Is Bitcoin truly the ecological nightmare mainstream media makes it out to be? Most are aware that energy consumption is a major concern in the world of cryptocurrencies, with Bitcoin (BTC) often taking the brunt of the criticism.
But, as we delve deeper into the data on the matter, a different, more nuanced picture emerges — one that completely flips the script on its head. Join us as we unveil the bigger picture, including recent data that shows Bitcoin may in fact be consuming 50 times less energy than traditional banking!
Criticisms of Bitcoin’s energy use
To give some context, many often regard Bitcoin as extremely damaging to the environment because of its significant energy consumption. Some of the most cited studies criticising Bitcoin's power use come from the University of Cambridge which in their Cambridge Bitcoin Electricity Consumption Index (CBECI), guesstimates that Bitcoin uses more electricity than entire countries with an estimated 110 terawatt-hours (TWh) per year.
Other prolific studies have also arisen in tandem with the CBECI, including the Mora Study from 2018. This study, which quickly became one of the most referenced works on the topic, claimed that if Bitcoin was adopted at the same rate as other widely adopted technologies, it could produce enough carbon emissions to surpass the 2°C warming limit within 30 years.
Setting the record straight
Over time, most of these studies have been debunked by other academic research for their significant overestimates and flawed methodology. For example, the Mora Study on Bitcoin's carbon footprint made unrealistic assumptions about the speed of Bitcoin adoption, basing projections on the growth of past technologies. The study estimated 8 billion transactions by 2023, but as of February 1, 2023, only 801 million transactions have been recorded, having increased just 13.31% from the previous year. At this rate, the 8 billionth transaction won't be projected to occur until 2034, over an entire decade after the study's estimate.
Moreover, the premise the study was built upon (linking energy consumption to the number of Bitcoin transactions) was flawed from the beginning as an increase in transactions does not have a proportional effect on energy consumption. This was further solidified in 2021, whereby electricity requirements increased throughout the year while transactions actually decreased.
Groundbreaking findings of a 2022 report
A 2022 research report titled "Bitcoin: Cryptopayments Energy Efficiency", further challenges the environmental criticisms against Bitcoin. Published by Michel Khazzaka, an IT engineer, cryptographer and founder of payment consultancy firm Valuechain, calculates that Bitcoin payments are a "million times more efficient" than the traditional banking system. It claims that previous energy analyses of Bitcoin were inaccurate, incomplete, and unfairly biased against cryptocurrency.
To begin, he questions the accuracy of the figures produced by the CBECI. Taking into account the average lifespan of Bitcoin mining machines as well as the rate at which new IT materials are created, Khazzaka suggests that Bitcoin consumes 88.95 TWh per year, which is substantially less than Cambridge's estimate.
Khazzaka's study also compares the energy consumption of the banking sector to Bitcoin, which he says is biased in favour of the banking system, stating that he didn't take into account the energy put into “banks, buildings or ATMs; to manufacture to bring the metal, etc." This was an intentional oversight by Khazzaka to give every advantage to the legacy financial system. Despite this, Khazzaka's estimate still shows that the traditional banking sector consumes 4,981 TWh per year, 56 times more energy than Bitcoin.
Moreover, the report also shows that the current block size of Bitcoin results in 5.7 times better energy efficiency than traditional payment systems. That is without taking into account the Lightning Network, which allows for more transactions with less energy consumption. Doing so increases Bitcoin's energy efficiency to 194 million times better than traditional systems. The report suggests that the traditional banking and payments industry should adopt blockchain technology, including Bitcoin, for improved efficiency, scalability, and – it goes without saying – sustainability for the environment.
A grain of salt
This isn’t the first time that studies criticising the energy consumption associated with new technology have been proven wrong.
A prime example is the early 2000s when a Forbes article claimed that the internet would consume half of the world's electric grid — a prediction that was later shown to be overly pessimistic by a factor of four. Or in 2019, when a report by the Shift Project claimed that carbon emissions from online video streaming were equivalent to France's emissions, triggering a frenzy of articles in mainstream media avidly touting the claim that “the emissions generated by watching 30 minutes of Netflix [1.6 kg of CO2] is the same as driving almost 4 miles”. Only for the projections to be revised by a factor of eight the following year.
All of this is to say that though it’s important to approach new technologies with a critical eye, it’s also important to take the veracity of early criticisms with a grain of salt.
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