Social entrepreneurs may be well positioned to seriously consider the questions raised by Alex de Vries in his recent academic paper “Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem” (Joule 2019). De Vries painstakingly demonstrates that Bitcoin mining is barely profitable and is using vast amounts of power and producing surprising amounts of electronic waste.
Globally, the paper reports that Bitcoin miners used between 40 twh and 62.3 twh in 2018, roughly equal to the electricity used in Hungary (40.3 twh ) or Switzerland (62.1 twh). That attention-grabbing statistic is perhaps not nearly so interesting as the per-transaction metrics.
Given that there were only 81.4 million Bitcoin transactions–compared to a total of 482.6 billion non-cash transactions processed by the global banking sector–the total kwh used for a single Bitcoin transaction would have been between 491.4 KWh and 765.4 kwh, or enough energy for me to drive my 2012 Nissan Leaf from Salt Lake City to Pittsburgh or St. John, New Brunswick.
Furthermore, mining is generating electronic waste from regularly upgrading mining computers to the latest models on a per-transaction basis comparable to “two ‘C’ size batteries.” Imagine discarding two batteries every time you swiped your Visa card. That is the equivalent of what happens for each Bitcoin transaction.
Visa transactions, by comparison, require only a tiny fraction of a KWh and produce only a small portion of a gram of e-waste.
The focus of de Vries’s report is on the environmental effects of mining, concluding that renewable energy doesn’t solve the problem. Even hydroelectric power varies, he notes, and mining requires virtually constant, baseload power, potentially encouraging construction of more coal plants to complement renewables. And, of course, renewable energy does nothing with respect to e-waste.
The report implicitly begs two important questions:
1. Can blockchain technology be used for good if it is so devastating to the environment?
The merely touches on two aspects that provide hope for blockchain technology to be a tool for good in the world. First, the report notes that trusted third parties are beginning to process Bitcoin transactions “off-chain” thereby avoiding the costs described above but also seeming to avoid the supposed benefits of the blockchain. Another point made in the report is that some other cryptocurrencies do not require mining and use a “proof of stake” or another approach instead. These other approaches also avoid the carbon and e-waste problems of Bitcoin. Social entrepreneurs can, it seems, use blockchain technology without harming the environment but any business model that incorporates Bitcoin requires careful review for adverse social and environmental impact.
2. What is Bitcoin worth?
The report is careful to avoid asking this question directly. The first reaction of a reader might be to conclude that the value of Bitcoin must always exceed the cost to mine it, providing something of a floor.
This logic is akin to the idea that in the long term, the price of oil must exceed the cost required to extract it. As prices fall, supply shrinks as the most expensive sources of oil are capped, helping to maintain an equilibrium. Similarly, when prices rise, more expensive sources are brought online. Something similar happens with Bitcoin mining, pushing miners to always have the fastest machines and the cheapest electricity. What prevents the price of Bitcoin, however, from falling below the cost to mine it? No one must have Bitcoin in the same way people need oil today.
Bitcoin bulls have argued in recent years that the cryptocurrency represents a great “store of value” like gold. This argument lost its luster when the coin’s value dropped about 80% from its peak in December 2017. Unlike gold, which has intrinsic value and has multiple commercial and industrial uses, Bitcoin has no intrinsic value. If miners can’t make a profit mining, why would they mine? If no one mines, can the blockchain on which it is based be maintained? If transaction fees are charged to cover the cost of mining, the fees would need to be on the order of $50 per transaction just to cover the electricity. What is the value of a currency that requires a fee of that scale for every transaction?
Blockchain technology seems poised to change the world. If we rely heavily on coins that require mining—and Bitcoin is certainly not the only one that does—we could see societal and environmental costs that aren’t captured in the direct costs of mining exceed the societal value we get from those coins.
Let’s look to socially minded, mission-driven entrepreneurs to solve these problems, bringing us all the benefits of blockchain without devastating environmental and social impacts.