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Recently, the ongoing conversation concerning Bitcoin’s (BITCOMP) environmental credentials has heated up. This contentious issue, which has seen the world’s richest man pull in and out of the flagship cryptocurrency, is the chief rod by which Bitcoin’s critics can gleefully beat it. Indeed, even those that perhaps care little about environmental, social, and governance (ESG) investing seem to be in on the flogging.
Bitcoin did find some reprieve from an unlikely corner, though, when in March the EU decided not to ban proof of work crypto mining in the region. This was a big relief for the industry as the review posed a threat to large swathes of the crypto world. This is because its two biggest coins - Bitcoin and Ethereum - are still using proof of work systems, and they account for the lion’s share of the cryptocurrency world at 57% of the total industry market cap of $2.26 trillion.
As most are now aware, proof of work crypto mining requires a large amount of energy. Bitcoin mining alone, for example, consumes a huge 45.8 TWh of electricity every year, producing 22.9 million metric tons of carbon dioxide emissions annually - equivalent to the levels produced by Jordan and Sri Lanka. Meanwhile, it is estimated that the Ethereum blockchain - dubbed the world’s computer thanks to its hosting of the vast majority of the crypto and Web-3 universe - is estimated to consume 26.7TWh/year, creating 7.73 million tonnes of Co2 emissions annually.
Mining vs. mining
In a time when climate change is becoming ever more apparent and the need to reduce global emissions ever more urgent, this is - of course - a big concern. However, it is important that we do not assess cryptocurrency mining in a vacuum.
For example, if we compare Bitcoin’s emissions to the real world mining industry we see it doesn’t even scratch the surface. Coal and other natural resource mining generate between 1.9 and 5.1 billion tonnes of CO2 equivalent of greenhouse gas emissions every year - or 8,200% - 22,170% more than Bitcoin creates.
The oil and gas industry, meanwhile, produces around 5.2 billion tonnes of carbon dioxide equivalent greenhouse gas emissions. Despite this, though, the EU and other global governments are only too happy to provide vast financial support to these industries in the form of subsidies totaling $450 billion every year, or to take their lobbying money.
There has, in fact, been little work undertaken to understand the true environmental impact of cryptocurrency mining in a global context. Indeed, even a fairly innocuous-looking industry like fashion is responsible for 2.1 billion metric tons of GHG emissions - 9,000% more than Bitcoin.
Crypto leading the green transition
Of course, such comparisons often fall foul of accusations of “what-about-ism” and it is true that every industry in the world needs to do significant work to improve its emissions. Crypto, thankfully, is already well on the way. As highlighted in the EU review, the newer mining model of proof of stake - through which blockchain operators do not need to mine to run the chain, but instead must hold a set amount of the chain’s native coin - is very promising. It is estimated that proof of stake will reduce Ethereum’s energy consumption by 99%, and the blockchain is very close to transitioning its vast network to this model.
We are not there yet, however, and - importantly - Bitcoin is unlikely to be able to make this transition. As the grandfather of cryptocurrency, Bitcoin’s systems are more or less set in stone. Global regulators are all too aware of this, and so any move to ban proof of work is effectively a move to ban Bitcoin, and we should all be skeptical when government bodies attempt to do that.
Environmental cloak and dagger?
In its review of the proof of work system of crypto mining, the EU is working on the premise of environmental concerns. However, in the absence of a truly comprehensive assessment of crypto mining emissions in the global context, this looks suspiciously like another attempt to ban cryptocurrency, which continues to pose a huge threat to the established financial system.
Current assessments of mining also do not take into account the huge potential that exists within blockchain technology to truly transform the way the world does business. With the development of Web-3 and the metaverse, we could see carbon emissions from the transportation industry - the world’s biggest source of emissions at 7.2 billion tonnes every year (accounting for 37% of the global total) - drastically reduced as greater numbers of people are able to work and socialize from home.
Moreover, blockchain and crypto’s potential to significantly increase financial and social inclusion is already evident. The world’s biggest play-to-earn NFT gaming platform, Axie Infinity (AXS-X), for example, is providing opportunities for people in developing countries like the Philippines to earn developed world salaries and participate in the global financial and economic system simply by playing the game.
While it’s important for all of us to consider what we do about climate change, the current singling out of cryptocurrency in this debate seems somewhat lopsided, if not suspicious. Arguably, if global regulators were seriously setting out to censure industries based on their environmental impacts, then cryptocurrency would surely be the last industry to be banned.
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