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The Environmental Problem of Bitcoin


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Bitcoin has been around for some time and yet its struggled to make the leap to the mainstream; it offers huge potential benefits, a revolution in the finance system, which has made some individuals millions upon millions of dollars, but in the race towards a brave new world of financial transaction have we completely ignored its devastating environmental impact?

It’s difficult to understand how a piece of software, data flying around fibre optic cables around the world, could result in a negative environmental impact and to really understand this we need to get under the bitcoin bonnet.

Bitcoin – What is it?

Bitcoin began in the same way that traditional currencies have operated for a millennia but instead of providing a physical IOU in the form of a coin or a bank note it a digital version, a snippet of code that represents your ownership of value that is being transferred to you.

That singular bitcoin lives within a distribution network that acts as a ledger (what we  know in the real world as the bank) but this is the key to bitcoins success. Banks and governments control our access to money through a system of finance, stock markets, bonds, interest rates and so forth. Bitcoin bypasses all of this to provide peer-to-peer (people to people) transactions that cut out the middleman.


This has enormous implications. Enormous. Just imagine for a moment if everyone used bitcoin instead of regular currency. There would be no need for banks, payments can be made anonymously. Because transactions can be anonymous they would prove almost impossible to tax, and a threat to the tax system is a threat to the very system of finance that our governments and societies rely on.

Bitcoin in the Beginning

So how did it all begin? The domain was registered 10 years ago to the week and linked to a mysterious individual named Satoshi Nakamotov in November 2008. 1 million bitcoins were mined by Nakamotov before control of the network was decentralised.

Initially, major users of the bitcoin system consisted of black market players leading to controversy within the press. However, much of the media coverage of bitcoin has been focused on the huge oscillations in its price. Because bitcoins are mined in order to produce them and, at any one time there is a limited supply in circulation, the price can go upl, or down.

Who can forget when rapper 50 Cent accidentally made 8 million dollars by allowing fans to purchase his 2014 album, Animal Ambition using bitcoin. Simply allowing the $400,000 dollars worth of bitcoin to sit in his account, unused since then, meant that the value of his bitcoin now exceeds $8m.

Seems legit. What about the Frightening Environmental Cost?

There are indeed a ton of idealistic benefits that come with the use of bitcoin, but everything has a price and the price of bitcoin is energy. Lots of it.

Bitcoin, and were just talking about one of the many cryptocurrencies out there, uses more energy than the whole of Ireland. According to the folks over at Digiconomist the country closest to bitcoin in energy use is Austria.

But that’s not all.  Most of the energy used to generate the bitcoins is wasted energy and that’s because of a process called mining, which as your probably already familiar with, is how bitcoins are created. As with mining in the real world it demands huge amounts of energy.

The bitcoin network is not regulated by a central agency, so to prevent instances of fraud taking place, it requires miners to put there computers to work in the process of mining bitcoins. This is essentially where computers churn their way through incredibly complex, power intensive computer problems, the solving of which rewards the miner with a bitcoin.

The power consumption not only comes from the power hungry nature of the mining process but also the fact that hundreds, if not thousands of other miners are competing with each other to resolve the same computer problems that will allow them to be rewarded with a bitcoin.


As the power costs of generating the bitcoin go up so does the ultimate reward value of the bitcoin, which means that more miners are attracted to the reward at the end of the process. Because burning more energy means you have a higher chance of winning the ultimate bitcoin reward everyone else, who are in the same boat, will try to emerge as the winner and so collectively, the energy use increases exponentially.

But this is a double edged sword because Digiconomist has calculated that the cost of generating a single bitcoin is as high as 74% of the reward value of the final bitcoin once generated. And because bitcoin value can go up as well as down, not only is the purchase and exchange of bitcoin a riskier endeavour, so to is the mining of it.

So what does this mean for the environment?

Well a world powered by renewable energy is still a far away goal. Countries and governments are, by varying degrees, adding a more eco-friendly balance of renewable energy to their power grids but there are good, bad and ugly elements in the global push toward a more sustainable future.

In the meantime what this means is that the physical location of the miner plays a significant role in their environmental impact. In China, one of the leading countries of bitcoin mining, a significant proportion of energy is generated by coal mining activities, one of the dirtiest, most polluting power sources of energy.


So when we take one cryptocurrency that is generating the same power demands as a country the size of Austria and you add those power demands into customer base for energy provision in countries where renewable power is still a long way off the mainstream and all of the CO2 emissions and climate change implications…. We can begin to see the environmental problem that bitcoin poses.

Bitcoin advocates have long argued that the technology will evolve to make the mining process less energy intensive and more environmentally friendly but critics point out that whilst there is still a significant financially reward that outpaces the cost of the mining process, miners will seek to become more competitive with due concern for the energy cost of their activities.

Other have argued for a change in the system bitcoin uses to check and verify bitcoin transactions. This, they argue, is where a 99.9% saving in efficiencies and energy use can be made.

The proof of work is the consensus algorithm that allows bitcoin to check transactions and produce new blocks in the chain. Because it is reviewing the work already provided by the miners in order to generate bitcoins it uses enormous amounts of energy.

Reforming this into a new more efficient, less energy intensive systems could be the solution. But whether the systematic or financial incentive exists for this to take place remains to be seen.

Its challenge that needs to be met if we are to stop the endless swell of bitcoin energy consumption.







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