Does the Environmental Case Against Bitcoin Have Merit?
If you haven't read some of the pieces on bitcoin and the environment that have been making the rounds, read these before coming back:
Before I continue, I'd like to make clear that I am concerned about the environment. I'm just not sure that we have a bitcoin-caused environmental energy crisis on our hands.
Here are a few of the issues with these articles:
The data is based on the Digiconomist Bitcoin Energy Consumption Index, which makes a few key assumptions:
- That 60% of mining fees go to pay for electricity
- That for every 5 cents spent, 1kWh of energy was consumed.
I'm not in a position to put forth a competitive model. That said, even if you change these assumptions a tiny amount, you get large changes in the outcome. Given the distributed nature of the bitcoin network, I think it is safe to assume that energy consumption and cost varies.
It is best to use models like these to show trends, but not to treat them as pure fact.
No one is using it and it doesn't benefit the public?
- As of writing this, there were ~443,000 transactions in the last 24 hours (data from blockchain.info).
- It is making a huge difference in the lives of Venezuelans https://www.theatlantic.com/magazine/archive/2017/09/big-in-venezuela/534177/
- BitPay's merchants, all real people and businesses, "are receiving $110M+ in bitcoin payments per month." https://blog.bitpay.com/bitpay-growth-2017/#bitpaymerchantsgetaboost
- Bitcoin is especially helpful in high value payments and international payments. Using bitcoin is faster and cheaper than traditional banking. https://blog.bitpay.com/bitpay-growth-2017/#bitcoinsolvesb2bpaymentsproblems
We can't ignore the energy market
The article and the Bitcoin Energy Consumption Index glosses over the role of the energy market. Price fluctuations and availability impact energy usage.
Also, we can't ignore the source of the energy. Not all energy sources are created equal. Yes, some of the Chinese mines showing up in the news lately are near dirty energy sources due to the cheap price. We cannot assume that is the case for the entire network, though.
What are the alternatives?
One thing to keep in mind is that if these miners weren't mining bitcoin, they'd be doing something else. Almost everything they'd be doing takes energy. So we can't assume that we'd decrease energy usage by the total amount the network uses if bitcoin were to be outlawed. We need to keep alternative uses of their time in mind and then calculate the net difference in energy uses.
Forecasting energy usage is full of assumptions
In just a few months from now, at bitcoin’s current growth rate, the electricity demanded by the cryptocurrency network will start to outstrip what’s available, requiring new energy-generating plants. And with the climate conscious racing to replace fossil fuel-base plants with renewable energy sources, new stress on the grid means more facilities using dirty technologies. By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.
This sort of linear estimation is fraught with issues. For one, it assumes that energy costs will remain constant, the bitcoin network will continue to grow at the current rate, the supply of energy will scale up to meet that demand, and that we will produce energy in the exact same way as we do now.
Does the environmental case against bitcoin have merit? I'm skeptical. Leave a comment and let me know what you think.