Energy Intensive Bitcoin Mining: Can the Use of Renewables Answer Critics of Cryptocurrency?

by Ricky Gill and Dr. Julia Nesheiwat

Bitcoin has earned the moniker “The King of Cryptocurrencies” and become a model for other cryptocurrencies seeking competition with fiat money. To strengthen its long-term position, Bitcoin will need to address critics who claim the process of bitcoin mining can be too energy intensive. A critical inflection point was recently passed in Q4 2021, when renewable energy provided more than half of Bitcoin mining’s global power requirements. Indeed, the pivot toward cleaner and cheaper energy sources could very well define the future success of the cryptocurrency movement.

The mining of a single bitcoin block consumes enough electricity to power more than 28 U.S. homes for an entire day, raising the issue of the industry’s energy intensity. In fact, the embrace of large-scale, warehouse-size Bitcoin mining operations has made these concerns more salient. The massive amounts of electricity required for Bitcoin is not a fault in the system; it was designed to provide a free service (involving computation and communications resources) in return for competitively solving more difficult cryptographic challenges for a diminishing "cut" or claim of monetary share. The confluence of competition (i.e., useless effort), increasing computational rigor, and diminishing rewards ends up yielding wasted effort (electricity). This explains how Bitcoin, the antithesis of physical currency, could involve fossil fuel use and associated emissions in the same manner as physical mining.

As much power as Bitcoin requires, it can be a surprisingly energy efficient system. As more miners enter the space, the greater the bitcoin "difficulty" and hash power (energy) needed to solve a block (which commits new transactions securely to the chain). This is an intentional construct of the code: if miners leave and there is less energy/hash power moving each block along, the "difficulty" will decrease. This ensures that there are always enough competing parties furnishing their computing power for Bitcoin to attain the block reward - currently 12.5 bitcoin per block in roughly 10 minutes. In effect, the more energy used, the more "secure" the blockchain becomes.

Even with this design, Bitcoin does not "waste" energy. To consider the effects mining has on the environment, you must take into account where the mining is being done and how. A sizable percentage of the hash power is actually derived from remote regions with abundant renewable energy (mainly hydroelectric). These areas have tremendous potential to generate and distribute renewable energy, which would otherwise not be marketable due to a lack of local demand. Delivering electricity to populated areas creates ancillary revenue possibilities for these bitcoin mining sites, enhancing their attractiveness for capital investment. Bitcoin mining “is about energy infrastructure and the source of electricity” said Paul Prager, the CEO of TeraWulf, and “hydropower is one of the most reliable renewable energy sources available to us” said Mas Nakachi, Director of Bitcoin mining company XBTO. Bitcoin therefore allows the monetization of previously dormant natural resources and simultaneously creates economic and environmental value.

While relatively energy efficient, the mining process can still be made less energy intensive overall. Today, many of the major bitcoin mining pools around the world operate from remote locations with a surfeit of energy. Whether it is a rural area of the United States or a major data facility in Iceland, these areas usually provide sustainable energy in the form of geothermal and hydroelectric power. The use of such green renewable energy allows a responsible bitcoin mining operation to become sustainable and minimizes its impact on the environment. These facilities are usually based in locations with cold natural ambient air, which provides the cooling required for bitcoin mining, with little or no dependence on powered air-conditioning, further reducing the emission of greenhouse gases. The cooler climate also prolongs the lifespan of the mining hardware, which means less waste material being disposed. As mining chip technology further develops, we will see far more efficient mining hardware introduced to the market, with higher hash rate per kW and lower heat dissipation requirements, making bitcoin mining more environmentally friendly over time.

Signals from government and industry leaders will contribute inexorably toward an emphasis on clean energy in Bitcoin mining. In response to the enormous environmental toll from fossil fuel use in Bitcoin mining and its inconsistency with Xi Jinping’s stated 2060 carbon neutrality goals, China instituted a ban that paralyzed the industry and forced miners to either quit operations or flee overseas. Before the crackdown, bitcoin mining in China was projected to generate more than 130 million metric tons of carbon emissions by 2024, according to a study published in scientific journal Nature Communications. On May 12, 2021, Elon Musk announced via Twitter that Tesla would no longer accept Bitcoin for car purchases because, "rapidly increasing use of fossil fuels for bitcoin mining shows how much clean energy is essential for mining.” According to Musk, Tesla will retain its Bitcoin holdings and will use it for transactions as soon as mining transitions to more sustainable energy. These bold proclamations will motivate the “greening” of bitcoin mining as a response to public policy and industry incentives.

American universities must also play a key role in helping develop more sustainable cryptocurrency mining methods. Stanford, in particular, has the potential to become a leader in sustainability research given venture capitalist John Doerr's recent $1 billion donation to establish a dedicated Stanford climate school. A portion of this money should be allocated towards funding sustainable crypto research, perhaps through an interdisciplinary research institute that combines faculty from the new climate school and the School of Engineering.

Electricity is an inextricable part of any Bitcoin mining operation. However, many innovative miners have begun a methodical transition to diverse energy sources for mining activities and are therefore assuaging environmental concerns. Because bitcoin mining is expected to continue until 2140, it is prudent for Bitcoin mining entities to systematically incorporate sustainable energy sources and publicly message about their best practices. This clean energy adoption has the potential to make Bitcoin mining as much of an environmental innovation and source of clean energy generation as a financial disruptor.

Dr. Julia Nesheiwat served as Deputy Assistant Secretary of State for Energy Resources, Chief Resilience Officer for the State of Florida, and Deputy Assistant to the President on Homeland Security and Resilience. She is currently Distinguished Fellow at the Global Energy Center, Atlantic Council.

Ricky Gill is the former Director for Russia and European Energy Security at the National Security Council, and previously served as Senior Advisor in the US Department of State’s Bureau of Overseas Buildings Operations, coordinating efforts on clean energy and resilience for diplomatic missions abroad.