How Much Electricity is Used by Bitcoin?

How much energy should an industry consume? Organizations worldwide are currently under pressure to reduce their reliance on non-renewable energy sources and carbon emissions into the climate. However, determining how much consumption is excessive is a complicated subject that is entwined with societal discussions about our values. After all, determining which goods and services are “worth” spending these resources on is ultimately a matter of values. As cryptocurrencies, particularly Bitcoin, have gained notoriety, energy use has become the next flashpoint in the greater debate over what, and for whom, digital currencies are truly beneficial.

On the surface, the debate over energy consumption is reasonable. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin now consumes approximately 110 Terawatt Hours per year – 0.55 percent of world electricity production, or roughly the yearly energy consumption of small countries such as Malaysia or Sweden. This sounds like an enormous amount of energy. However, the amount of energy that a monetary system should require is debatable.

How you respond to that question is going to be determined by your attitude toward Bitcoin. If you feel that Bitcoin has no utility other than as a ponzi scheme or a means of money laundering, it follows that utilising any quantity of energy is inefficient. If you are one of the tens of millions of people worldwide who use it to circumvent monetary repression, inflation, or capital controls, you probably believe that the energy is well spent. Whether you believe Bitcoin has a legitimate claim on society’s resources comes down to your assessment of the value you believe Bitcoin adds to society.

However, if we’re going to have this discussion, we should be explicit about how Bitcoin consumes energy. Understanding Bitcoin’s energy use may not resolve debates about its utility, but it can help put the environmental impact Bitcoin enthusiasts are claiming into context. Specifically, there are a few critical misconceptions that deserve to be addressed.

Carbon Emissions Are Not Equivalent to Energy Consumption

To begin, there is a critical contrast between the amount of energy consumed and the amount of carbon emitted by a system. While calculating energy consumption is rather straightforward, extrapolating associated carbon emissions requires knowledge of the precise energy mix — that is, the composition of the various energy sources used by Bitcoin mining computers. For instance, one unit of hydro energy has a far lower environmental impact than one unit of coal-fired energy.

Bitcoin’s energy usage is rather straightforward to estimate: simply look at its hashrate (i.e., the total aggregate processing power utilised to mine Bitcoin and process transactions), and then make some educated predictions about the energy requirements of the mining hardware used by miners. However, its carbon emissions are significantly more difficult to quantify. Mining is a very competitive industry, and miners are notoriously secretive about the facts of their operations. The best estimates of energy production geolocation (from which an energy mix can be deduced) come from the CCAF, which has compiled an anonymized list of miner locations in collaboration with major mining pools.

The CCAF may make educated guesses about the energy sources typically used by country, and in certain circumstances, by province, based on this data. However, their dataset is incomplete and out of date, keeping us in the dark regarding Bitcoin’s true energy mix. Additionally, many high-profile evaluations generalise energy mix at the country level, painting an erroneous picture of countries like China, which has an enormously diversified energy landscape.

As a result, estimates of how much Bitcoin mining is powered by renewable energy vary significantly. According to one analysis published in December 2019, 73 percent of Bitcoin’s energy use is carbon neutral, owing largely to the abundance of hydropower in major mining centres such as Southwest China and Scandinavia. On the other hand, the CCAF anticipated that the figure would be closer to 39% in September 2020. Even if the lower figure is right, it’s over twice as much as the US grid, implying that focusing exclusively on energy usage is hardly a realistic way to estimate Bitcoin’s carbon emissions.

How Much Electricity is Used by Bitcoin

Bitcoin Is Capable of Using Energy in Ways That Other Industries Are Not

Another significant difference between Bitcoin’s energy use and that of the majority of other companies is that Bitcoin may be mined from anywhere. Almost all energy consumed on a global scale must be generated relatively close to its consumers — but Bitcoin has no such restriction, allowing miners to tap power sources that are unreachable to the majority of other applications.

The most well-known example of this is hydro. Each year, significant amounts of renewable hydro energy are squandered in Sichuan and Yunnan during the wet season. In these situations, output capacity vastly exceeds local demand, and battery technology is far from evolved enough to enable storing and transporting energy from rural areas to urban centres economically viable. These regions most likely have the world’s greatest stranded energy resource, and as such, it’s no accident that these provinces are China’s mining heartlands, accounting for about 10% of worldwide Bitcoin mining during the dry season and 50% during the rainy season.

Flared natural gas is another interesting avenue for carbon neutral mining. Today’s oil extraction process produces a considerable amount of natural gas as a byproduct — energy that pollutes the environment but never reaches the grid. Due to the fact that it is limited to the location of remote oil mines, most traditional applications have historically been unable to leverage it successfully. However, Bitcoin miners from North Dakota to Siberia have grasped the chance to monetise this otherwise squandered resource, and some companies are even studying ways to further minimise emissions through more regulated combustible gas combustion. Of course, this is a tiny player in today’s Bitcoin mining industry, but back of the envelope calculations indicate that the United States and Canada alone have enough flared natural gas to power the whole Bitcoin network.

To be honest, monetizing excess natural gas with Bitcoin still results in emissions, and some have claimed that the practise functions as a subsidy for the fossil fuel industry, encouraging energy corporations to invest more in oil production than they would otherwise. However, Bitcoin mining revenue is minuscule in comparison to demand from other businesses that rely on fossil fuels — and that external need is unlikely to vanish very soon. Given the fact that oil is being extracted and will continue to be taken for the foreseeable future, utilising a natural byproduct of the process (and maybe minimising its environmental impact) is a net gain.

Surprisingly, the aluminium smelting industry provides a striking resemblance. Because the process of converting natural bauxite ore to usable aluminium is highly energy intensive and the costs of transporting aluminium are frequently not prohibitively high, several countries with an energy surplus have built smelters to capitalise on their surplus resources. Regions with the capacity to generate more energy than can be consumed locally, such as Iceland, Sichuan, and Yunnan, became net energy exporters through aluminium smelting — and the same characteristics that prompted their investment in smelting have made those locations ideal for Bitcoin mining. There are even several former aluminium smelters, such as the hydro Alcoa plant in Massena, New York, that have been converted directly into Bitcoin mining operations.How Much Electricity is Used by Bitcoin

Bitcoin Mining Consumes Significantly More Energy Than Using It

The method by which energy is generated is one component of the equation. However, another area where widespread misconceptions exist is how Bitcoin actually consumes energy and how that consumption is likely to alter over time.

Numerous journalists and academics make reference to Bitcoin’s high “per-transaction energy cost,” but this is an erroneous metric. The mining process consumes the lion’s share of Bitcoin’s energy. After coins are issued, the amount of energy required to validate transactions is negligible. As such, dividing the total energy consumed by Bitcoin by the number of transactions makes little sense – the majority of that energy was needed to generate Bitcoins, not to enable transactions. Thus, we get at the final crucial misunderstanding: that the energy costs connected with Bitcoin mining will continue to climb exponentially.

What Is Crypto Mining? How Cryptocurrency Mining Works - InfoSec Insights

It Is Unlikely That Growth Will Accelerate

Because Bitcoin’s energy footprint has increased at such a rapid pace, some believe it will eventually seize control of entire energy systems. This was the premise of a widely-reported 2018 study, which was recently featured in the New York Times, claiming that Bitcoin may potentially warm the world by two degrees Celcius. However, there is reason to suppose that this will not occur.

To begin, as is becoming increasingly prevalent in many industries, Bitcoin’s energy mix is becoming less reliant on carbon each year. In the United States, publicly traded, increasingly ESG-conscious miners have been gaining market share, while China recently prohibited coal mining in Inner Mongolia, one of the world’s last coal-rich regions. Simultaneously, numerous mining industry associations have established projects such as the Crypto Climate Accord — inspired by the Paris Climate Accord — to lobby for and commit to decreasing Bitcoin’s carbon footprint. Additionally, as renewable energy sources such as solar become more efficient and hence more practical for mining, Bitcoin may serve as a significant incentive for miners to develop these technologies.

Additionally, miners are unlikely to continue expanding at their current rate indefinitely. The Bitcoin protocol subsidises mining, but those subsidies are constrained in their expansion by the protocol’s design. Today, miners get minimal fees for verifying transactions (about 10% of miner revenue), as well as whatever profit margins they may obtain when selling the bitcoins they have mined.

However, the protocol is designed to halve the issuance-driven component of miner revenue every four years, which means that unless the price of Bitcoin doubles every four years in perpetuity (which economics suggests is essentially impossible for any currency), that component of miner revenue will eventually decay to zero. And, in terms of transaction fees, Bitcoin’s inherent limitations on the number of transactions it can execute (less than a million per day) combined with users’ finite tolerance for paying fees severely limit this revenue source’s development potential. While some miners will continue to operate regardless of the transaction fees — indeed, the network depends on them — as profit margins decline, the financial incentive to invest in mining will naturally shrink.


Of course, there are innumerable variables that can affect Bitcoin’s environmental impact — but at the heart of them all is a far more difficult-to-quantify question: Is Bitcoin worth it? It’s critical to recognise that many environmental worries are overblown or are founded on incorrect assumptions or misunderstandings about how the Bitcoin system operates.

That means that when we question, “Is Bitcoin worth its environmental impact?” the actual negative impact is likely to be much less severe than you might believe. However, Bitcoin, like practically everything else that adds value to our society, consumes resources. As with any other energy-intensive industry, it is up to the crypto community to acknowledge and address these environmental concerns, work diligently to reduce Bitcoin’s carbon footprint, and ultimately demonstrate that the societal value provided by Bitcoin is worth the resources required to sustain it.

About the Author: Qazi Shabaz

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