Can Bitcoin help us in the fight against climate change?

Bitcoin guzzles energy. Therefore, it’s bad for the environment. That’s how the story often goes in media outlets like The New York Times. Not knowing much about how Bitcoin works (or, indeed, how even energy works!), the public is likely to agree with a blanket statement like this.

But those who have studied the relationship between Bitcoin and the environment beg to differ. At a recent webinar on cryptocurrency and energy, Brianna Lee Welsh of Reneum and Adrian Chng of Fintonia Group did just that, sharing their industry insights on the reality of Bitcoin mining and its usage today.

Could Bitcoin turn out to be good for the environment after all? Let’s take a closer look at the issue.

Is Bitcoin good for the environment?

It’s true that Bitcoin consumes the most energy among all the cryptocurrencies in the world. Running the Bitcoin network costs us an estimated 130 terawatt-hours (TWh) of electricity per year — enough to power a small country, as the oft-bandied-about comparison goes.

One reason is that Bitcoin, being the world’s largest and oldest public blockchain network, is more widely used than any other.

But more importantly, mining Bitcoin uses Proof of Work (PoW) validation, a computational method that gets increasingly energy-intensive the closer we get to the total supply cap of 21 million BTC. It is this unique structure that guarantees Bitcoin’s resilience as a store of value.

Those are the facts of the matter. But, even as we acknowledge their truth, we maintain that Bitcoin can be good for the environment.

Why? Firstly, Bitcoin uses significantly less energy than traditional banking. The global banking infrastructure is vast, yet its energy usage has gone largely unscrutinised. However, new research shows us that it is a much more energy-intensive enterprise than Bitcoin.

Second, renewable energy makes up a large share of the energy used to run Bitcoin. In fact, Bitcoin can and does drive renewable energy adoption, which most people would agree is good for the environment.

Bitcoin vs. traditional banking: which uses less energy?

Rather than comparing Bitcoin energy consumption with that of countries, it is perhaps fairer to compare it against the existing banking infrastructure.

Now, quantifying the total energy consumption of the global financial industry is a huge undertaking, and this field of research is still in its nascent stages.

Nonetheless, a few attempts have been made to estimate the industry’s energy use.

A May 2021 report by Galaxy Digital estimates 263.72 TWh per year, more than twice what Bitcoin consumes.

More recently, in June 2022, Michel Khazzaka produced an even more damning report about the state of banking. Khazzaka put the energy consumption estimate at close to 5,000 TWh a year, or 38 times Bitcoin’s 130 TWh!

Even without the data, it’s not hard to imagine that the global banking ecosystem is hugely energy-intensive.

“All we can say with confidence is that the global financial sector has a significant environmental cost,” writes Forbes’ contributor Martin Rivers.

“Its skyscrapers, computer systems and jet-setting bankers are not helping climate change. We can also safely assume that central banks and their money-printers are no greener.”

On the other hand, Bitcoin clearly allows financial transactions to be carried out with much greater efficiency and potentially less cost to the environment.

With traditional banking, there would be numerous entities and layers involved in checking, cross-checking, and confirming the transaction. But with Bitcoin, all the necessary validation is computed nearly instantaneously, making it less energy-intensive as a system.

Using clean energy to mine Bitcoins

Comparing total energy consumption is important, but it is not the only metric that counts today. In our fight against climate change, the source of energy is an important dimension to look at as well.

All things being equal, we would naturally choose renewable or clean energy (such as wind, hydro, or solar power) over non-renewable fossil fuels.

And it turns out that Bitcoin is one of the world’s industry leaders in terms of green energy adoption. As of Q4 2021, close to 60% of the global Bitcoin industry ran on renewable energy, according to the Bitcoin Mining Council.

The surprising synergy between Bitcoin and clean energy boils down to two features:

First, Bitcoin mining is location-agnostic. Because the work is done by computers, it’s possible to set up a mining farm right next to a clean power source (typically outside the city). Also, Bitcoin mining can take place around the clock, which reduces energy wastage.

In combination, these two factors explain why clean energy often works out to be one of the cheapest and most efficient power sources for Bitcoin mining.

In fact, some proponents believe that Bitcoin mining actually incentivises clean energy adoption by driving up its demand and rewarding investments in renewable energy infrastructure.

How Bitcoin can help us fight climate change

Bitcoin has been unfairly vilified in popular media as an energy hog and an environmental disaster. But, in reality, this isn’t the case.

Not only is the Bitcoin network much more energy-efficient than the global financial infrastructure, much of the power it consumes comes from clean energy sources. Furthermore, Bitcoin can help fight climate change by incentivising clean energy adoption.

As ESG (environmental, social, and governance) concerns become ever more pressing, Bitcoin is surely a worthy addition to any responsible-minded investor’s portfolio.

Yet there are significant risks and challenges around investing in Bitcoin, as most professional investors would know.

Fintonia Group created the Fintonia Bitcoin Physical Fund as a solution for wealth managers, trustees, and other professional investors.

Managed by a regulated fund manager with licenses in Singapore and Dubai, the Fund is an institutional-grade product that eliminates most of the regulatory and security risks around investing in Bitcoin.

[Find out more about the Bitcoin Physical Fund here]