Bitcoin's energy consumption is a controversy that arose in 2021.
According to critics, Bitcoin and its ecosystem consume more electricity than Chile and should be therefore considered a danger to the survival of humanity which must now deal with climate change. In order to understand the problem, let´s listen to Michael Saylor, the CEO of MicroStrategy:
“Am I concerned about the use of energy in bitcoin mining? No. Actually, I feel like bitcoin is protected by a wall of encrypted energy and the fact that there's a lot of energy involved I think is a good thing. It creates security to the network. I think it's a kind of a silly notion to be concerned about the use of energy in bitcoin mining. As I said before, this energy is coming off the marginal points of the grid. The only places people are doing bitcoin mining are places where there's power that's in excess. Bitcoin miners (the people who create bitcoins) go to the end of the earth, to the end of the the grid and they are using energy that would have otherwise been wasted. It's either wasted hydroelectric energy or for example natural gas wells that are about to be closed in. And they either must close them in or flare them. They can set up bitcoin mining rigs there. I think they're recycling marginal energy in order to create a digital monetary system that's capable of holding all the money on Earth and so, what's wrong with that idea?”
Now, let’s listen to Max Keiser, a journalist:
“Bitcoin is moving the industry towards renewables. You know, the cheapest energy in the world right now is solar and wind and this is what bitcoin's tapping into. Look at Exxon and BP; their stocks and the fossil fuel industry are crashing. Renewables are really on the upsurge and, a company such as The Sun Exchange, for instance, have got a brilliant model. They install solar panels, and they convert sunlight into bitcoin, and it goes right into your wallet. But that idea that bitcoin is boiling the oceans or that it's a waste of energy is diametrically wrong. Bitcoin is actually green. It's a green energy, it's a green industry if you understand really the dynamics of the global energy grid and how this is moving away from fossil toward renewable. Something like 90% of the profitability of bitcoin miners comes from energy costs! So, they are extremely sensitive, their survival as business depends on the cheapest price. Let’s talk about Marshall Long in Texas. He's in the energy arbitrage business. He's not in the bitcoin mining business but he's in the energy arbitrage business. He's got to get energy under three cents a kilowatt! How does he do that? By bringing efficiencies and putting out the companies that are inefficiently destroying the environment. We want agile bitcoin mining energy users to make the industry efficient move over to renewables and in the case of Sun Exchange, you're monetizing sunlight.”
Now, let´s see what Andreas Antonopoulos, a major influencer in the bitcoin ecosystem, is saying on the matter:
“We don't really know where the miners are on a map. We also don't know what electricity they use. There have been several informal surveys asking miners or mining companies that have self-identified but here's the thing: there's no way to verify either that the survey data is correct or incorrect if the miners are telling the truth or not. What we do know is that bitcoin mining can happen anywhere you have electricity and so, the primary driver is how much that electricity costs. If the electricity is cheap then miners will be attracted to it. The cheapest form of electricity is waste energy.
That means, energy that is produced but is not consumed. So, let me give you an example. If you have solar power, you don't turn that off. So, if you're producing five megawatts of solar power in a massive solar farm and you only have two megawatts of demand in the area, that means you're producing an extra three megawatts of waste energy and the marginal cost of that is zero. That energy would otherwise be completely wasted. It doesn't go anywhere but the solar panels are still producing it and the cost of installing those solar panels has already been incurred. So, if you plant a bitcoin miner next to that, you can get very cheap electricity that was otherwise going to be wasted. And that is going to subsidize the production of more solar panels and solar energy. So, from that scenario, we can see the waste energy, whether that's flaring of gas that would either be otherwise be wasted because the gas fields are too far away from areas of demand, whether it's hydroelectric solar or wind."
All those forms of energy tend to have a mismatch between where the energy is produced and where it is consumed and they also tend to have situations where if you don't use the energy, it's wasted. It is sitting there so, there's good reason to use that energy and provided at a very low cost.
Bitcoin is uniquely suited to pursuing that type of waste energy and low-cost energy. Now, if you have a government that is unconcerned about climate change and carbon output, and they do not either regulate the production of energy so, as to prevent harmful production and polluting production, they don't tax the production of carbon and therefore allow something like a coal burning factory to not only produce energy cheaply but also not taxing the external factor of the carbon damage, that's being done then yes, bitcoin miners will locate there and try to consume that energy too.
So, the problem there isn't that bitcoin miners are producing demands, the problem you have there is that you have governments that are unconcerned about the damage they're doing to the environment and are not taxing carbon emissions. If you tax carbon emissions, then things that are polluting are financially unprofitable. When the electricity cost is too high for miners, they migrate to places where you get renewable energy. If you produce cheap energy that is dirty, then miners will go there and so, the real issue with the environmental footprint of bitcoin has to do with the willingness of governments to regulate the production of harmful carbon into the atmosphere, to regulate pollution, to tax pollution. In fact, if governments regulate and tax carbon, then bitcoin demand supports and incentivizes and, in a way, subsidizes the installation of renewable energy.
So, bitcoin is neither good nor bad. Bitcoin is simply a demand for energy and if it's matched with politics that are environmentally friendly and policies and tax structures that are not subsidizing fossil fuels and carbon positive polluting production then bitcoin is very green. If governments are unconcerned with climate and the environment, then bitcoin simply provides one more source of demand for factories that are producing energy with a lot of pollution. We shouldn't be worried about how we consume energy; we should be worried about having the political will to reduce pollution and damage to the Environment.”
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