The ESG discussion has arrived with force and is here to stay, changing the way that various industries see and deal with their responsibility in the environmental, social and governmental spheres. But what about in the world of cryptoassets, does this topic also extend discussion? Undoubtedly, especially with regard to the impact generated by this financial segment on the environment.
And that's why in this week's Report, using the case of Bitcoin, we're going to talk about the parameters of energy expenditure, what justifies it, how BTC's ecological footprint matches that of other assets and market segments and what are the possible ones. solutions in the search for an increasingly energy and environmentally sustainable cryptoeconomy.
Energy consumption is precisely what allows Bitcoin to work for 13 years, uninterrupted and safely.
The Nakamoto Consensus, as it was structured in the case of Bitcoin, designed the mining and validation processes of blocks in a decentralized way to guarantee the autonomy and security of the network. Thus, the mining consensus model (Proof-of-work), validation nodes and miner coordination pools are primarily key aspects of the success of the Bitcoin network.
But, although these are the “heroes” of Bitcoin as a network, they are also its “villains”, in the view of some people, when it comes to the energy consumption necessary for the network to function. Most of the energy demanded by Bitcoin and attributed to the carbon footprint comes mainly from the mining process. As is widely known, this is the process by which blockchain technology is connected to the physical world, but how? Demanding the use of energy through the computational power needed to solve cryptographic puzzles and carry out the mining of new blocks for the composition of the network.
The mining difficulty principle causes the mining difficulty to increase with each four-year window, requiring more time to dedicate computational power and energy to mining new blocks for the network.
Consequently, this opens the door to questions about the future of the bitcoin network and asset in an increasingly sustainability-minded world.
How will the network position itself against other blockchain protocols? Will this affect its adoption by “environmentally conscious investors”? Could this be a trigger for changes in the BTC consensus model? Could BTC become energetically sustainable?
In a recent analysis, the University of Cambridge released a study also pointing out the high energy expenditure of Bitcoin. It was identified by the study that Bitcoin consumed more energy in the span of a year than entire countries such as Argentina.
According to the Center for Alternative Finance at the University of Cambridge, the energy consumed annually by BTC was on the order of 121.36 TWh (terawatts hour) per year, while the Argentine country consumed 121 TWh in the same period.
The world energy consumption ranking in 2020 was led by China, which spent about 5,564 TWh.
That is, if Bitcoin were a country, it would position itself among the 50 countries with the most energy consumption in the world, a different scenario from the one raised by the study in 2019.
This condition of high energy consumption seems to have already influenced the questioning of crypto-asset adoption by institutional investors. Reuters, for example, has publicly criticized Elon Musk for advocating clean energy while simultaneously buying $1.5 billion worth of Bitcoin as a speculative move that could put the Tesla company's zero-emission ethos into question. .
In an article, the Washington Post declared that “buying a Tesla with Bitcoin would be harmful to the environment”. Despite the episodes, the power consumption of the BTC network still has room to increase. What is still unclear is how much Bitcoin will actually contribute to the world's total carbon footprint in the future.
The energy consumption of Bitcoin miners has been increasing in recent years and tends to continue, an increase that seems to be directly related to the movements in the price of the cryptocurrency.
In moments of appreciation, investors are attracted to the network and this phenomenon causes a consequent increase in the number of transactions, which results in more work for miners and consequently more energy demanded.
In other words, from the proof-of-work model operated by the network, the idea is that with more demand, more computers compete to mine and make the network more secure. What this means is that as Bitcoin becomes more valuable, the computational effort invested to maintain it and therefore the energy consumed increases accordingly.
However, it is crucial to point out that despite the numbers presented, the ecological footprint of BTC is lower than that of most sectors and other economic activities, for example.
When we look, for example, compared to the banking industry and gold, Bitcoin only consumes half the energy of the banking system. And the energy expenditure related to the gold industry also surpasses that of BTC.
According to the Galaxy Digital survey, the Bitcoin network consumed a total of 113.89 TWh in 2020, while the gold industry used 240.61 TWh for the same period. When we look at the banking system, including bank branches, ATMs and card networks, consumption jumped to 263.72 TWh per year.
In this other survey, carried out by a series of companies that compares Bitcoin with other great innovations created in the history of humanity, such as aviation and data centers, Bitcoin still proves to be the most energy efficient.
Already here it is possible to see that a large amount of energy that is wasted by other industries has the potential to be reused for Bitcoin mining.
Although the prospect of an increase in the energy demand of the Bitcoin network may raise concern, it must be borne in mind that technological advancement today makes it possible to convert energy from a whole array of different energy sources to be exploited in the most convenient way, according to with geographic location.
The social need to expand the use of a sustainable energy matrix and the global inclination to seek to meet this need also extends to Bitcoin. According to a report released by the Bitcoin Mining Council, 58% of Bitcoin mining energy is already from a renewable source.
The ban on mining in Chinese territory, for example, was a watershed in the trajectory of BTC's search for energy sustainability. The dispersion of miners, previously active in China, made places with cleaner and cheaper energy matrices than the thermoelectric energy used in the Asian country to receive a greater concentration of mining, such as Texas,
in the United States.
According to the Bitcoin Mining Council report, Bitcoin mining is responsible for 0.16% of the world's energy consumption and produces only 0.086% of global CO2 emissions today, being the mining that uses the most renewable energy in relation to mining. countries of the world.
The incorporation of renewable energy in Bitcoin mining does not stop there and increasingly relates to the role and social potential of the network. Recently, KenGen (Kenya Electricity Generating Company PLC) announced that it wants to supply excess geothermal energy produced to Bitcoin mining companies in Africa.
The company is the leading electricity supplier in Kenya and signals the initiative as an impetus to promote the spread of Bitcoin, which is understood to not only have technological utility, but is also primarily a factor capable of solving an urgent social problem of Kenyan society with purchasing power stunned by economic difficulties.
In countries affected by the rapid melting of purchasing power or inaccessible financial systems, BTC is not only seen as a tool for enrichment or speculation, it is seen as a factor of protection and access to financial resources.
When viewed in this way, energy expenditure does not appear to be a waste, but rather the investment needed to keep this liberating innovation running and growing.
Bitcoin tends to become increasingly energy efficient, with several examples of sustainable mining proposals around the world.
At the Bitcoin 2022 Conference in Miami, Adam Back (CEO of Blockstream) announced plans for a solar-powered mining project in West Texas, which could demonstrate how mining can fund renewable energy generation in the United States;
Also in Texas, the government of Fort Worth will receive three Bitcoin mining machines to set up a pilot project at City Hall;
-- In Canada, individual Bitcoin miners convert the computational heat produced by mining to keep their homes warm in winter.
Undoubtedly, the ESG discussion is not an exclusive concern of investors, enthusiasts and members of the Bitcoin community. The world of cryptoassets has increasingly found itself at the center of the discussion.
While in other protocols the growing search for more energy-optimized network infrastructures, such as the proof-of-stake consensus model, has been more noticeable, the case of Bitcoin is more complex.
The fact is that Bitcoin, like the ESG agenda, is here to stay and these elements will combine as effectively as possible in the not too distant future.
