Bitcoin: Environmental Impact And Solutions

As the price of Bitcoin skyrockets from $750 at the beginning of 2017 to more than $16.000, it seems like Bitcoin is attracting everyone’s attention. While you’re reading this, you may have already invested in Bitcoin and currently, a ‘hodler’. Or, you may be waiting for a possible drop in the near future. In fact, you might have had second thoughts on not investing when you hear phrases like Bitcoin bubble burst, Bitcoin price drop etc.

The media frenzy has gone viral as cryptocurrencies are featured in every major news network in the world. As the CME Group, one of the largest exchange groups in the world, announced it will roll out a Bitcoin futures contract in the fourth quarter, it has been a wild few weeks for Bitcoin traders.

What all of this means for Bitcoin is not the subject of this article.

But rather, what Bitcoin means for the huge wide world!

It seems like everyone is talking about the good side of the coin, but is the community even aware of the bad side at all?

If you’re one of the confused folks, let me tell you exactly what you need to know about the secret value of Bitcoin and its origin.

Some Background History About the Cryptocurrency

The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”- Satoshi Nakamoto

Satoshi is the person or the group of persons behind the concept of Bitcoin.

These words couldn’t be truer. Perhaps, that’s why there’s much support for Bitcoin.

The Bitcoin whitepaper was fundamentally a political document born out of the ideas of the Cyberpunk community in the early 90s and has since attracted many followers with mainly libertarian and anti-establishment ideologies.

These groups saw Bitcoin as means of destroying the monopoly of the State over the issuance of currency and the money supply in general. Libertarian views formed the core philosophy of the group who, even today, believes in the idea that society would be better off with either no government or very minimal government.

At the core of the libertarian ideology is the individual, or rather, the individual freedom. Libertarians usually go out of their way to point out that with individual freedom comes great responsibility.

Are We Being Responsible? Have We Lost Our Core Values?

“He who fights with monsters should be careful lest he thereby becomes a monster. And if thou gaze long into an abyss, the abyss will also gaze into thee.”-Friedrich Nietzsche

Bitcoin’s consensus algorithm is an ecological catastrophe and it seems like nobody is talking about it. All we seem to care about is the increasing price of Bitcoin and HODL-ing. The community that was born out of anti-establishment and libertarian ideas has metamorphosized into the sole enemy it was trying to fight against.

I’m propagating the destruction of our planet for the sole purpose of profit. If you think this is an exaggeration, you’re part of the problem.

Now, have you ever wondered how Bitcoins are acquired?

Here’s how it’s done. Keep reading.

The anatomy of the beast

In essence, the creation of a new bitcoins is done through a process called “mining”. Without going into much detail, mining Bitcoin requires the performance of a complex calculation that has no value except to show that “it has been done”.

The process of solving this complex calculation requires enormous computing power, and therefore tremendous amounts of electrical energy required to power those computers. All of that energy expenditure has an important purpose: it secures Bitcoin from attacks by “criminals” by raising the price of the computer power needed to gain control of all transactions on the network.

Those who participate in the maintenance of the network in a truthful manner, are rewarded in Bitcoin, incentivizing them to bulk up their machines so they can mine more efficiently.

On the other hand, those who try to cheat the system by breaking the rules get their blocks rejected by the majority of the network and, therefore, have to endure the penalty of paying for all the wasted electricity.

As the price of Bitcoin rises – so does the incentive for mining, and this creates a serious environmental problem for the Planet.

How serious, you ask?

Let’s look at some stats:

According to the latest bitcoin sustainability report for November 2017, Bitcoins’ entry consumption hit all-time highs. One unique transaction equals to 256 KWh (enough to power 1 U.S. household for more than 8 days) and bitcoin processed 8,930,956 transactions in one month.

That’s a whopping amount of power utilized for a virtual currency.

Apart from the changes in monthly performance, numbers on the current year to date (YTD) performance are staggering. These numbers (a total of 12,612,160,246 KWh consumed) show that Bitcoin has so far consumed as much energy as Sri Lanka consumes over a full year, with one more month to go until the end of the year.

Here’s a chart comparing Bitcoins yearly energy consumption to few other countries:

bitcoin bubble energy


To make things even scarier, Bitcoin’s biggest problem is not even its massive energy consumption, but the fact that it is mostly fueled by coal-fired power plants in China. Coal-based electricity is available at very low rates in this country. Even with a conservative emission factor, this results in an extreme carbon footprint for each unique Bitcoin transaction.

To be precise, 117.74 KG of CO2 per transaction. To put that into perspective, the average emissions level of a new car sold in 2016 was 118.1 grams of CO2 per kilometer.

Does it have to be this way and what are some of the possible solutions?

As Bitcoin’s user base continues to double in size year after year, the sustainability of the network from an environmental perspective becomes increasingly worrying. We need to do something about it.

And, now.

Increasing block size

There is potential for Bitcoin to become more efficient by increasing the block size from 1mb to 8mb or even 20mb to keep the transactions from getting crowded and reducing the transaction fee as much as possible for as long possible.

By doing this, the energy cost per transaction (and therefore the environmental impact) will be reduced greatly. But at the end of the day, if Bitcoin’s rate of adoption, as well as its price, continue to rise, and in addition to that, we enable many more useful transactions, power consumption is almost guaranteed to grow as well.

According to some sources, if the current rate of adoption remains the same, 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 is an unsustainable trajectory. It simply has to stop.

Lightning network

The lightning network, in essence, is a proposed solution to the scalability problem of Bitcoin. It is a decentralized network that uses smart contracts to enable instant payments across a network of participants but does it off-chain.

According to the lightning network whitepaper “As a result, it is possible to conduct transactions off-blockchain without limitations. Transactions can be made off-chain with the confidence of on-blockchain enforceability.

This is similar to how one makes many legal contracts with others, but one does not go to court every time a contract is made. By making the transactions and scripts parsable, the smart-contract can be enforced on-blockchain.

Only in the event of non-cooperation is the court involved – but with the blockchain, the result is deterministic.”

If the community agrees to implement this soft-fork of Bitcoin, it will greatly reduce the electricity cost per transaction while fundamentally keeping the principles of mining unchanged.

Sounds like a good idea now, eh?

Complete paradigm shift in thinking – to save the planet

Proof of Work: Change of the consensus algorithm

Proof-of-work was the first consensus algorithm that managed to prove itself, but it isn’t the only consensus algorithm. Since the introduction of PoW, many other consensus innovations have come about in the community.

ASIC-based PoW, GPU-based PoW, naive PoS, delegated PoS and few others, all of them with different specs and underlying philosophies. At the moment, Bitcoin runs on ASIC-based PoW and the logic behind this consensus algorithm is, simply put, “The correct blockchain is defined as the chain that miners have burned the largest amount of economic capital to create.”

You can already see the problem here. We’re running a network that cuts trees and promulgates global warming as a sort of “sacred sacrifice” to validate transactions.

More energy efficient algorithms, like proof-of-stake, have been in development over recent years. Proof of stake, in the words of Vitalik Buterin (the main proponent of Casper PoS), “breaks this symmetry by relying not on rewards for security, but rather penalties.

Validators put money (“deposits”) at stake, are rewarded slightly to compensate them for locking up their capital and maintaining nodes and taking extra precaution to ensure their private key safety, but the bulk of the cost of reverting transactions comes from penalties that are hundreds or thousands of times larger than the rewards that they got in the meantime.

The “one-sentence philosophy” of proof of stake is thus not “security comes from burning energy”, but rather “security comes from putting up economic value-at-loss.”

Will the Bitcoin Bubble Burst?

The PoS model remains yet to be tested on a large scale, as its first implementation will be done on the Etherium blockchain. If it proves to be a success, the Bitcoin community is going to need to reevaluate its values and reconsider the basic maximalist tenets of its monetary policy.

Creating social consensus at this stage of Bitcoin’s development is extremely hard, some might even say nearly impossible, as the oligopoly of miners, developers, wallet owners and the exchanges all need to agree on it.

That, however, doesn’t change the fact that a consensus must be reached since the consequences of the current setting are taking an irreversible toll on our environment.

To sum it all up, making the shift from one model to the other is bound to be a difficult process, but is there a bigger incentive it to happen, than saving the planet?

Featured image copyright: Darya Yakovleva