Tesla, the leading electric automaker on a mission to accelerate the world’s transition away from dirty, global-warming-causing fossil fuels, made headlines this week after it announced it bought a staggering $1.5 billion worth of Bitcoin. However, it will be difficult for Tesla in the future to reconcile its environmentally-friendly branding with the fact that Bitcoin is such a polluting cryptocurrency.
According to a new study from Cambridge University, keeping Bitcoin running consumes 121 terawatt-hours a year. That’s about as much as Argentina, a country of 44 million, uses in a year.
Bitcoin has had a fantastic run so far. It quadrupled in value in 2020, experiencing a meteoric 50% growth in December alone. It now trades for upwards of $44,000, which is kind of ridiculous.
But as its traded value grows more and more with a reputation for high-flying returns, so does its energy requirements. A higher price gives miners the incentive to buy and operate expensive and energy-intensive processing units, enlarging the cryptocurrency’s carbon footprint.
There’s not much we can do about this because Bitcoin is meant by design to consume that much electricity. In order to “mine” Bitcoin, computers solve complex equations for so-called “Proof of Work” that verify transactions made by people who send or receive the cryptocurrency. Some have even invested in entire warehouses of computing machines whose sole purpose is to connect to the Bitcoin network and solve its energy-intensive puzzles — energy that most often than not comes from cheap coal power.
Many such mega-miners operate in China’s Xinjiang region, where electricity can cost as little as 0.22 yuan ($0.03) per kilowatt-hour, compared with 0.6 to 0.7 yuan in central China, according to BloombergNEF. Although there are some massive renewable energy projects in development in the region, most of this dirt-cheap energy is from coal.
And because the next Bitcoin is increasingly harder to ‘mine’ than the former, the energy requirements will only increase with time. At this rate, it won’t be long before Bitcoin gobbles up more energy than Ukraine, Sweden, Vietnam, or Poland. So, what to do?
Really, the only thing that will bring energy costs down is if the price of Bitcoin crashes. Some claim that Bitcoin is a huge bubble waiting to burst, but there are also bullish investors who have price targets upwards of $100,000 or even $500,000. Alternatively, if all Bitcoins were mined with renewable energy, no one would fault it for its environmental impact — but this scenario is far removed from the probable future.
There are some merits to adopting a decentralized financial system, but using a cryptocurrency that is literally designed to be inefficient doesn’t really sound like a good idea. Bitcoin may be a good sustainable financial investment, but it’s definitely not a sustainable environmental one.