy production is around 160 000 TWh, with up to 50 000 TWh lost due to energy inefficiencies. Compared to this, Bitcoin is only a drop in the ocean. It must also be said that we do not know exactly the share of renewables used to produce energy for the operation of Bitcoin. However, it is economically most advantageous for miners to look for the cheapest possible energy, and therefore especially for energy from surpluses and renewable sources.
Using the current global average of approximately 0.6 tonnes of CO2 per kWh of electricity produced, Bitcoin mining emits 70 million tonnes of CO2 per year. In a broader view, it is certainly necessary to compare this number with the “competition” of Bitcoin.
Let’s look at consumption and the environmental impact of gold mining
To calculate energy consumption in gold, Galaxy Digital has implemented estimates of total emissions in the industry from a report by the World Gold Council entitled “Gold and Climate Change: Current and Future Impacts.” It is estimated that this industry consumes approximately 240 TWh of energy per year. Moreover, this number is far from total, as gold is associated with a number of other processes in its refining and processing.
The fundamental difference we see compared to Bitcoin is the fact that gold mining leaves huge devastated areas in the world, which will probably never return to their original state. In 2020, approximately 3,500 tonnes of gold were mined worldwide and another 1,300 were recycled. According to Dell, each kilogram of gold mined consumes almost 50 MWh of energy and produces 20 tons of CO2. In the jewellery industry, which takes 50% of the world’s demand for gold, these numbers are even higher, reaching 35 tonnes of CO2 per kilogram of gold and up to 80 MWh per gram. Together, this industry consumes almost 270 TWh of energy per year and produces 145 million tons of CO2.
The banking sector really can’t blame Bitcoin
In the comparison of these 3 sectors, the bank gets to the first (worst) place and therefore the attacks of its representatives towards Bitcoin are literally ridiculous. It is estimated that its data centres, bank branches, ATMs and data centres of card companies together **consume almost 270 TWh of energy per year. **However, this is a very simplified estimate and some reports show a value of up to 700 TWh per year, which represents up to 400 million tonnes of CO2.
These numbers are very difficult to estimate, as the current financial system includes a number of separate sectors that are directly involved in its functioning. In the estimate, we do not include, for example, the energy used to produce banknotes and coins, nor the materials themselves (plastics, metals and paper) used to produce them.
The final evaluation is likely to surprise critics of cryptocurrencies in particular
As the mentioned studies and their numbers clearly show us, Bitcoin is more than good compared to the competition. If we (in theory) stop gold mining today and completely replace the banking sector with cryptocurrencies, energy consumption would ultimately fall. This would, of course, also reduce CO2 production.
In addition, cryptocurrencies and their miners are economically motivated to make the most of waste energy and renewables. As of now, Bitcoins´ consumption is half of what we estimate for the gold industry and one-fifth of the estimate for the banking sector.