Cambridge researchers have found that Bitcoin’s energy consumption is more than 120 terawatt-hours (TWh) per annum, comparable to the energy consumption of Argentina itself. But the question is – how do these numbers compare to modern financial systems such as gold and banking?
An article by NASDAQ mentioned that the gold mining industry’s energy consumption in 2020 is estimated to be more than two times that of Bitcoin’s, at 265 TWh. The same article also stated that the banking industry worldwide consumes 700 TWh of energy, almost 6 times that of Bitcoin’s. Zodhya, a start-up working on energy and the environment, has utilised a commonly implemented formula to analyse the energy consumption of Bitcoin with respect to the banking industry. According to Reddit user ‘steavus’, the formula works as such:
“This formula takes total mining revenues as the starting point. Then, it estimates the total operational costs for miners which are taken as a percentage of the miner revenue. The total operating costs which is calculated is converted into energy consumption using average electricity prices.”
As a result, Zodhya concluded that Bitcoin uses about a quarter of the energy that banks use – however, one should take into account that the scale at which Bitcoin is used compared to modern financial systems has been poorly studied, and the adoption of cryptocurrencies can be argued to be in their early stages.Therefore, the ratio of energy consumption of Bitcoin to the energy consumption of banks could rise significantly over the years with increased adoption of Bitcoin.
Yet, the NASDAQ article mentioned earlier estimated that Bitcoin’s energy usage is about six times less than the banking industry. If we compare the timeframes of the two articles, the article by Zodhya was published in 2018 while NASDAQ’s was published more recently in 2021. This could mean that the energy consumption by the banking industry is rising faster than that of Bitcoin, but it would be safer to assume that this could be due to differences in the calculations. Nonetheless, we can conclude that the current energy consumption of Bitcoin is much less than that of the modern banking industry.
However, this is not with exceptions. Statistics have shown that a single bitcoin transaction consumes easily eight times the energy required for 100,000 VISA transactions. However, Twitter user and Bitcoin analyst “Dan Hedl” argues that energy consumption per transaction is not a useful factor for comparison due to the following reasons in Figure 1:
Moving on, “Dan Hedl” also brought up a study conducted by Deutsche Bank Research, the Chinese National Energy Agency, Morgan Stanley, and Coinshares stating that nearly 80% of Bitcoin’s electricity usage stems from renewable energy sources. Edit: However, it would be prudent to note that the world’s renewable energy capacity in 2020 was only 2.8 TWh (Thank you to Ryan for pointing out), and given that 80% of Bitcoin’s electricity usage being renewable would amount to about 96 TWh, the numbers clearly do not tally. As such, the results of this study should be taken with a pinch of salt. Nonetheless, Harvard Business Review points out that estimates of the percentage of Bitcoin’s electricity usage stemming from renewable energy sources often fluctuate globally due to the lack of data.
Figure 2. Study conducted regarding Bitcoin and renewable energy usage.
As usual, it is necessary for us to provide a comparison with the banking industry. CNBC reported that 10 of the world’s considerably large banks have joined RE100, a global initiative that aims to get businesses from all over the world committed to using 100% renewable energy. Some of these banks include the Bank of America, Goldman Sachs, ING and Amalgamated Bank. Let us take a look at the RE100 2019 report to see the progress of these banks:
Table 1. Data of banks’ progress collated from RE100 2019 Report.
Bank | Joining Year | 100% Renewable Energy Goal | Interim Target | Progress against 100% Goal | ||||
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||
| Amalgamated Bank | 2016 | 2017 | n/a | 100% | 100% | – | 0% | n/a |
| Bank of America | 2016 | 2020 | n/a | 91% | 83% | 64% | 0.2% | 0.2% |
| Bankia | 2017 | 2032 | n/a | 94% | 100% | 100% | 100% | n/a |
| CaixaBank | 2016 | 2040 | n/a | 99% | 99% | 99% | 98% | n/a |
| Commerzbank | 2014 | 2019 | 100% in Germany in 2013 | 93% | 97% | 96% | 95% | 95% |
| Danske Bank | 2017 | 2015 | n/a | 100% | 100% | 100% | 100% | n/a |
| Goldman Sachs | 2015 | 2020 | n/a | 96% | 95% | 90% | 86% | 14% |
| ING | 2015 | 2020 | n/a | 96% | 95% | 91% | 86% | 77% |
| Nordea | 2015 | 2018 | n/a | 100% | 100% | 96.8% | 100% | n/a |
| TD Bank Group | 2016 | 2017 | n/a | 100% | 100% | 100% | 100% | n/a |
Overall, looking at the data collated in Table 1, the future of the banking industry is looking extremely promising with all of the 10 banks having more than 90% of their 100% renewable energy goal met, and four of the banks meeting the 100% goal in 2018. However, it is possible that while all these banks are large banks, they are simply the cream of the crop. A news report by edie stated that a report from the World Resources Institute (WRI) found that less than 50% of the world’s 50 largest banks have set goals to utilise renewable energy more (and use less fossil fuels). They also stated that more than 50% of the banks do not have public commitments that reflect a transparent accounting process. As such, the 10 banks mentioned earlier might be exceptions, and even in the case that more banks commit to transit to renewable energy, they may not be fully transparent in their accounting process.
Nonetheless, it is worth noting that banks can be easier to regulate compared to Bitcoin. Enforcements and regulations can be placed by governments on central banks to require them to carry out transitions to greener energy, but the same can’t be said for Bitcoin. Due to Bitcoin’s decentralised nature (i.e. there is no central, authoritative location or group that manages it), it is unregulated by any central authority and enforcements are extremely difficult to put in place.
However, not all is bleak for the future of bitcoin. In recent news, Microstrategy’s CEO Michael Saylor hosted a meeting between Tesla’s CEO Elon Musk and ‘North American Bitcoin Miners’ that eventually resulted in the formation of the Bitcoin Mining Council. According to Elon Musk’s tweet, the miners would “publish current and planned renewable (energy) usage” and seek miners worldwide to do the same. As such, while enforcement and regulations may not be feasible, educating bitcoin miners and users around the world can lead to greater usage of renewable energy in the cryptocurrency space.
In the economy-centric world order today, the growing demand for a sustainable crypto market might just pave the way for a greater renewable energy revolution.
Cover photo from Fortune https://fortune.com/2021/05/13/bitcoin-environmental-impact-mining-elon-musk-tesla-climate-problem-carbon-offsets/
Hey Song Thye & Earth School, thanks for writing and posting this article. However, one point/fact didn’t seem quite right to me.
1.
How is it that nearly 80% of Bitcoin’s electricity usage (i.e. around 96 TWh per year, and this figure is set to increase) stems from renewable energy sources, when renewable energy capacity (amount of renewable energy produced) in 2020 was only around 2.8 TWh?
Hoping for some clarity on this. Thanks!
Thank you Ryan for reading the article and leaving a comment! I read the renewable energy capacity statistics by IRENA and it seems like the capacity is indeed 2.8 TWh globally. It is great that you raised this point as it can be confusing, and I believe that you are correct about the facts not being 100% accurate – we will make the relevant adjustments in the article. On a side note, this article by Harvard Business Review could also be useful in understanding why renewable energy consumption for Bitcoin can be difficult to ascertain: (https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume) – under the header “Energy Consumption Is Not Equivalent to Carbon Emissions”, last paragraph. Thank you!