In late January, the price of stock in the video game retailer GameStop soared some 1,700 percent over several days before crashing back down. And while GameStop’s wild ride appears over for now, some of the same speculative frenzy and hype has spilled over into the cryptocurrency markets. Unlike traditional currencies, which are issued by central banks, cryptocurrencies are digital currencies that are managed collectively. Just as equity bubbles often have dire side effects like the exacerbation of inequality, the price of Bitcoin surging to record highs has potential negative consequences for the climate.
Bitcoin, whose technology is open source, is the oldest cryptocurrency. One of its more interesting innovations is the concept of the “blockchain,” where all transactions are recorded in a public list. First theorized in a white paper attributed to the cryptocurrency’s founder, who is known as Satoshi Nakamoto, Bitcoin was meant to create an alternative payments system not controlled by the titans of finance. Yet, many corporations, so-called “FinTech” startups, and even Wall Street firms have also leapt head first into the innovations of Bitcoin. Since Bitcoin’s creation, not only have we seen the creation of many other kinds of cryptocurrency, we’ve also seen the creation of multiple exchanges that allow people to buy and sell cryptocurrency, making speculation on the price of crypto easier.
People can purchase Bitcoin on exchanges, but they can also obtain Bitcoin by “mining” it. Bitcoin mining is the process by which new Bitcoin is added into circulation. About every 10 minutes, a new “block” is added to the Bitcoin blockchain. The first miner to both verify 1 megabyte worth of transactions on the network, and correctly identify a 64-digit hexadecimal number associated with the new block (called “proof of work”), receives 6.25 Bitcoins as a reward. Those 6.25 Bitcoins are currently worth about $293,000 with Bitcoin trading around $47,000. Identifying this number is essentially guesswork, and requires a ton of computing power to do. Miners can mine up to a hard limit of 21 million Bitcoin (there are currently 18.5 million Bitcoin in circulation).
To be profitable, Bitcoin miners need to operate in areas where the price of electricity is low, because the practice uses a lot of energy. That often means mining in areas with some of the dirtiest energy. Research from the University of Cambridge shows that about one-third of global Bitcoin production occurred in Xinjiang, China. As Bloomberg reports, Bitcoin miners are drawn to Xinjiang because its power rates are extremely low, “as little as 0.22 yuan ($0.03) per kilowatt-hour, compared with 0.6 to 0.7 yuan in central China.” While Xinjiang is developing renewable wind turbine-powered energy, the majority of electricity in the region is generated from coal.
That’s part of the reason why Bitcoin mining has a growing environmental impact. In 2018, Princeton Professor Arvind Narayanan estimated in congressional testimony that the Bitcoin network accounted for slightly under 1 percent of world electricity consumption — a bit more than the electricity consumption of the state of Ohio or the state of New York. Scientists writing in the journal Nature warned in 2018 that Bitcoin’s growth could single-handedly push global emissions above 2 degrees Celsius. More recent estimates found that the carbon emissions of Bitcoin mining “sits between the levels produced by the nations of Jordan and Sri Lanka.” The University of Cambridge Judge Business School’s Bitcoin Electricity Consumption Index estimates that Bitcoin mining will consume more than 120 terawatt-hours of electricity globally this year — more energy than Argentina. (One terawatt-hour is equal to outputting 1 trillion watts of energy for one hour.) Researchers have also found that Bitcoin mining is more energy-intensive than mining both gold and platinum.
As the price of Bitcoin skyrockets, so do the incentives to mine it. Bitcoin is up more than 37 percent in 2021 alone, and has more than doubled since December 2020. One new incentive for mining Bitcoin came recently when electric carmaker Tesla revealed in a filing to the Securities and Exchange Commission on February 8 that it had purchased $1.5 billion of Bitcoin, and would begin accepting the cryptocurrency as payment for its cars. Bitcoin surged 13 percent off the news, and hit a then-record high of over $44,000. (It’s since moved higher, at one point surpassing $48,000).
Tesla’s purchase of Bitcoin has raised questions in the financial press about its commitment to sustainability, with the Financial Times writing that it may “undermine [the firm’s] sustainability stance.” Much of Tesla’s revenue comes from selling carbon credits for its electric vehicles. As Jacob Silverman noted in The New Republic, Tesla sold approximately $1.58 billion worth of carbon credits in 2020 — almost the same amount it purchased in Bitcoin.
Bitcoin is hardly the only cryptocurrency that Tesla’s founder, billionaire Elon Musk, has been boosting. Musk has been repeatedly hyping another cryptocurrency, Dogecoin, over the last few weeks. Dogecoin is also a mined cryptocurrency, though research on the emissions impact of mining it and other non-Bitcoin cryptocurrencies is just beginning.
It’s not just Tesla driving Bitcoin to a record high (it briefly hit $50,000 over the weekend) and making mining more attractive than ever. On February 10, the credit card company Mastercard announced it would allow merchants to receive Bitcoin as payment sometime later this year. Then on February 12, the Bank of New York Mellon Corporation (commonly known as BNY Mellon) said it would begin to allow its clients to hold Bitcoin at the bank, and PayPal announced its plans to introduce support for buying, selling and holding Bitcoin at Venmo (which PayPal owns).
Bitcoin mining needn’t be emissions-generating; if all Bitcoin were mined in locations generating electricity through renewable energy, it wouldn’t be an issue at all. But as the world slowly transitions off of fossil fuels, and with one-third of Bitcoin being mined in the coal-dominated Xinjiang, Bitcoin mining will continue to raise climate concerns in the near term. And as the speculative bubble around Bitcoin and other cryptocurrencies increases, the incentives to mine in areas with the cheapest electricity will only rise. This should raise concerns for climate regulators and advocates everywhere.