The Environmental Impact of Bitcoin

What Bitcoin is doing to reduce its environmental impact?

Much has been made of bitcoin’s environmental impact in recent months, with critics pointing to the immense amount of energy required to mine for the cryptocurrency. US Treasury Secretary and former Federal Reserve Chairwoman Janet Yellen raised such concerns in February, describing bitcoin as “extremely inefficient” as a form of monetary transaction due to the “staggering” amount of energy it requires. Of course, hostility towards cryptocurrency is nothing new from the American financial establishment, and especially from the world’s largest printer of fiat currency. Every living Federal Reserve Chair, from Alan Greenspan to Jerome Powell, has voiced disapproval of cryptocurrency, as has Bank of Canada Governor Tiff Macklem and his predecessor Stephen Poloz.

However, the environmental concerns surrounding bitcoin mining has now even attracted the attention of cryptocurrency advocates, with Tesla Founder and CEO Elon Musk announcing over Twitter this month that his company will no longer be accepting Bitcoin as a form of payment until the practice becomes more sustainable.

“Cryptocurrency is a good idea on many levels and we believe it has a promising future,” Musk wrote. “But this cannot come at great cost to the environment.” He further stated that the company will not be selling off its bitcoin assets, which are estimated to be worth over $1.3 billion, and that the company will allow Bitcoin transactions again once the cryptocurrency becomes more environmentally sustainable. The decision is a stark shift from earlier statements by Musk. Just a few weeks earlier, he replied “true” to a tweet from Twitter CEO Jack Dorsey stating that “bitcoin incentivizes renewable energy.”

The price of bitcoin dropped by over $6,000 within hours of Musk’s tweet, but the announcement nevertheless signals optimism. While there are valid concerns over the environmental impact of bitcoin mining, it is unlikely that the world’s foremost producer of electric vehicles would maintain its bitcoin assets if they did not believe that the industry has the potential to transition towards environmentally friendly mining. In fact, the transition is already underway, with environmentally conscious bitcoin holders having good reason to feel optimistic about the future of the cryptocurrency’s relationship with the global ecosystem.

The Environmental Impact of Bitcoin Mining

Bitcoin mining involves the use of nodes to solve increasingly complex mathematical problems and puzzles. Unlike fiat currency, which is printed and distributed by a central bank, the bitcoin mining process is decentralized and can be done by anyone with access to the necessary technology. Bitcoin miners compete with each other to solve these puzzles, and the first node to solve the problem publishes their solution. This solution, known as a hash, is then verified by other bitcoin miners around the world, a process known as “proof-of-work.” Upon confirmation, a new “block” is added to the blockchain and the node which solved the puzzle is rewarded with new bitcoin tokens. This process takes place every ten minutes.

The problem, however, is that this process involves the use of immense amounts of computational power and electricity, and increasingly so as the puzzles become more complex. Additionally, the size of the reward offered to bitcoin miners for successfully completing these puzzles halves every time an additional 210,000 blocks are added in an occurrence known as a “halving event,” the most recent of which took place in 2020. Combined with the rising price of bitcoin, greater levels of computational power must be used by miners to compete over an increasingly valuable yet scarcer bitcoin reward.

A bitcoin mine.

Overall, it is estimated that bitcoin mining uses more than 115 terawatt hours of electricity annually. This constitutes 0.5% of the world’s total energy consumption and is roughly analogous to the annual energy usage of Sweden. This is not to say that there are no negative environmental impacts involved in the printing of fiat currency. The United States alone uses nearly as much water to print currency annually as the entire 27 million citizens of Mozambique consume in a year. However, the environmental impact of fiat currency printing nevertheless pales in comparison to the environmental impact of bitcoin mining in terms of energy costs by an exponential margin. Even the mining of precious metals uses a fraction of the amount of energy required to mine for an equivalent value in bitcoin. A single dollar worth of bitcoin, as of 2018, requires more than three times as much energy than it takes to mine for a single dollar worth of gold. The energy required to mine for bitcoin even surpasses other cryptocurrencies such as Litecoin and Ethereum.

A great deal of the electricity used to mine bitcoin is generate by fossil fuels rather than clean energy, and miners frequently set up their mining operations in areas with fewer environmental regulations in order to take advantage of lower electricity costs. Roughly two thirds of all bitcoin mining is performed in China, which consistently ranks near the bottom of indices measuring environmental regulation and protection and is the world’s leading emitter of carbon. Meanwhile, nearly two thirds of China’s electricity is generated through the use of coal, the most environmentally damaging of all fossil fuels.

A coal power plant.

Given the increasing concern over bitcoin’s ecological footprint, what is being done within the cryptocurrency industry to reduce its environmental impact?

Clean Mining

It goes without saying that a lot of bitcoin mining already uses electricity derived from renewable and environmentally friendly sources including solar, wind, hydroelectric, geothermal, and nuclear energy. This includes countries like China, where even though coal power dominates the country’s electricity supply, some provinces make great use of renewable energy, especially hydroelectricity. Other countries which use renewable energy to power bitcoin mines include Norway, Iceland, and the Democratic Republic of the Congo.

Bitcoin mines in Canada also make great use of renewable energy to power their operations. In Quebec, which relies almost entirely on hydroelectric power, bitcoin miners make use of 100 gigawatt hours of energy per month. According to Hydro Quebec spokesman Jonathan Côté, the use of Quebec’s hydropower both increases the sustainability of the industry while providing immense profits for the power companies. In the winter, however, these bitcoin mines are asked to lower their energy consumption by 95% during peak hours to ensure availability for the general population.

A hydroelectric dam.

One major issue is the reliability of renewable energy. While renewables are increasingly becoming cheaper than fossil fuels in the generation of energy, wind and solar power in particular both suffer from major drawbacks. In the case of solar power, such power cannot be produced in the nighttime when the sun is not shining. In the case of wind energy, while wind tends to blow more powerfully at night, when it will blow is not easily predictable. This presents a major dilemma for renewable energy producers, as electricity use peaks in most placed in the late afternoon and early evening as people return home from work, which also happens to be the exact time of day when neither solar nor wind power can be produced in abundance. As a result, excess energy is produced when it is not needed, and less energy can be produced when demand is highest.

Solar and wind farms also generally need a large amount of open space to operate and are typically built in rural areas as a result. These rural areas have significantly fewer residents to accommodate than large cities and lack the infrastructure to store excess energy in batteries. When the batteries they have hit maximum capacity, any energy produced afterwards goes to waste in a phenomenon known as grid congestion. Meanwhile, batteries will also suffer from electricity dissipation, whereby energy is essentially leaked from the battery without serving any purpose.

In a white paper published in April, the companies Square and ARK Invest propose a solution to both the problems associated with renewable energy’s reliability and bitcoin’s environmental sustainability. They propose that bitcoin mines be combined with renewable energy generators and storage. This would partially alleviate the problem of dissipation by making greater use of these energy sources when storage is nearing full capacity and can also alleviate the problem of grid congestion by increasing demand for energy at times of day when less energy is being used. At times of day when more energy is required, batteries powering bitcoin mines can be used to provide power to the local communities.

According to the white paper, this would improve the profitability of renewable energy sources by using their generated power more efficiently. It would also allow for the construction of solar and wind energy farms to begin earlier, as the energy they produce could be used to power bitcoin mines before the necessary community grid interconnectivity studies are completed. The authors additionally note that integrating energy storage with bitcoin mines would result in increased levels of storage, allowing for such energy to be utilized in the case of “black swan” events such as the Texas Power Crisis this past February.

Connecting Environmentally Conscious Miners with Holders

An alliance of 35 cryptocurrency companies came together in April to develop a market-driven solution to cryptocurrency’s carbon emissions problem modelled after the Paris Climate Agreement. Dubbed the Crypto Climate Accord, the proposal suggests both supply and demand-driven approaches in an effort to “decarbonize blockchains.”

On the supply side, the accord proposes an open source software which would allow bitcoin miners to explore the origin of the electricity they use in their mining operations. The software can then be used to verify to what degree a cryptocurrency mining operation relies on green energy. The process would also be completely anonymous and would not expose companies which fail to make significant use of green energy. Similar projects are being conducted by some large technology companies such as Google and Microsoft in an effort to prove that their data centres can operate on 100% renewable energy, although such efforts are by no means limited to tech giants.

On the demand side, two separate approaches are taken to differentiate between large corporate cryptocurrency holders and individual investors. In the case of large corporations, the accord proposes that they be able to calculate the degree to which their cryptocurrency originates from non-renewable sources, and then enter into a deal with a renewable energy provider to substitute for the fossil fuel emissions associated with the cryptocurrency in their accounts. As for individual investors, the accord proposes that they be given the option of paying a small fee upon the purchase of cryptocurrency from a cooperative cryptocurrency exchange which can later be redeemable with green energy suppliers to purchase renewable energy.

The project intends to avoid labelling individual cryptocurrency tokens as “green” in order to preserve their fungibility. The anonymity behind the project also allows for environmentally conscious behaviour to be taken on voluntarily, avoiding potentially coercive pressure on both corporations and individuals involved in cryptocurrency trading.

The project is a highly ambitious one, with an aim to make the cryptocurrency industry carbon-neutral by 2025. However, inspired by steps towards carbon neutrality in other industries, the accord’s architects believe the project to be fully realizable within their timeframe.


Proof-of-Stake is a revolutionary alternative to proof-of-work which is specifically designed to be more energy efficient. The proof-of-stake process only allows anyone with a minimum amount of cryptocurrency tokens, a person with a stake, to add blocks to the cryptocurrency’s blockchain. Rather than constantly competing with other miners around the world, a “validator,” the proof-of-stake equivalent to a miner, will be chosen at random to create a specific block. Once a new block is created, the other validators will validate the block.

This process is more energy efficient through its diminishment of mining competition. Validators will not be using immense computational power to compete against each other to mine for the next block in a blockchain and will only be required to either create a block when chosen or to verify when a new block has been created by someone else. Specialized hardware which uses intense amounts of energy is not required to become a validator in a proof-of-stake system, all that is required is a sufficiently large stake. Some estimates suggest that the amount of power used to mine for blocks in a given blockchain could decline as much as 99.95% by using proof-of-stake instead of proof-of-work.

Proof-of-stake also carries other benefits, primarily by making the possibility of a 51% attack significantly less probable. A 51% attack occurs when a person or group which holds more than 50% of the computational power in a blockchain mining network begins validating their own hashes while refusing to validate the hashes of those not involved in the scheme regardless as to whether their answers are correct or not. Under a proof-of-stake system, one would need to acquire over 50% of all cryptocurrency tokens used in the validation process on the open market, a prohibitively expensive endeavour which would crash the value of the cryptocurrency once the scheme is revealed thereby rendering the entire plan pointless.

While ethereum is currently the largest cryptocurrency in the process of adopting a proof-of-stake system, bitcoin has made no such promises as of yet. This could change in the future, however, as bitcoin continues to face scrutiny over its energy inefficiency. If proof-of-stake is adopted, however, it may serve as a blow to the many renewable energy initiatives seeking to partner with bitcoin miners.

Running its Course

In the long run, the environmental impact of bitcoin mining may dissipate on its own. As mentioned previously, clean energy is rapidly becoming a cheaper source of energy compared to fossil fuels. Since bitcoin miners rely on cheaply available energy to support their large mining operations, the industry may naturally target areas powered by renewable energy as a result of market forces.

Some have also argued that bitcoin is already more reliant on renewable energy sources than most other industries. The company CoinShare has estimated in a paper on the topic that as much as 74% of bitcoin mining is already performed using renewably-sourced energy, an estimate which they describe as “conservative” given the industry’s propensity to seek out the cheapest available energy source. The researchers drew this conclusion from data on the location of bitcoin mines under the assumption that they are accessing the same energy grids as other organizations and households in their respective jurisdictions. However, they also noted that this number is down from an estimated 78% in 2018, and some have disputed the findings of the study.


As the world struggles to meet the recommendations on carbon output established by the Paris Climate Agreement, many renewable energy advocates have raised concern over the potential impact on the environment produced by bitcoin mining operations. Some have even suggested that bitcoin mining alone could inhibit the accord’s stated goal of preventing the average global temperature from rising by more than 2 °C above pre-industrial levels.

However, the bitcoin industry is rapidly responding to these concerns, with cryptocurrency advocates, investors, entrepreneurs, and regulators developing innovative solutions to ensure the environmental sustainability of cryptocurrency mining. Even more promisingly, research on the matter suggests that the industry may already be closer than most others in achieving carbon neutrality. Finally, as renewable energy becomes increasingly inexpensive, market forces will naturally help shift cryptocurrency mining towards a more environmentally sustainable future.