The environmental impact of Bitcoin and NFTs
Updated: Jun 14, 2021
I’m not good with stocks, I’ve never understood a lick of business, and when my partner talks to me about PD parts, the technological jargon often frightens me in its anatomic creation. Yet, I am an animal of research, and if a subject piques my interest enough, I will spend my time on Google until I can barely keep my eyes open.
It started with a Tweet from tech billionaire Elon Musk, as he decided to drop Bitcoin completely – from Tesla and his own investments. This caused a significant drop in Bitcoin’s shares, around 7 percent. Tesla will no longer be accepting Bitcoin transactions. Why? As Elon Musk stated, Bitcoin is bad for the environment.
In a very confusing and very long explanation my partner gave me about NFT’s (Non-Fungible Tokens or ‘cryptoart’ for those like me who had never heard about them), I learned exactly why cryptocurrencies like these were damaging to nature.
First, I’d like to use the help of a very knowledgeable Reddit user to explain this whole ‘block-chain’ and ‘mining’ jargon. Note, for further information on this subject, this user has embedded a link, which you can access here. ‘Mining’ is essentially the set of transactions between the previous owner of the crypto and the buyer. The miner confirms the validity of these transactions before adding a ‘block’ to a ‘block-chain’ (the chain of activity for these blocks) – stamping this block to make it official instead of remaining as a pending transaction.
The validity of these transactions is determined through the guessing game which you are forced to play in order to ‘mine’ for your crypto. It’s a series of mathematical equations – none of which have any importance to the actual transaction – but helps stop other miners from ‘attacks’. Attacks are the action of a user spending coins, only to take them back. Mining means that "everyone else combined" will mine more blocks than the attacker can due to the resources and computer time required to mine.
This is where the environmental cost is brought in. Electricity is required to turn on a computer, and more is required for these calculations needed to ‘mine’. Often times, large mining facilities use cheaper power sources, which is generally fossil fuels, that effectively pollutes the environment.
The TL; DR version of this is, as explained on this post: “Crypto is "mined" when your computer solves complex calculations. Completing those calculations requires large amounts of computing power, and large-scale mining operations are huge power sucks. Most electricity is produced via fossil fuels, therefore drawing lots of energy to mine crypto means burning lots of fossil fuels, ergo crypto is bad for the environment”.
An article on Quartz.com analysed the carbon emissions of selling an NFT in comparison to traditionally selling art. Involving all the steps of an art sale, inclusive of the online aspects of the sale as well as the sorting and travel emissions, the print only causes 2.3 kg of CO2 emissions. Quartz compared these emissions to a typical gas-powered car for 100 miles (160 km), which causes 41 kg of CO2 emissions. This makes this print art sale around 5% of the emissions of a car. The exact carbon footprint of selling an NFT is unclear – much of the minting process, like uploading the work, submitting it to ‘miners’ (which, from what I understand, are the organisers of the work), and the receiving of the work. A typical NFT’s carbon footprint is 211 kg of CO2. Compared to the 41 kg of CO2 driving a gas-powered car 100 miles, this makes the emissions of the NFT process is 514% of the car’s emissions.
It starts by keeping them viable. As virtual currencies and entirely virtual transactions, it means computer farms have to be set up and remain running constantly. The real-world energy these farms use is intensive. According to the University of Cambridge's Centre for Alternative Finance, “the estimated annualised consumption of electricity by the Bitcoin network is 149.6 terawatt hours and growing”. That is around 61% of the total consumption of energy in Australia. For this energy, these computers generally use fossil fuels as they are the cheapest energy resource. Annually, Bitcoin is responsible for 51 megatons of CO2 emissions, in accordance to German research published in the academic paper Joule in 2019. In case anyone else was curious about the percentage in comparison to that car we had been looking at earlier, I did the math. Bitcoin has a 124390243902% increase of CO2 emission in comparison to a gas-powered car.
Elon Musk stated that he would only accept Bitcoin once their power sources are more renewable. In his statement on the matter, Musk explained, "Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at cryptocurrencies that use <1 per cent of Bitcoin's energy."
While it all seems like garble – dogecoin being a phenomenon I doubt anyone was anticipating – it’s important to understand how these virtual curries effect the real world directly before we consume them.