Cover Image created from Imogen- Input Sentences “Bitcoin consuming a 1/10th the energy of US currencies and lasting infinitely longer, technology improving for increased efficiency, and blockchains already going carbon neutral. Why are there media blasts about cryptocurrency being bad for the environment”
The two main environmental impacts of crypto are energy use and electronic waste. Currencies have environmental impacts of energy and electronic parts that enable such systems. This writing will focus only on the environmental impact of energy use for minting new units of value (bitcoin or dollars and coinage). It won't take into account the energy cost of disposing of old currencies, transportation and growing of materials, chemicals used, water used, environmental impact of metals, deforestation, greenhouse gases, e-waste, microplastics from polymer notes or bank cards, among many other impacts (Footnotes 1, 2). Unlike other writing that compared crypto's environmental impact to countries, this writing will compare it with currency (specifically US currencies; dollars and coinage).
The Euro, USD and Yen, account for 60% of the circulating currency in the world (1). This takes shape as around 5.25 million tonnes of coinage and at least 200 billion bank notes (1). For this writing take into consideration that the calculations account for only around 20% of the energy use of circulating currency as it is examining only US Currency.
Minting United States currency (dollars and coinage) uses up to 10 times the amount of energy that Bitcoin uses and lasts a fraction of the time. Coins on average last 25 years (1). While cryptocurrency, including bitcoin, could theoretically last forever.
1: Though to give you an idea of the environmental impact of this from US currency for the year 2002 it is estimated that 1.75 billion litres per year of water is used, 6 million pounds of waste ink and pulp sludge is produced, 3,540 tonnes of ink is used, over 7,100 tonnes of cotton is used, and over 2,300 tonnes of linen is used (1).
2: Bitcoin's annual e-waste generation adds up to 30.7 metric kilotons as of May 2021 (2). A measurement of the amount of e-waste that the US currency system produces was unable to be found. However, there's an estimated 800,000 bank branches with at least a computer in each one and around 3.24 million ATMs globally (3, 4)
Fiat Energy Use
The US lost around USD $870,000,000 producing pennies between 2010-2020 (estimating the cost of producing pennies during that time at around 2.1 cents) (5)
From 2010 to 2020 there was an estimated USD $794,136,900 of pennies, $668,783,720 of nickels, $2,453,301,000 of dimes, $4,491,593,500 of quarters, $28,725,000 of 50 cent pieces, and $1,001,230,000 of dollar pieces, $24,044,800,000 of one dollars, $1,075,200,000 of two dollars, $35,648,000,000 of five dollars, $46,910,000,000 of ten dollars, $350,080,000,000 of twenty dollars, $121,600,000,000 of fifty dollars, and $1,941,120,000,000 of one hundred dollars newly minted for a total of USD $2,529,915,770,120... around two and a half trillion dollars. That was created from 133,478,075,300 new units of value consisting of 794,136,900 pennies, 13,375,674,400 nickels, 24,533,010,000 dimes, 17,966,374,000 quarters, 57,450,000 half dollars, 1,001,230,000 dollar pieces, 24,044,800,000 dollar bills, 537,600,000 2 dollar bills, 7,129,600,000 5 dollar bills, 4,691,000,000 10 dollar bills, 17,504,000,000 20 dollar bills, 2,432,000,000 50 dollar bills, and 19,411,200,000 100 dollar bills (6, 7).
0.00000001672947013 GWh are used on average to print a bill at the minting site (8). 75,750,200,000 of the newly minted units above were bills. That means 1,267 GWh was used to print bills between 2010 and 2020.
Coinage varies on energy needed based on the metals used; zinc, copper, and nickel are the three base metals used (for metals percentage of each coin see (9)). From 2010 to 2020 there was 213,375 tons of zinc, 226,584 tons of copper, and 32,849 tons of nickel used. These metals could of originated from mined metals (maximum energy needed) or recycled metals (minimum energy needed). It is estimated that recycling can reduce the energy needed by 95% (10). In terms of energy, GWh, per ton needed to mine metals; zinc is .0018, copper is .0099 and nickel is .0019 (11). Once metals are able to be used it takes around 0.00000258 GWh per coin (12). Only counting the mining process it would take around GWh 384 for zinc, 2,243 for copper and 62 for nickel to mine the metals necessary. Of the newly minted units described above 57,727,875,300 of those were coinage. That means 148,937 GWh were used to turn these metals into coins. For a total of 151626 GWh for coinage... around 150,000 GWh. Combining that with the energy used to print bills leads to around 153,000 GWh of energy use maximum and if recycling was utilized could get close to 150,000 GWh.
Crypto Energy Use
Different methodologies have been used to calculate Bitcoin energy consumption. Without going into detail about these methodologies but rather relying on the prestige of the name of the university that produced the result, Cambridge. During 2010-2020 cryptocurrency used at max 17,400 GWh and at minimum 4,000 GWh (13). By the end of 2020 there was 18.59 million Bitcoin in circulation, out of the total number that will ever exist of 21 million (14). Bitcoin is able to store small units of value, micro pennies to large units of value trillions of dollars. In addition to this, Bitcoin can be used globally by any entity that would like to transact with it.
The two major proof of work cryptocurrencies (Bitcoin, Ethereum) have had scaling solutions built on top of them (such as lightning network with Bitcoin, and Polygon with Ethereum). Utilizing these scaling solutions for transactions allows for the energy demand to be greatly reduced.
Of the energy used in Bitcoin mining renewable energy is used to power anywhere from 40-75% of it (15). The Crypto Climate Accord has been started with more than 250 companies and individuals spanning the crypto and finance, technology, NGO, and energy and climate sectors signing stating that they would like to achieve net-zero emissions from electricity consumption by 2030 (16). This combined by the market incentive for renewable energy (some of the cheapest sources of energy in the world come from renewables) will likely make the percentage of renewable energy for Bitcoin mining go towards the range of >75%.
Proof of Stake
Everything so far has only been about the first decentralized cryptocurrency ever, Bitcoin uses proof of work. Since then there has been a lot of innovation towards efficiency. One innovation is proof of stake (POS). Proof of stake uses a thousandth the energy need of Bitcoin, with some of the most efficient, Polkadot, using the equivalent of seven US households worth of energy (17). Proof of stake is able to be run on computers as simple as a Raspberry Pi.
Future
Carbon neutral Proof of Stake blockchains are becoming an ever increasing trend with Ripple, WAX, Solana, Polygon, Celo, Near, among others jumping on board. Algorand even went so far as to go carbon negative. This was largely made possible by offsetting carbon impact through carbon credits, with around 25 million carbon credits now on blockchains (18).
One of the major proof of work blockchains, Ethereum, is in the process of transitioning to a proof of stake algorithm which would reduce the network energy demand by 99% (19).
Transmitting Currencies
US Currency
Once the US currency is made there are two ways in which we can utilize it for exchange;
Physically
In a physical exchange a dollar is exchanged for another item such as a good in a dollar store.
Digital
In digital exchange, the dollar is transmitted to the vender of the item. Such as buying a book for a dollar on Amazon.
In order to do this exchange a messaging system is needed. The messaging acknowledges that the person wants to send the dollar, sends the dollar, verifies that there is a dollar, and disperses the dollar to the person that sold the toy. SWIFT and VISA/ Mastercard are examples of such messaging systems. Physical exchange relies on the energy of the person to make the exchange, so it won't be examined further. Digital exchange relies on the messaging system and will be examined further.
Here's an example of how a bank messaging system works. Arnold has just bought something from Butch and needs to pay Butch for that item. They either put in their card info (VISA/ MASTERCARD) or their bank info and the bank info of Butch, the receiving bank (SWIFT). The amount needing to be paid to Butch is either automatically updated via the item description or it is manually input. From there a message is sent to the bank saying that this amount of money is needing to be sent to Butch. In the case of SWIFT that the banks have a direct relationship (trust each other), the money is sent from Arnold's bank (Bank A) to Butch's bank (Bank B), if these banks don't have a relationship the transaction is sent through trusted intermediaries until it finally arrives at Butch's bank. During card transactions, especially credit cards, the card transaction is sent through as many as six to eight intermediaries (20).
Now at the most trusted levels of this messaging system, there are at least two intermediaries (Bank A and Bank B). Both of these banks likely have physical locations with energy costs, the messaging network needs energy, and all of this needs a lot of people.
Bitcoin
Banks everywhere are seriously considering distributed ledgers, creating their own cryptocurrencies, and seeing how this technology could affect them. For example in Italy 97 member banks of the Italian Banking Association, equalling 91% of the banking sector in terms of employee numbers, have adopted a distributed ledger for their operations (21). The Swedish Central Bank is experimenting with creating its own digital currency, HSBC have enabled a digital asset vault, Asian Bank has integrated, wallets, buying and selling of cryptocurrency as well as wire transactions with crypto, and the US Federal Reserve is working with IBM to develop a blockchain payment system (22, 23).
In Proof of Work systems (Bitcoin, Ethereum, etc.), computers are coming to a consensus over the transactions that occurred, this consensus is recorded and one of the computers who aid in the consensus are sent tokens (newly minted Ethereum, Bitcoin, etc.), as well as transaction fees from the person that initiated the transaction, to incentivize this process (every computer has a chance of receiving tokens proportional to the computing power used). The only intermediary necessary to trust for transactions from one person to another are consensus making computers.
The global annual cost saving from banks adopting blockchain would equate to USD $12 billion (22). Bitcoin has already had a total of 738,999,111 transactions completed on it with USD $4,461,260,000,000 in total value (24). During that same time it created around 19 million Bitcoin, out of the total number that will ever exist of 21 million. Once 21 million Bitcoin are minted, computers won't receive newly minted Bitcoin for their work but instead will receive only the transaction fee that people send to have their transaction sent. During 2010-2020 Bitcoin did this all while having a lower energy impact than US currency.
Impact of Bitcoin Energy Use Per Dollar Circulating
Though it would be difficult to separate newly minted Bitcoin energy use vs transaction energy use, when transactions are compared to the block size there is a correlation. This shows that the block size (megabyte size) with the amount of transactions on that block.
With a growing block size there is a growing energy need, however the correlation is weak.
The transaction value ($USD) has a weak correlation to block size.
This means that the value held on Bitcoin could increase, without drastically affecting its energy consumption (USD $1,000 would around the same energy need as a 5,000,000 transaction). If transactions continue to increase on Bitcoin however the energy consumption will continue to increase. This is largely due to how Bitcoin handles value as simple data strings while transactions are complex cryptographic puzzles.
Resources
1: McCook, 2014 https://www.coindesk.com/markets/2014/07/05/under-the-microscope-the-real-costs-of-a-dollar/
2: De Vries, A., & Stoll, C. (2021). Bitcoin's growing e-waste problem. Resources, Conservation and Recycling, 175, 105901.
3: IMF, 2020: https://data.worldbank.org/indicator/FB.CBK.BRCH.P5
4: Finextra, 2019: https://www.finextra.com/pressarticle/78452/number-of-atms-worldwide-drops-for-the-first-time-as-demand-for-cash-decreases#:~:text=Brand-new research shows that,rising popularity of mobile %20payments.
6: BEP, 2020 https://www.bep.gov/currency/production-figures/annual-production-reports
7: USMint 2022 https://www.usmint.gov/about/production-sales-figures/circulating-coins-production
8: Ahlers, C., Martin, M., Olsen, B., O’Neil, P., & Sanchez Jr, M. 2010 How Green is Our Green? A Sustainability Assessment of US and Australian Currency.
9: GoldSilver, 2020 https://goldsilver.com/blog/what-are-us-coins-made-of-goldsilvercom/
10: Federal Metals, 2022: https://federalmetals.ca/how-does-metal-recycling-conserve-energy/
11: Donahue, 2016 https://www.smithsonianmag.com/science-nature/penny-environmental-disaster-180959032/
12: Goldstein, 2017 https://www.marketwatch.com/story/at-last-a-comparison-where-bitcoin-comes-out-environmentally-friendlier-2017-12-06
13: Cambridge, 2022 https://ccaf.io/cbeci/index
14: de Best, 2022 https://www.statista.com/statistics/247280/number-of-bitcoins-in-circulation/
15: NYTImes, 2021 https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html
16: CryptoClimate, 2022 https://cryptoclimate.org/
17: CCRI (Crypto Carbon Ratings Institute)Energy efficiency and carbon emissions of PoS Networks. Industry Report.
18: Rosseau, 2022 https://earth.org/tokenized-carbon-credits/#:~:text=Since the launch,locked into the KlimaDA O%20treasury.
19: Castor, 2022 https://www.technologyreview.com/2022/03/04/1046636/ethereum-blockchain-proof-of-stake/
20: COTI, 2018 https://medium.com/cotinetwork/how-does-credit-card-processing-work-fcbc065f3a63
21: R3, 2022 https://www.r3.com/case-studies/spunta/
22: Appinventiv, 2022 https://appinventiv.com/blog/blockchain-in-banking/
23: Infosys, 2022 https://www.infosys.com/industries/financial-services/white-papers/documents/blockchain-adoption-financial-services.pdf
24: Nasdaq, 2022 https://data.nasdaq.com/data/BCHAIN/ETRVU-bitcoin-estimated-transaction-volume-
usd
25: https://www.blockchain.com/charts/n-transactions-per-block