Bitcoin Is Not Bad For the Environment

🟠 Story: Alice has just been orange-pilled and decides to spend a few hours reading Bitcoin articles.

She lands on a mainstream media article on “Bitcoin’s high energy consumption” proposing alternative (centralized) “green coins” that supposedly solve the problem of high energy consumption.

Alice gets distracted and invests in green tokens, effectively buying the bags of marketers promoting green crypto.

After losing 99% of her money, she’s disappointed by the whole industry and concludes that Bitcoin is not for her because the industry is too complex and full of scammers.

Here’s one of those articles recommending five centralized shitcoins:

Here’s another article with shallow content and no unique thought:

In this article, I’ll address Bitcoin’s energy “concern” quickly and efficiently. Let’s get started! πŸ‘‡πŸ‘‡πŸ‘‡

Bitcoin Is Eco #1: Inbuilt Incentive to Use Renewable Energy Sources

Miners, who are responsible for validating transactions and securing the network, are driven by profit. Consequently, Bitcoin’s decentralized nature and proof-of-work consensus mechanism have an inbuilt incentive to use renewable energy sources where they are cheapest.

🌞 Renewable energy often provides a more cost-effective solution, leading miners to gravitate towards these sources naturally:

Source: Wikipedia

This non-competition with other energy consumers ensures that Bitcoin’s energy consumption is sustainable and environmentally friendly.

πŸ’‘ Renewable energy (specifically: solar energy) offers the lowest-cost energy sources. Fossil-powered miners operate at lower profitability and tend to lose market share compared to renewable-powered miners.

Consider these statistics:

β˜€οΈ The Bitcoin Mining Council (BMC), a global forum of mining companies that represents 48.4% of the worldwide bitcoin mining network, estimated that in Q4 2022, renewable energy sources accounted for 58.9% of the electricity used to mine bitcoin, a significant improvement compared to 36.8% estimated in Q1 2021 (source).

In the first half of 2023, the members are utilizing electricity with a sustainable power mix of 63.1%, thereby contributing to a slight improvement in the global Bitcoin mining industry’s sustainable electricity mix to 59.9% (source).

Bitcoin is one of the greenest industries on the planet; year after year, it becomes greener!

Bitcoin Is Eco #2: Monetizing Stranded Energy

  • Bitcoin’s energy consumption provides a way to use excess energy that would otherwise go to waste.
  • For example, solar panels often generate more energy than needed, especially during peak hours.
  • Batteries are still expensive and not easily accessible everywhere. Also, they don’t solve the fundamental problem of excess energy — they only buffer it.
  • Bitcoin mining can consume this excess energy, ensuring that it is not wasted and contributing to the overall efficiency of the energy system.

Bitcoin’s role as an energy consumer of last resort is an innovative solution to a modern problem. By tapping into excess energy from renewable sources like solar, wind, and hydroelectric power, Bitcoin mining ensures that energy that would otherwise go to waste is put to productive use.

This is called stranded energy, and energy insiders already propose to use Bitcoin as a solution to utilize stranded energy in economically and ecologically viable ways:

🌳 Bitcoin’s energy consumption is not merely a drain on resources but a strategic tool for enhancing the energy system’s efficiency and sustainability.

By acting as a consumer of last resort, Bitcoin mining transforms a potential waste into a valuable asset, fostering economic development, encouraging renewable energy, and offering a flexible solution to energy grid stabilization.

Bitcoin Is Eco #3: Incentivizing Renewable Energy Development

TL;DR: According to Wright’s Law, technological innovation leads to a reduction in costs over time. Bitcoin’s demand for energy incentivizes developing and deploying renewable energy sources, such as solar and wind power, which, in turn, helps to reduce the cost per kilowatt-hour, making renewable energy more accessible and appealing to other industries as well.

Being able to monetize stranded energy (see previous point #2) not only contributes to the overall efficiency of the energy system but also encourages further investments in renewable energy sources, driving innovation in energy-efficient technologies.

And with more investments in solar energy, the price per kWh continues to drop due to Wrights Law accelerating the renewable energy transition.

πŸ₯œ In a Nutshell: More Bitcoin Mining --> More Solar Energy --> Lower Cost per kwh --> More Solar Energy

What sets Bitcoin mining apart is its geographical flexibility and ability to turn on and off like a battery for the energy grid. Mining operations can be strategically located near renewable energy sources, consuming excess energy when available and pausing when needed elsewhere.

This unique characteristic allows Bitcoin mining to act as a stabilizing force in the energy grid, reducing the need for energy storage or wasteful dissipation of excess stranded energy and providing economic incentives for both energy producers and local communities.

Bitcoin Is Eco #4: No It Won’t Consume All the World’s Energy

Contrary to popular belief, Bitcoin’s energy consumption does not grow linearly with Bitcoin adoption and price. Instead, it grows logarithmically with the Bitcoin price, meaning it will likely never exceed 1-2% of the Earth’s total energy consumption.

And even if it were to exceed a few percentage points, it’ll use mostly stranded energy (see previous points #2 and #3) and won’t be able to compete with other energy consumers such as:

  1. Data Centers: High energy for cooling and uninterrupted operation.
  2. Hospitals: Continuous power for life-saving equipment and systems.
  3. Manufacturing Facilities: Energy for uninterrupted production processes.

These will always be able to pay a higher price for energy than Bitcoin.

Bitcoin’s energy consumption isn’t a big deal, even without considering its ecological benefits (see point #5).

Bitcoin Is Eco #5: Bitcoin’s Utility Overcompensates For Its Energy Use

Like everything else, Bitcoin has not only costs but also benefits. The main argument of Bitcoiners is, of course, the high utility the new system provides.

Bitcoin’s decentralized financial system reduces the need for the traditional financial sector’s overhead, such as large buildings, millions of employees, and other expenses related to gold extraction and banking operations. Bitcoin is the superior and more efficient technology that will more than half the energy costs of the financial system.

Source: Nasdaq

For example, this finding shows that both the traditional banking sector and gold need more energy than Bitcoin.

“A 2021 study by Galaxy Digital provided similar findings. It stated that Bitcoin consumed 113.89 terawatt hours (TWh) per year, while the banking sector consumed 263.72 TWh per year.

[…] According to the CBECI, the annual power consumption of gold mining stands at 131 TWh of electricity per year. That’s 10 percent more than Bitcoin’s 120 TWh. This further builds the case for Bitcoin as an emerging digital gold.” (CNBC)

And this doesn’t include the energy benefits that could accrue to Bitcoin when replacing much of the monetary premium in real estate:

πŸ’‘ Recommended: 30 Reasons Bitcoin Is Superior to Real Estate

Bitcoin Is Eco #6: Deflationary Benefits to the Economy

TL;DR: Bitcoin’s deflationary nature encourages saving rather than spending. A Bitcoin standard will lead to a reduction in overall consumption, which has significant ecological benefits.

Bitcoin, a deflationary currency with a capped supply, may offer environmental benefits by reducing consumption. Traditional economies, driven by inflation, encourage spending, often resulting in overconsumption and waste.

For instance, wars are usually funded more by inflation rather than taxation. Millions of people buy cars and houses they can’t afford with debt, the source of all inflation.

In contrast, Bitcoin’s deflationary nature incentivizes saving, leading to decreased and highly rational consumption. Because BTC money cannot be printed, the economy would have much lower debt levels, so excess consumption is far less common in deflationary environments.

Reduced consumption can benefit the environment in several ways. Lower demand for goods means fewer greenhouse gas emissions from manufacturing and transportation. It also means less pollution from resource extraction and waste.

All technological progress is deflationary, i.e., goods become cheaper and not more expensive with technological progress. A deflationary economy promotes sustainable businesses that deliver true value without excess overhead making the economic machine much more efficient and benefitting all of us.

Mainstream Keynesian economists do not share the view that deflation is good for the economy, so I added this summary of an essay from theΒ Mises Institute: πŸ‘‡

“Deflation Is Always Good for the Economy” (Mises Institute)

Main Thesis: Deflation, defined as a general decline in prices of goods and services, is always good for the economy, contrary to the popular belief that it leads to economic slumps. The real problem is not deflation itself, but policies aimed at countering it.

Supporting Arguments:

  1. Misunderstanding of Deflation: Most experts believe that deflation generates expectations for further price declines, causing consumers to postpone purchases, which weakens the economy. However, this view is based on a misunderstanding of deflation and inflation.
  2. Inflation is Not Essentially a Rise in Prices: Inflation is not about general price increases, but about the increase in the money supply. Price increases are often a result of an increase in the money supply, but not always. Prices can fall even with an increase in the money supply if the supply of goods increases at a faster rate.
  3. Rising Prices Aren’t the Problem with Inflation: Inflation is harmful not because of price increases, but because of the damage it inflicts on the wealth-formation process. Money created out of thin air (e.g., by counterfeiting or loose monetary policies) diverts real wealth toward the holders of new money, leaving less real wealth to fund wealth-generating activities. This weakens economic growth.
  4. Easy-Money Policies Divert Resources to Non-Productive Activities: Increases in the money supply give rise to non-productive activities, or “bubble activities,” which cannot stand on their own and require the diversion of wealth from wealth generators. Loose monetary policies aimed at fighting deflation support these non-productive activities, weakening the foundation of the economy.
  5. Allowing Non-Productive Activities to Fail: Once non-productive activities are allowed to fail and the sources of the increase in the money supply are sealed off, a genuine, real-wealth expansion can ensue. With the expansion of real wealth for a constant stock of money, prices will fall, which is always good news.

Facts and Stats:

  1. Inflation Target: Mainstream thinkers view an inflation rate of 2% as not harmful to economic growth, and the Federal Reserve’s inflation target is 2%.
  2. Example of Inflation: If the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%, ceteris paribus, despite the fact that there is an inflation of 5% due to the increase in the money supply.
  3. Example of Company Departments: In a company with 10 departments, if 8 departments are making profits and 2 are making losses, a responsible CEO will shut down or restructure the loss-making departments. Failing to do so diverts funding from wealth generators to loss-making departments, weakening the foundation of the entire company.

πŸ§‘β€πŸ’» To summarize, Bitcoin has the potential to gradually shift our inflationary, high-consumption economy to a deflationary rational consumption economy while providing a more efficient and greener digital financial system that doesn’t rely on centralized parties and has built-in trust and robustness unmatched by any other financial institution.

The myth of Bitcoin’s high energy consumption is rooted in misunderstandings and oversimplifications. When examined closely, the cryptocurrency’s energy usage reveals a complex interplay of incentives, efficiencies, and innovations that not only mitigate its environmental impact but also contribute positively to global energy dynamics.

Bitcoin’s alignment with renewable energy, utilization of excess energy, incentivization of renewable energy development, logarithmic growth of energy consumption, and deflationary nature all point to a more sustainable and ecologically beneficial system.

As the world continues to grapple with environmental challenges, it is essential to approach the subject of Bitcoin’s energy consumption with an open mind and a willingness to engage with the facts. The evidence suggests that Bitcoin is not the environmental villain it is often portrayed to be, but rather a part of the solution to a more sustainable future.

πŸ’‘ Recommended: Are Energy Costs and CapEx Invested in Bitcoin Worth It?