The Bitcoin market has had a wild ride over the past year. Prices have plummeted, sharply recovered, and then plummeted again over the last ten months, and the future is uncertain for cryptocurrencies overall in the context of an ambivalent regulatory and policy landscape. Amidst all the chaos, one thing about Bitcoin has been steady since the beginning: its ever-expanding energy use and resulting carbon footprint.
The cryptocurrency world has been in crisis recovery mode since the downfall of FTX, one of the largest cryptocurrency exchanges in the world, toward the end of last year. Since then, regulatory bodies around the world have escalated a crackdown on digital currency firms, while other sectors worried about “crypto contagion” leading to a widespread economic fallout. Despite the extreme crypto-anxiety and price volatility of the last year, however, Bitcoin has managed an impressive rebound, recently staying steady at about $26,000 – for now. But just when things have been looking up, crypto markets took an unexpected dive this week, and experts suggest that there may be another crash coming in September.
Despite the volatility, Bitcoin’s energy use is at an all time high – and so are its carbon emissions. According to the Bitcoin Electricity Consumption Index, created and maintained by the University of Cambridge, Bitcoin’s estimated network power demand is currently clocking in at around 16 gigawatts, or about 138 TWh per year – approximately the equivalent of the entire country of Pakistan, home to 231.4 million people.
The issue is the way that Bitcoins are mined. As more and more miners try to produce Bitcoins through solving complex proof-of-work problems, the problems get increasingly difficult to solve, thereby requiring more and more computing power to produce the same amount of Bitcoin. This is done to prevent the depression of the currency’s value – in order to maintain a steady currency, each Bitcoin is designed to take about ten minutes to mine, no matter how much computing power is thrown at it. For this reason, it now takes about 9 years’ worth of household electricity to mine a single Bitcoin, whereas in 2009, it required just a few seconds’ worth.
This isn’t just an issue for the environment, it’s also an issue for Bitcoin miners, who have to secure more and more energy to keep their Bitcoin mining operations afloat. For this reason, lots of Bitcoin miners are trying to get more creative with sourcing cheap energy or energy industry byproducts, employing innovative approaches such as setting up in poor countries with heavily subsidized energy prices or using energy that would otherwise be wasted, such as coal ash – and natural gas vented during drilling on oilfields.
Coal ash, in particular, has been touted by some as a potentially elegant solution to some of Bitcoin’s problems. It makes use of a byproduct that poses an environmental and health problem to the communities where it has been dumped and stored, and in doing so, recovers that land for other more productive uses. One of the biggest proponents of this approach is Stronghold, a publicly traded bitcoin mining firm operating in Pennsylvania, where coal ash is a readily available commodity thanks to widespread coal usage for steel production, among other uses, not to mention an ongoing environmental woe. Stronghold is “vertically integrated” as a Bitcoin company, with ownership of its own energy sources as well as its mining rigs. Those energy sources are two coal ash sites with a combined capacity of 165 MW.
While Stronghold presents the plan as a win-win for bitcoin and for the environment, however, critics argue that it’s not actually such a clean solution. While coal ash does need to be cleaned up and processed, environmentalists argue that burning coal ash is not a good option, as it creates considerable greenhouse gas emissions. Put simply, it just moves the coal ash pollution from the ground to the air.
And the issue is not just the irresponsible use of waste coal, it’s the increasing demand for energy generated from fossil fuels in general. In a number of locations, we’ve already seen Bitcoin operations extending the life and spiking the emissions of coal and gas plants that were already on track to be shut down. A recent report from US NGO Global Energy Monitor found that all coal plants worldwide need to be shuttered by 2040 or face ‘climate chaos’. The threat that the coal-powered Bitcoin trend poses to decarbonization pathways is considerable and is increasingly garnering attention. New York recently imposed a 2-year moratorium on new permits for fossil fuel plants seeking to mine cryptocurrencies. While New York has acted swiftly to protect its climate goals, it is an outlier.
By Haley Zaremba for Oilprice.com