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Bitcoin’s environmental impact is worsening and while it is often compared to “digital gold” its creation is more comparable to the impacts of extracting and refining crude oil, researchers at The University of New Mexico (UNM) have said.
In December 2021, Bitcoin had an approximately $960bn market capitalisation, with roughly 41 per cent of global market share among cryptocurrencies. Although known to be energy intensive, the extent of Bitcoin’s climate damages is unclear.
In a new report, the researchers estimated that that in 2020, Bitcoin mining used 75.4 terawatt hours of electricity (TWh) – higher electricity usage than Austria (69.9 TWh) or Portugal (48.4 TWh) in that year.
“We find no evidence that Bitcoin mining is becoming more sustainable over time,” said UNM professor Benjamin A. Jones. “Rather, our results suggest the opposite: Bitcoin mining is becoming dirtier and more damaging to the climate over time. In short, Bitcoin’s environmental footprint is moving in the wrong direction.
“Globally, the mining, or production, of Bitcoin is using tremendous amounts of electricity, mostly from fossil fuels, such as coal and natural gas. This is causing huge amounts of air pollution and carbon emissions, which is negatively impacting our global climate and our health”.
He added: “We find several instances between 2016-2021 where Bitcoin is more damaging to the climate than a single Bitcoin is actually worth. Put differently, Bitcoin mining, in some instances, creates climate damages in excess of a coin’s value. This is extremely troubling from a sustainability perspective.”
The authors assessed Bitcoin climate damages according to three sustainability criteria: whether the estimated climate damages are increasing over time; whether the climate damages of Bitcoin exceed the market price, and how the climate damages as a share of market price compare to other sectors and commodities.
They found that the CO2 equivalent emissions from electricity generation for Bitcoin mining have increased 126-fold, from 0.9 tonnes per coin in 2016 to 113 tonnes per coin in 2021.
Calculations suggest each Bitcoin mined in 2021 generated $11,314 in climate damages, with total global damages exceeding $12bn between 2016 and 2021.
Damages peaked at 156 per cent of the coin price in May 2020, suggesting that each $1 of Bitcoin market value generated led to $1.56 in global climate damages that month.
“Across the class of digitally scarce goods, our focus is on those cryptocurrencies that rely on proof-of-work (POW) production techniques, which can be highly energy intensive,” said Robert Berrens, a regents professor of economics at UNM.
Ethereum, for example, recently moved towards a proof-of-stake model which by some measures cuts the carbon emissions from the network by over 99 per cent.
The report estimated that climate damages for Bitcoin averaged 35 per cent of its market value between 2016 and 2021. This share for Bitcoin was slightly less than the climate damages as a share of market value of electricity produced by natural gas (46 per cent) and gasoline produced from crude oil (41 per cent), but more than those of beef production (33 per cent) and gold mining (4 per cent).
In July this year, European Union officials secured an agreement on what is likely to be the first major regulatory framework for the cryptocurrency industry.
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