I’d hazard a guess that if, like me, you’re the type of investor interested in making green investments with a positive impact, you might also be the type of investor who’s been ignoring bitcoin’s existence.
Personally, I view it as a currency that can’t really be used anywhere, a vehicle for speculation, and an investment trend with all the characteristics of a bubble. But for those of us who care about the climate, there’s another compelling reason to pay attention to bitcoin’s rise.
You may have seen the headlines over the last month pointing out bitcoin’s absurdly large carbon footprint. The source of the headlines, Digiconomist, estimates that bitcoin mining uses an incredible 35 terawatt-hours (TWh) of electricity per year, about as much as Bulgaria -- a country of over 7 million people! (To find out today’s estimate, check its Bitcoin Energy Consumption Index page.)
“But for those of us who care about the climate, there’s a strong reason to pay attention to bitcoin’s meteoric rise.”
These estimates may be overblown -- another expert thinks they’re about half as high -- but even if we halve the numbers yet again, taking us all the way down to 9 TWh, that’s still annual electricity use on par with Estonia or Guatemala.
In addition to this voracious appetite for energy, Digiconomist has analyzed the carbon footprint of one of the world’s largest bitcoin operations, a mine in Mongolia that he estimates is responsible for 24 to 40 tonnes of CO2 every hour. That’s equivalent to somewhere between 90,000 to over 150,000 km driven in a car.
More importantly, whatever the actual electricity usage and carbon emissions, bitcoin’s model means that both will increase over time. In an article published by Grist Magazine, writer Eric Holthaus calculated that by June 2019, at the current rate of growth, Bitcoin mining could use more electricity than the United States does in a year.
"In Venezuela, where a large part of the electricity grid is powered by fossil fuels, bitcoin mining has even been blamed for blackouts."
You could say that energy inefficiency is core to bitcoin’s model: because bitcoins are hard to mine, they’re scarce; and because they’re scarce, they’re considered valuable.
Yes, we’re talking about mining money. If all this is making your head spin, let’s take a step back and review some bitcoin basics. Bitcoin was designed not as a speculative investment, but as a decentralized, secure, anonymous way for users to exchange value online without relying on centralized (and highly regulated) entities like banks.
Bitcoin and other cryptocurrencies are made possible by blockchain technology which establishes a chain-of-ownership for every bitcoin in circulation. Records of all new transactions are bundled together (the “block”), and added to the existing transaction record (the “chain”), which gets pushed to all the machines on the bitcoin network. This form of record keeping, known as a distributed ledger, shares the internet’s ideal of being a robust, decentralized network resilient to outages.
The “mining” refers to how new bitcoins are made. Not with excavators and explosives, but by breaking the encryption of the existing block -- in other words solving some really hard math problems. Every 10 minutes or so a new “block” is added to the blockchain, the encryption is strengthened, and the mining operations start trying to break the encryption of the new block.
As of this morning, one bitcoin is worth approximately $12,000 USD, up from $800 a little less than a year ago (earlier this week it nearly reached $20,000). This meteoric, if bumpy, rise in value is fuelling the craze and the emissions.
“You could say that energy inefficiency is core to bitcoin’s model..”
Bitcoin enthusiasts have argued that the cryptocurrency is a democratizer. That may have been true at one point, when the network was smaller and the encryption was simpler. Back then, mining could be done on a home computer.
Today, because the encryption has become so complex, bitcoin mining is dominated by wealthy speculators renting out vast computing centers. The encryption can only be solved with brute force computing, which has created a race to secure as much of the world’s available computing power as possible. (If only they had such enthusiasm for using that computer power to solve the world’s major problems!)
Because of the huge amounts of electricity data centres guzzle, they get built where energy is cheap. And that all too often means where energy is dirty.
According to a Cambridge study, 58% of bitcoin mining is based in China and generally uses coal and hydroelectric power. In Venezuela, where a large part of the electricity grid is powered by fossil fuels, bitcoin mining has even been blamed for blackouts.
“Because of the huge amounts of electricity data centres guzzle, they get built where energy is cheap. That all too often means where energy is dirty.”
If we consider the standard definition of an impact investment -- an investment designed to generate a financial return while helping solve a social or environmental problem -- then cryptocurrencies like bitcoin might fit the category of “anti-impact.”
The concept of Bitcoin is ingenious and has the potential to revolutionize commerce and potentially used for positive change, but it must be viewed in the current context.
Next to headlines about bitcoin’s incredible price run, are stories of forest fires raging in California, the death of the Great Barrier Reef due to ocean acidification, ever-worsening climate change projections, and no shortage of other concerning developments.
Bitcoin was born in 2009, the year of the disastrous Copenhagen climate change negotiations. Since then the world has taken great leaps forward -- investment in renewable energy has surpassed that in fossil fuels, the fossil fuel divestment movement has emerged, the Paris Climate agreement was signed -- and suffered some setback, most notably through the actions of the Trump administration.
"Next to headlines about bitcoin’s incredible price run, are stories of forest fires raging in California, the death of the Great Barrier Reef due to ocean acidification, ever-worsening climate change projections.."
We all have a responsibility to consider the consequences of our actions. For those of us fortunate enough to have money to invest, I believe there’s a responsibility to consider our assets’ consequences as well. That’s why, as impact investors, we aim to put our money to positive use. At CoPower our mission is to help investors play a meaningful role in the low carbon transition by investing in small scale clean energy projects through Green Bonds -- just one option amongst many for investors seeking positive change.
About the Author: Raphael is co-founder and President of CoPower, where he leads technology development, regulatory compliance and corporate governance. Over a 13 year career in technology, Raphael has worked in cleantech venture capital, laser engineering, solid-state physics research and high-performance computing. He is an active participant in Canada's equity-crowdfunding industry.