The debate around the environmental impact of the Bitcoin mining ecosystem is heating up once again as academics have provided a fresh dose of perspective on the subject. In an opinion piece written by Noah Smith, a former assistant finance professor turned columnist, took aim at the Bitcoin (BTC) mining industry in March, suggesting that the constantly growing energy consumption of the network is simply unsustainable. Smith’s belief is that more countries will clamp down on Bitcoin mining as they use more power, given that the increasing price of BTC is always matched by rising hash rates.

While Coin Metrics founder Nic Carter has rebutted some of the points raised in Smith’s column, there still seems to be divided opinion around the amount of energy that Bitcoin mining draws, the sources of this energy and the carbon footprint that the industry has on the planet.

The mining industry is arguably inclined to downplay the extent of its resource-intensive work, and some industry insiders have suggested that talk of Bitcoin’s environmental impact is a non-issue and that data suggests a large share of hash power draws energy from renewable sources. Nevertheless, environmental advocates have aimed their sights at the industry in return, which has created a seemingly never-ending debate on the subject.

Cointelegraph has spoken with several academics in this area to gain an alternative view on the matter, for example, those behind the Cambridge Bitcoin Energy Consumption Index, which has become a trusted point of reference for the estimated power consumption of the Bitcoin network, albeit with some self-confessed limitations.

Furthermore, Aalborg University Ph.D. fellow Susanne Köhler and associate professor Massimo Pizzol co-authored a study titled “Life Cycle Assessment of Bitcoin Mining” that gives some data-driven assumptions about the environmental impact of the industry.

The CBECI was built to eventually answer this question

In an interview with Cointelegraph, Cambridge Centre for Alternative Finance crypto asset and blockchain lead Anton Dek unpacked the history of the CBEC and the methodology used to produce the energy consumption estimates of its Bitcoin Electricity Consumption Index.

The Cambridge research associate said the team had observed that other models that were looking to create accurate estimates of the Bitcoin network’s energy usage had used a top-down approach, using data such as the amount miners spend on electricity as an example.

The CBECI methodology is a “bottom-up approach” that uses data on the available mining hardware to create a lower and an upper bound estimate of the Bitcoin network’s energy consumption. Dek explained that the information is: “Based on assumptions from objective figures like hash rate.” He further added: “These different machines all have known efficiencies, joules of energy they expend to solve hashes. Based on these assumptions, we built the index.”

The index provides an estimated power consumption range, with its current theoretical lower bound annualized electricity consumption at 43.32 terawatt-hours to the theoretical upper bound at 476.18 TWh. The estimate of Bitcoin’s current consumption is based on the assumption that miners use a mix of profitable hardware.

While the CBEC has not made any models on the breakdown of the energy sources powering the Bitcoin network, the original intention for the creation of the CBECI index was to provide a carbon emission model. Dek said that his team is still working on that model, which he hopes to see go live later this year.

Renewable-powered mining

The CBECI website also provides a global mining map that essentially gives a breakdown of how the Bitcoin mining network is distributed around the world. The map provides country-by-country hash rates, while China’s 12 provinces are also accounted for, given that more than half of the world’s Bitcoin hash rate is situated in the country.

The breakdown of hash rate locations is derived from data provided by mining pools BTC.com, Poolin and ViaBTC, which contribute to 37% of the overall Bitcoin hash rate. Dek also noted that their data set is now over one year old but still allows researchers to make some accurate assumptions about the energy sources used by miners in specific countries or regions.

“This is self-reported data by mining pools, so we have to trust these guys. But even if it’s all true, we only cover 37% of Bitcoin’s total hash rate from those three pools that provided information to us. If we extrapolate it to the total miners, we assume this is representativeness of this sample, which might not be true, given that we have more data from China. That’s something we’re going to improve on.”

That regional view of China also gives a glimpse of the energy mix that miners are using in different regions. The team hasn’t released that specific data visualization yet because it believes that the current 37% hash rate, which is the basis of their data, is not representative enough to make accurate estimates of the network’s carbon footprint. Dek added: “If we look at the energy mix of every region, and then each country, we’ll be able to assume the energy mix and then we’ll be able to more accurately estimate the carbon emission factor.”

Nevertheless, Dek said that other researchers have arrived at estimates by taking the total annual power consumption of the Bitcoin network, around 130 terawatts-hour, and multiplying that by the average carbon emission factor (~0.5kilograms/carbon dioxide per kWh produced). The Cambridge researcher suggested that such an estimate may not be representative, given some assumptions that can be drawn from regional location data of mining activity:

“It’s more complicated than this because I think the Bitcoin energy mix doesn’t fall in the average world mix. The reason is that they use renewables, not because of their benevolence, but for purely economic reasons. Hydropower exists in abundance in some regions, and if you look on the Bitcoin mining map and China, the Sichuan region is still very important for mining.”

Dek pointed to the widely reported presence of mining facilities in the region that operate on electricity produced by hydroelectric dams in Sichuan. The CBECI data also reflects the increase in the hash rate in the region during the wet season, where excessive rains lead to an abundance of power generated by swollen dams. According to him, Sichuan’s estimated share of global hash power: “In April (2020) it’s 9.66%, in September 2019 it was 37%.”

Perspectives from “Life Cycle Assessment of Bitcoin Mining”

Köhler and Pizzol’s 2019 “Life Cycle Assessment of Bitcoin Mining” study provides an estimate of Bitcoin’s environmental impact using a well-established life-cycle assessment methodology. It estimated that the Bitcoin network consumed 31.29 TWh with a carbon footprint of 17.29 metric tons of CO2 equivalent in 2018 using data, information and methodology from previous studies on the subject.

In a conversation with Cointelegraph, Köhler noted that their study shows that the impact of new capacity being added to the Bitcoin mining network decreases based on two assumptions. The first is that equipment becomes more efficient, which was proven to be true some two years later. The second assumption — that miners would move to regions with more renewable energy sources — did not quite happen as expected: “Even if mining is more efficient, there is much more mining done, and this means a larger impact.” She added further:

“The assumptions in our study were influenced by rumors that China would crack down on their miners. More recent data on mining locations indicates that did not happen as expected. Still, the effect of improving the energy efficiency of the hardware means that the impact per additional TH mined decreases (thus, in relative terms). However, we see now that the hash rate increases at a faster pace leading to larger overall impacts (thus, in absolute terms) in other words.”

As Köhler explained, their initial assumption has been debunked to a certain extent, as the sheer growth of the Bitcoin network’s hash rate has led to higher electricity usage and, therefore, more of an effect on the environment.

Nevertheless, the Aalborg Ph.D. fellow concedes that arriving at an accurate estimate of the energy consumption of the Bitcoin mining ecosystem as well as its carbon footprint is a tall order. This is due to a number of factors, including the exact location and shares of miners, mining equipment being used and the accuracy of data from various sources.

Incentives — the prospect of “green Bitcoin”

Another fascinating point raised by Dek is the interest that his department has received from different players in the cryptocurrency industry. Private firms and fund managers have enquired about data or services that can accurately prove how “green” a Bitcoin is, which is determined by whether or not it was mined using a renewable energy source:

“Fund managers are now interested in things like ‘green Bitcoin.’ More institutional investors are coming in, and lots of them are interested in the ESG (environmental, social and governance) consideration of Bitcoin. The ideal for them would be to have a system that colors the Bitcoin.”

Dek also said that some miners are looking for ways to prove that they used green energy to mine their BTC. This could potentially create a market for “green Bitcoin” being sold at a premium, which could motivate miners to switch to green energy sources. Meanwhile, Köhler believes that many miners are primarily focused on profit margins and that cheap electricity, however it is produced, will override the allure of green energy sources if they aren’t as affordable:

“There are some incentives to use renewable energies as in the case of hydropower in Sichuan that allows miners to use cheap electricity. However, it should be noted that this electricity is seasonal, so the availability is not the same throughout the year. Overall, miners are incentivized to use the cheap electricity to maximize profits. For example, this also includes electricity from coal in Inner Mongolia and electricity from oil in Iran.”

Dek shared these sentiments, saying that miners are typically rational about their business decisions. If there is a cheaper energy source, they’re likely to use it despite how that energy is being created or what incentives are being offered to use green energy sources: “I find that miners, especially big Bitcoin miners, are rational economic players. I think they’ll continue to act this way — if there’s a cheaper option, they will switch, and if not, they’ll stay.”

Data is key

As Köhler aptly summed up, more access to data from industry players could well provide the answers to a debate that is likely to continue for many more years: “Better data and more transparency from the mining industry would allow for better models and less speculations — within the crypto space and in the public,” she added further:

“As long as the impact of Bitcoin mining continues to increase, I do not see an end to this debate.”

Dek agreed with the assessment regarding the debate on Bitcoin’s environmental impact due to the distributed nature of the network, even when more data and tools become available. He also paints a stark reminder that Bitcoin’s protocol was designed this way for a reason: “Bitcoin has to be inefficient by design. If it’s very efficient, it would be very cheap to perform attacks on the network.”