Statements like these are heard more and more often: "Bitcoin is an energy hog", "If everyone used cryptocurrencies, it wouldn't be sustainable".
But what is really true about such statements?
You should know this before we start with this article:
I care deeply about the environment.
I:
- don't own a car (because I really don't need one)
- rarely buy new clothes (and then only sustainably produced ones)
- eat 90% vegan, 10% vegetarian (although I love the taste of meat)
- offset the CO² of my flights (when I do fly)
- buy mostly packaging-free (it's even fun - who would have thought?)
- donate to various environmental projects (and to the protection of species)
There's still plenty of room for improvement, that's for sure, but I think my basic attitude is clear.
As you might expect, markets and industries that clash with my values are a thorn in my side.
So what about Bitcoin and the like?
Comparison of the energy demand of cryptocurrencies and finance.
Even though it is true that cryptocurrencies have a massive energy demand and there is a strong need for optimization here, it is often disregarded that the conventional financial system also has an immense energy consumption.
Current projections assume that Bitcoin consumes about 120 terawatt hours per year (Cambridge has a kind of live ticker for this: cbeci.org). cbeci.org).
Sounds like a lot, and it is. But as always with such numbers, you should put them in a meaningful relation. In my opinion, the comparison with annual electricity consumption of countries is not optimal.
It is much more meaningful to see how Bitcoin performs in comparison to banking and/or the invstement classic gold as an investment, as these are the areas for which Bitcoin is supposed to be an alternative.
Currently, the estimated energy demand is as follows:
| Estimated annual energy consumption | |
| Banking system | 263.72TWh |
| Gold industry | 240.61 – 265 TWh |
| Cryptocurrencies | 266.37 TWh |
The figures are composed as follows:
- Banking: the specified range is based on a figure of 263.72 TWh in one Research Report von Galaxy Digital and
- Gold industry: 265 TWh according to projections from NASDAQ and 240.61 TWh according to Research Report von Galaxy Digital.
- Cryptocurrencies: since projections here are typically only found for Bitcoin, the range of 240-270 is based on an assumption composed of the most prominent cryptocurrencies I could find plus an appropriate buffer:
By researching the estimated annual energy consumption of various cryptocurrencies, a realistic technology mix is determined, which is important to keep in mind that there are strong differences here.
Figures could be found for the following currencies:
| Cryptocurrencies | Estimated annual energy consumption | Source | Currency market share |
| Bitcoin (BTC) | 93.92 TWh | cbeci.org | 42.11% |
| Ethereum (ETH) | 65.71 TWh | digiconomist.net | 17.54% |
| Cardano (ADA) | 0.006 TWh | en.wikipedia.org | 4.27% |
| Dogecoin (DOGE) | 0.003 – 7.8 TWh | leafscore.com aljazeera.com | 1.76% |
| Bitcoin Cash (CSH) | 3.4 THw | aljazeera.com | 0.55% |
| Litecoin (LTC) | 3.2 TWh | aljazeera.com | 0.54% |
| Ethereum Classic (ETC) | 1.7 TWh | aljazeera.com | 0.38% |
| Monero (XMR) | 0.6 – 1.7TWh | researchgate.net aljazeera.com | 0.26% |
| Bitcoin SV (BSV) | <1 TWh | aljazeera.com | 0.14% |
| Dash (DASH)) | 0.8 bis 1 TWh | dashnews.org aljazeera.com | 0.11% |
| Zcash (ZEC) | <1 TWh | aljazeera.com | 0.08% |
| Overall consumption: | 180,436 TWh | Total Market Share: | 67,74% |
If the energy consumption is extrapolated to 100%, we arrive at the following result for the total annual energy consumption:
| Overall consumption: | 266,37 TWh | Total Market Share: | 100% |
So extrapolating the annual energy demand to the entire crypto market amounts to more than each of the banking and gold industries.
However, it should be noted here that cryptocurrencies, can take over the task of the other two sectors (the settlement of financial transactions as well as the function as a store of value).
So if we contrast cryptocurrencies on one side and traditional banking along with gold industry on the other, the advantage is clearly with cryptocurrencies. Even assuming the lower consumption figures from the first table, crypto market has only 52.82% of the energy demand of banking and gold industry.
Prognosis with increasing use of cryptocurrencies
Maybe you have heard here and there that in case of mass adoption (i.e. if all people would use Bitcoin), the increase in global energy demand would lead to us pushing through the 2 degree limit and we would lose the fight against the climate crisis.
This statement is based on a scientific reportwhich is based on wrong assumptions. A very important point is that the study equates the energy consumption for the creation of a block with a single transaction (but a block contains several thousand transactions).
Further, it is extremely likely that the energy efficiency of cryptocurrencies will improve rapidly. This will happen through a kind of natural selection, as the demand for efficient cryptocurrencies will push the less efficient ones out of the market. This is probably due only to a limited extent to ethical and moral thinking (hard for me to admit as an amateur environmentalist), but primarily to the pursuit of profit. The less electricity a currency requires, the more profitable it is to mine it, for example, or to operate the respective consensus process.
It must also be taken into account that the mining processes for many cryptocurrencies are completed at some point and therefore only have a temporary impact. This is the case with Bitcoin, for example. Currently approx.
18,799,000 of 21,000,000 already mined. The so-called halving reduces the mining speed, which means that the last Bitcoin will probably only come into circulation in about 120 years (which is a huge thorn in my side about Bitcoin - but there are other candidates), but even if this is compared to the time it took the banking and gold industries to reach their current level (like the circulation of gold), cryptocurrencies do not need to hide.
An additional point that drives the public discussion in the wrong direction is that the above report assumes that Bitcoin would reach a point in the future where it would process nearly one billion transactions per day, which is impossible due to Bitcoin's technical limitations. The report also does not take into account innovations in the mining devices used to mine Bitcoin. However, the reality is already that Bitcoin is being mined more and more with renewable energy, and hardware is also becoming more efficient. For miners, as touched on above, it is important to use as little power as possible to keep the business lucrative despite declining mining revenues. One example is that in modern mining facilities, the waste heat generated by the computing power of the hardware is also used to generate energy.
Nevertheless, the Proof-Of-Work method, as used for Bitcoin, for example, is not a tried and tested means, as it defiantly entails an enormous hunger for energy.
For me, this means that Bitcoin's proof-of-work process should be avoided if possible.
This can be achieved through various alternative methods that can be used to mine coins, such as the following (caution - minor digression):
- Proof-Of-Stake:
The validation of transactions is conceded by a consensus mechanism, which takes place through the provision of coins by the community in pools. The participants of the pool and the operator share the staking reward (which is the reward).
For coins that use this method, the total amount of coins is usually generated directly when the coin is introduced. Mining is therefore not necessary, which typically drastically reduces the energy requirements of this type of cryptocurrency.
One of the most prominent examples of this process is Caradno's ADA.
- Proof-Of-Capacity / Proof-Of-Storage/Space:
Validation is not determined by solving highly complex mathematical problems (as in Proof-Of-Work), which require this immense computing power, but by a process that requires participants who want to validate transactions to provide the network with some of their free storage space.
- Other proofing methods
There are various other proof methods that I do not want to go into here. For example, Proof-Of-Elapsed-Time or Proof-Of-Burn.
Back on topic:
So if we continue to assume a development in the crypto sector it will inevitably be (even) greener.
The biggest factor for this (at least in my humble opinion) is that cryptocurrencies are developing at an incredible speed compared to the traditional banking and currency sector.
Innvoation for cryptocurrencies is a clear indicator that the current imbalance in energy demand will be corrected.
This is already clearly visible, for example, as more and more environmentally friendly cryptocurrencies are gaining ground.
Two of the currently most promising currencies (in this - but also other areas) are Cardano's ADA Coin and Ripple's XRP.
ADA's energy demand per year is estimated at 0.006 terawatt hours, and XRP's at 0.01.
This means that the balance regarding energy consumption for both currencies is more than 20,000 times better compared to traditional banking.
In my opinion, this clearly shows the immense potential of this industry and makes it clear why I place a lot of hope in this technology for our environment.
Conclusion: Be mindful when apps ask for permissions
Of course, banking with traditional currencies will probably not disappear anytime soon, but coexist with cryptocurrencies, but to see that a bunch of countries have already started to develop their own cryptocurrencies is exciting and promising.
The challenge of sufficiently optimizing cryptocurrencies in terms of energy requirements so that they do not become a burden on the environment and a knockout criterion in the fight against climate change remains. However, the fact that there are already a number of cryptocurrencies that can be operated much more economically than the classic financial system should also be seen as extremely positive.
I hope I've been able to bring you a few points that get little or no attention in the mainstream media.
If you want to buy cryptocurrencies yourself, you can do so, for example, on Binance I use the platform regularly and am very satisfied. The link is an affiliate link, which means I get a commission from Binance if you buy from Binance. Nothing changes for you in price:
I strongly recommend only investing money that you can spare and whose complete loss you could cope with at any time.
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