Bitcoin And The Environment: Between Truths, Lies And Perspectives
Environmental issues related to cryptocurrencies in general and to bitcoin in particular are among the most controversial . If the subject is less discussed than the arrival of the famous bubble, the value of the BTC and its speculation or its taxation , it is nevertheless essential. Certainly, you will never hear the banker of HSBC or Jamie Dimon screaming about the alleged pollution generated by the bitcoin system. They will rather be content to defend their products or to free themselves from the responsibility of the last financial crises that they caused . But that’s another subject…
In environmental matters, bitcoin is accused of all ills. It is rare to find clear, precise and above all objective studies on the subject. While the interest and value of crypto-currencies is debated, unanimity seems to prevail over the environmental disaster caused by bitcoin. What is it really ? Is this a stable truth? Is some information hidden or poorly communicated? Some answers in this article.
The truth ! Bitcoin, it pollutes?
Such Serge Benamou in The Truth If I Mens , the truth for many is that blockchain technology behind the bitcoin protocol is polluting. However, the term pollution is badly chosen. Bitcoin is objectively a technology that needs a monstrous amount of energy to function. This is unfortunately the truth.
The term monstrous is not usurped. According to the (a priori) very serious digiconomist site, the bitcoin protocol consumed, in 2017, the equivalent of the annual and total consumption of … Bulgaria . Around 36 TWh! If bitcoin was a state, it would be the 59th in terms of energy consumption. Astronomical electricity consumption! A bitcoin transaction requires 304 KWh … the consumption of 10 US households every day! (34 KWh per day for an American home is also a huge number …).
How to explain such an expenditure of energy? By the validation system called proof-of-work . Simply put, proof-of-work involves solving a complex mathematical equation for a computer to validate a bitcoin transaction. Once validated, the transaction is confirmed by all computers in the network and a new block is added to the blockchain. Ok very good … but that does not explain by consumption! In fact, computers race between them and the first valid one is rewarded with bitcoin. An important gain for the minor. This race explains the crazy consumption because the requested power is very important. You will see it if you try to mine at home. Your EDF bills will be your nightmares!
Incidentally, the ethereum is not much better according to Digiconomist being ranked 97th . However, for the latter, the number of transactions is much higher . The Ethereum blockchain is not, unlike bitcoin, confined to a simple cryptocurrency, in this case the ether. It is especially the famous cryptokitties which make explode the number of transactions … This data however allows us to affirm that the energy necessary to validate a transaction which is not a cryptocurrency exchange seems much more reasonable. And this is a very positive point for all possible applications thanks to blockchain technology.
But what is most important, and essential on this issue of bitcoin and the environment, is how the necessary electricity is produced. However, you will find very few articles distinguishing between the consumption of electricity and the production of the latter.
Much of the mining is done in China. According to the Digiconomist website, the main reason would be that the low cost of electricity on the spot. In China, electricity is mostly produced with coal mines ( which is true ). Yet, there is no evidence that electricity consumed for bitcoin mines is actually produced with coal.
Consequently, if the electricity consumption for a simple transaction is indeed colossal and too high, the production of this electricity is much more nuanced than it seems.
The lie: no, bitcoin is not as dirty as it looks
First of all, without even discussing the source of energy, consumption is not as crazy as we think. CNBC recently questioned Digiconomist figures, which are only estimates. The latter are in particular based on very large investments, probably much more than reality. Thus, if the consumption per transaction is not to be questioned, it is rather the annual and future estimates that are.
In addition, Digiconomist only considers so – called on-chain transactions by blocking off-chains . What is an off-chain transaction ? This is a transaction that does not appear on the public blockchain. This is particularly the case when Coinbase or another platform becomes a trusted third party in the exchanges. Bitcoins are transferred from one address to another, under the control of a trusted third party who guarantees the transaction. Your private key is kept by the latter. This aspect can be roughly compared with the banking system that controls your bank money, which is the deposit on your bank account.
With the Lightning Network system that is currently in place, the trusted third party will no longer be useful to guarantee the effectiveness of off-line transactions. But what does the environment do with these transactions? They do not appear on the public blockchain and are not part of the famous 7 transactions per second. The latter would then be, by way of example, only compensation transactions between addresses. Indeed, their confirmation is immediate and does not require the complex computer calculation mentioned above. They are therefore much less energy hungry. However, these off-chain transactions will be much higher than on-line Lightning Network transactions when the system will be implemented everywhere.
When it comes to evoking the source of production of this electricity, reliable information is much rarer. In his excellent book entitled The Blockchain Revolution , Philippe Rodriguez discusses the bitcoin mines located near Dalian in China generating about 4,050 bitcoins per month. In this rural country of the Middle Kingdom, despite the low cost of electricity, $ 80,000 per year is needed for the 3,000 miners to work properly. To cope with this cost and the obsolescence of the equipment, the miners are supplied with renewable energies (wind, hydrolic, solar) of which neighboring Tibet is a spearhead. In addition to their environmental impact estimated at zero, apart from the manufacture of the solar panel or wind turbine, their cost is lower than coal and their output is higher. We are far from coal mines, are we?
While bitcoin or other cryptocurrency mines are far less present in Europe, they have not been installed anywhere. Indeed, the main ones are in Iceland and run with green energy. The country is known for its geothermal resources and miners benefit. And he told himself that the other miners would like to follow the virtuous path of the Icelandic mines .
In Blockchain: the revolution of trust , Laurent Leloup gives the floor to Pierre Noizat, Paymium founder, who discusses the energy consumption of the banking system. Among distributors, ticket printing, physical agencies or data centers, the consumption of the banking system is much higher. And we do not even count the transactions carried out by credit card … The comparison is interesting but it suffers from a major problem: the classic currency (fiat) has hundreds of steps ahead of the crypto-currencies. It can be difficult to live with only bitcoins today .
Beautiful perspectives subject to a major technical difficulty
It is therefore difficult to get a real idea. Certainly bitcoin or other cryptocurrency mines consume energy. The reason is the consensus in proof-of-work . However, the difficulty lies in the serious confusion between electricity consumption and production of said electricity. In fact, consuming 1 TWh produced using solar energy will have a less negative impact on the environment than 1 kWh produces coal. To say that the only energy consumption of the bitcoin blockchain is a problem for the environment is therefore false .
The whole problem lies in the energy source of the Chinese mines. The information is difficult to find, especially among the first interested: mining pools like Antpool. Opacity reigns and opinions diverge. So we can only rely on sources, like Philippe Rodriguez who only mention people actually working in the mines. I was even contacted by someone on LinkedIn telling me that he had visited some Chinese mines. The latter would not only work with green energy but even electrify nearby villages!
The fact remains that the miners have become aware of the problem and that renewable energy sources are being sought. Some (small) pools , like HydroMiner, in addition to Icelanders, are already running on green energy. The solution exists and we must be optimistic. In addition, solar-powered mines could become, in the short term, extremely profitable businesses . The cost of solar energy is decreasing year by year, to the point of becoming one of the cheapest sources of energy on the market.
The difficulty lies rather in the technical side. To date, the consensus in proof-of-work is the only one to guarantee absolute security of the protocol. The consensus in proof-of-stake , which is already adopted by some and will normally be adopted by Ethereum in 2018, consumes much less energy but security is not absolute. Thus, while it is essential to make bitcoin mines go green, it is also, if not more, important for developers to find a solution that combines the security of proof-of-work and less energy consumption.