Bitcoin’s white paper came out a decade ago this week, and perhaps a positive sign of its success is this week’s big, dire headline: “Bitcoin emissions alone could push global warming above 2°C.” However, there’s a problem (or, perhaps, not really a problem): the paper was written with the assumption that the Bitcoin bulls and HODL bros are right. Reality may say otherwise, to the benefit of the global environment.
Written by seven academics at the University of Hawai‘i and published by Nature, the piece used a significant part of Alex de Vries’ work on his site, Digiconomist. De Vries has been sounding the alarm regarding Bitcoin’s threat to the environment for some time. As his site notes, the energy used to mine Bitcoin is roughly 73 terawatts per year, roughly the consumption equivalent of Austria. That number is what de Vries calls “The Bitcoin Energy Consumption Index.” As he explains:
“Ever since its inception Bitcoin’s trust-minimizing consensus has been enabled by its proof-of-work algorithm. The machines performing the ‘work’ are consuming huge amounts of energy while doing so. The Bitcoin Energy Consumption Index was created to provide insight into this amount, and raise awareness on the unsustainability of the proof-of-work algorithm.”
As it now stands, according to de Vries, processing just one Bitcoin transaction uses up the electric equivalent of nearly 28 homes in America; the entire Bitcoin complex uses the power equal to that of 6.8 million homes. He estimates that 0.33 percent of the world’s energy consumption is going to Bitcoin. All those trades on Bitfinex and Kraken have to be processed the same way as Alice buying coffee from Bob at that fictitious café we keep hearing about. The way Bitcoin is set up, a speculative trade and an actual transaction for goods and services are processed the same way.
What’s more, the 819 Kilowatt-hours it takes to process one Bitcoin transaction is nearly five times more than the energy it takes for Visa to process 100,000 transactions. That’s the money of the future, ladies and gentlemen.
The folks at UH took de Vries’ data step further—and that’s where it gets tricky.
“Should Bitcoin follow the median growth trend observed in the adoption of several other technologies (Fig. 1b), it could equal the global total of cashless transactions in under 100 years.”
That “Fig. 1b” takes 40 technologies—cable TV, cellphones, electric power, credit cards, dishwashers, computers, flush toilets, etc.—and averages the percentage of the U.S. population using that technology (because, obviously, that’s the only country that matters) in the years after they were introduced. They came up with a chart looking like this:
According to that chart, it can take as little as 20 years for about half of the population to adopt a new technology. Using that logic, it’ll only be another decade before every mom uses BTC to buy doilies at Target.
The UH researchers then did some extrapolating:
“The projected trends of technology usage adoption were used to estimate likely Bitcoin usage assuming a global total of ~314.2 billion cashless transactions. We used only cashless transactions that are likely to occur in places where infrastructure is already in place for the usage of Bitcoin as a reference (for example, we do not assume that Bitcoin will replace transactions using fiat currency). The CO2 emissions of projected Bitcoin usage were estimated using the CO2 emissions for Bitcoin transactions in 2017 as a reference. We randomly sampled blocks mined in 2017 until their total number of transactions were equal to the projected number of transactions, then we added the CO2e emissions from computing such randomly selected blocks. The approach was repeated 1,000 times.”
In other words, they assumed Bitcoin would get adopted like every other new consumer technology and become a big part of cashless transactions per year (right now, about 314 billion) in the future. To figure out how much energy Bitcoin would use up when that happens, they used a sample blocks from 2017 and tried to figure out how much energy—and CO2 emissions—it took to compute those blocks. Then they plugged-and-chugged it all into the future based on how they projected Bitcoin to be adopted:
“Should Bitcoin follow the median growth trend observed in the adoption of several other technologies (Fig. 1b), it could equal the global total of cashless transactions in under 100 years. Yet, the cumulative emissions of such usage growth could fall within the range of emissions likely to warm the planet by 2 °C within only 16 years (red line in Fig. 1b). The cumulative emissions of Bitcoin usage will cross the 2 °C threshold within 22 years if the current rate is similar to some of the slowest broadly adopted technologies, or within 11 years if adopted at the fastest rate at which other technologies have been incorporated (that is, the red area in Fig. 1b). Projections in this analysis assume that the portfolio of fuel types used to generate electricity remains fixed at today’s values.”
Never mind that it’s not taking into account improving mining technology. What’s also not contemplated is that transactions shot up with the price of Bitcoin in 2017 and then collapsed in 2018 with prices, too. Sure, they’ve been on an upswing in recent months, but the current quarter of a million daily transactions are, on average, lower than what we saw last year.
Interest in using Bitcoin for transactions dropped off significantly after the crash in prices. How can we tell? Using Google Trends:
Meanwhile, over the past 14 years, searches for “Pay with Visa” are growing.
On top of all this, there’s also prospect that something more efficient and advanced could easily take Bitcoin’s place. Despite all the pearl-clutching from HODLers hearing that sentiment stated, it’s not so far-fetched. Consider how absurd it would have sounded in 2008 to say that, a decade later, a bunch of digital currencies would be worth as much as $200 billion and that the star of “First Kid” would be considered a major player in the industry.
“It has long been thought that for something to be a useful currency, it needs to be a stable source of value, and bitcoin is anything but. It’s not used for a lot of transactions, it’s not a stable source of value, and it’s not an efficient means of processing payments. It’s very slow in handling payments. It has difficulty because of its very decentralized nature.”
One may disagree with her easy money policies—or even the very foundation of the Federal Reserve—but it’s hard to argue with reality.