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17 Feb 2022

Is Bitcoin’s Carbon Problem Solvable?

Devansh Sinhal

As Bitcoin becomes bigger and expands to more industries, its advantages become more apparent. Bitcoin and other cryptocurrencies connect countries and corporations around the world. Decentralization makes it possible for transactions to remain anonymous while improving their efficiency and speed.

However, with widespread implementation, the environmental cost of the proliferation of Bitcoin has also surfaced. In this article, we will be exploring how Bitcoin’s current protocols pose a potential environmental threat and what the community is doing to make things better.

Key Takeaways

  • Bitcoin needs a lot of energy to keep servers running—potentially an environmental concern.
  • Its PoW consensus algorithm consumes most of this energy to make servers more secure and efficient.
  • The Bitcoin community is looking to circumvent this problem without compromising network security.
  • Some solutions include a permanent shift to PoS or renewable energy.

What’s the Bitcoin Carbon Problem?

Bitcoin is a massive digital project. Like any other project of this kind, the most important thing it requires to keep running is therefore electricity. The amount of power needed to keep Bitcoin’s or Ethereum’s servers on 24 hours a day, 7 days of the week, is mind-boggling. Some reliable estimates suggest that the mere maintenance of crypto servers around the world consumes more energy than the whole of Norway.

China, as we know, banned bitcoin mining in the summer of 2021. Although different people cite different possible reasons for the ban, one has certainly stuck: the environmental cost on the nation. After all, before the ban, China was one of the largest hubs of Bitcoin mining, ever. It accounted for more than 65% of its global production in 2020. However, the cost of running the crypto was apparently too huge for China to meet its goal of becoming completely carbon-neutral by 2060.

Besides, so far, Bitcoin’s electricity consumption increases every year. According to studies, bitcoin mining consumes more than 133 terawatt-hours of electricity each year—more than what Ukraine or Norway use. Since 2015, this number has gone up 66-fold.

Understanding Bitcoin’s Energy Requirements

There’s a reason why Bitcoin consumes so much electricity regularly. To make sure that its servers remain free of hackers, crackers, and fraudsters, Bitcoin uses the Proof of Work consensus algorithm to do this. This algorithm requires all miners on Bitcoin’s network to compete to solve complex mathematical problems on specialized computers in order to get the “block reward”—bitcoins. Convert BTC to INR at the best rate.

These “problems” can be solved faster if miners have more powerful computers. As mining technology takes a leap into the future, chips called Application Specific Integrated Circuits (ASICs) have exponentially increased the capability of computers. By combining multiple such ASICs and Graphics Processing Units (GPUs), miners have made their equipment a force to be reckoned with.

All this advancement doesn’t come without consequences, though—obviously. Apart from the huge capital investments miners have to make to acquire these systems, they also have to bear unreasonably high electricity costs. At scale, with thousands of miners on one crypto network, and thousands of such networks popping up every day, the electricity consumption really adds up.

Despite the huge costs, the fact that this energy is being used solely to make servers invincible is somewhat reassuring to users.

However, this doesn’t mean that such energy usage, in any case, is “reasonable.” Analysts have long tried to figure out greener ways to mine bitcoins, and now, it seems that they’re finally on to something.

Is It Solvable?

Bitcoin optimists advocate the usage of a Proof of Stake (PoS) consensus algorithm, instead of a Proof of Work one. Rather than having miners compete amongst themselves to solve a cryptographic function using their computers, PoS will allow them to compete by pledging “stakes” of tokens on the network instead.

Proof of Work depends on the idea that because there’s a certain amount of work done to link a chain of transactions to the blockchain; so fraudsters also need to put in that work to scam someone. That work, as explained before, needs a lot of energy.

In PoS, on the other hand, a stake with a large number of tokens acts as a verification mechanism for verifying transactions. Since the stake is at risk—the risk of being lost if the node does turn out to be fraudulent—the network trusts the miner with the most skin in the game. Miners get paid in block rewards for their stake, which is proportional to the stake’s worth in real dollars. Buy Bitcoins at the best rate. 

Bitcoin, however, is still a PoW crypto, and so is Ethereum. The latter, though, plans to shift to PoS by the end of 2022 in an upgrade called “Ethereum 2.0”.

Is Bitcoin's Carbon Problem Solvable?

Recent Developments

In 2021, a group of 150+ crypto companies signed the Crypto Climate Accord, in which they promised to move towards a zero-emission model and achieve it by 2030. They plan to do this,  they claim, by switching the majority of energy sources from fossil fuels to renewable energy, and by purchasing offsets.

The shift to PoS for Bitcoin, however, still seems to be a little far-fetched because many enthusiasts see it as a poor replacement for PoW. The debate in communities and forums around the world is still on, though.

The Way Forward

The Bitcoin community remains aware of the challenges posed by the propagation of such technology at scale. That is the reason why it is enthusiastically supporting efforts to migrate to a more sustainable technological model, one that keeps both scalability and responsibility in focus. In the long run, it is believed that Bitcoin will provide more value to the environment and to society than harm and that its returns will far outweigh the costs.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.


Devansh Sinhal

Content Writer

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