Crypto or Cryptic - Energy and Environmental Aspects of “Mining”
It seems there is a war of words going on between electronic currencies and traditional precious metal mining and their perceived environmental impacts. Mark Cuban and Elon Musk have weighed in on the point-counter point argument, and Tom Brady is a “big believer” in cryptocurrencies. Most of us haven’t become rich (yet) by investing in cryptocurrencies or gold, but like me, you may be interested in their associated environmental impacts and would like an opportunity to evaluate their sustainability claims.
Without going into how cryptocurrency works, let’s look at the benefits and disadvantages of mining those assets. First, it would be impossible to compare them equally, on an apples-to-apples basis. However, we can compare the two by considering the cost of energy and the associated greenhouse gas production for $1 worth of gold versus $1 worth of Bitcoin.
Bitcoin Miners use powerful computers to solve complex mathematical equations that ultimately allow a Bitcoin transaction to go through. The Nasdaq article, “How much Energy Does Bitcoin Really Consume?,” explains that heavy usage of electricity is the main issue when it comes to Bitcoin mining. Furthermore, a stronger adoption rate and increasing crypto prices are projected to raise the energy consumption from Bitcoin mining, which is raising Regulator’s concerns over the threat of increased carbon emissions into the air.
A 2018 study calculated an average of 17 megajoules (MJ) of energy was required to generate $1 USD in Bitcoin, where gold mining consumed 5 MJ per dollar generated. At more than a 3:1 difference, it seems traditional mining is more protective of the environment, especially when the energy required is converted to tons of carbon dioxide produced. Total Bitcoin energy used per year has been calculated at 78 to 121 terawatt-hours (TWh), which at a conservative estimate, is comparable to the total energy consumption of the Netherlands with 17.5 million people and more than Argentina and the United Arab Emirates.
On the flip side, Bitcoin mining is considered to use more renewable energy sources than most other large-scale global industries. Further, the energy required to mine 1 ounce of gold does not account for all the additional steps necessary towards its final use in jewelry, bullion or other finished goods. A DePaul University study calculated significantly more carbon dioxide produced when gold production is evaluated from a final point of sale.
Hass McCook, Civil Engineer, self-described Bitcoin Evangelist and author of the white paper, The Cost and Sustainability of Bitcoin, calculated the energy use of the banking industry in 2014. McCook found the banking industry, which serves billions of people, used 660 TWh per year. He concluded that Bitcoin consumes less than half of the energy compared to the gold mining industry, and less than one-fifth of the energy consumed by bank branches and automatic teller machines (ATMs). Both energy use and greenhouse gas emissions are significantly less for Bitcoin versus gold mining or banking using McCook’s numbers and may spur further development of solar energy.
Where does this leave us? I certainly would have liked to purchase Bitcoin for $1 in 2010, but I don’t know how it would look on my finger today. If the topic captures your interest, here is some further reading on the subject …
BCEI_White_Paper.pdf (ctfassets.net) Bitcoin is Key to an Abundant, Clean Energy Future