Bitcoin's energy debate rages on—critics highlight environmental harm, supporters tout eco-friendliness. The complex discourse unfolds with nuanced perspectives on energy use and societal impact.
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Bitcoin’s energy use and the environment: More than meets the eye

Bitcoin's energy debate rages on—critics highlight environmental harm, supporters tout eco-friendliness. The complex discourse unfolds with nuanced perspectives on energy use and societal impact.

Bitcoin’s energy consumption has sparked a heated debate, with critics condemning its environmental impact and supporters asserting its eco-friendliness. But which side is right?

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The global imperative to combat climate change by curbing carbon emissions cannot be overstated. Hence, it’s no surprise that Bitcoin, a cryptocurrency known for its substantial energy usage, faces intense scrutiny. Regrettably, the ongoing discourse often leans towards bias, relying on selective arguments and perpetuating misconceptions. To gain a comprehensive understanding, it is essential to delve into why Bitcoin requires energy, the nature of the energy it uses, and the potential societal advantages it may offer.

Why does Bitcoin need so much energy?

One prominent aspect of the ongoing debate revolves around a lack of clarity regarding why Bitcoin consumes such a significant amount of energy. To put it simply, the majority of this energy isn’t dedicated to processing and storing transactions; instead, it is used for a resource-intensive competition aimed at determining the entity entitled to create a new block of transactions. This competition arises from the prospect of receiving freshly minted Bitcoin as a reward, thereby fostering a greater willingness to invest in energy resources, particularly when the value of Bitcoin appreciates.

However, this appreciation is counteracted by a process known as “halving,” which occurs every four years and reduces the reward. The aim of the mining process is to enhance the network’s security. Shifting to a less computationally demanding approach for block creation, a possibility demonstrated by Ethereum’s blockchain, would fundamentally transform Bitcoin’s decentralisation and core philosophy, making it an unlikely scenario.

The critics: Carbon emissions and funding of illicit activities

In discussions concerning Bitcoin’s energy usage, critics often hone in on two main issues: the extensive energy consumption and the consequent carbon emissions associated with creating new transaction blocks. While the overall energy consumption remains a point of agreement, it’s vital to note that the energy mix – whether it relies on fossil fuels or renewables – varies significantly depending on the country and region. This factor significantly influences the environmental consequences. Detractors of Bitcoin commonly argue that the cryptocurrency holds no intrinsic value and is frequently employed by terrorists and money launderers.

The assessment of Bitcoin’s environmental impact is much more complex than most people realise.

Horst Treiblmaier

The supporters: The path to economic freedom and environmental benefits

Supporters of Bitcoin contend that claims of the cryptocurrency facilitating illicit activities are easily debunked due to its pseudonymous nature. This feature results in publicly accessible and immutable traces, rendering it unattractive for criminals. Moreover, they point out surprising environmental benefits associated with Bitcoin, such as incentivizing the use of renewable energy sources and offering the capability to stabilise the grid by enabling easy activation and deactivation of Bitcoin mining activities. Lastly, they underscore Bitcoin’s potential to replace segments of the traditional, energy-intensive financial system, creating a democratic payment alternative that promotes financial inclusion and individual, and possibly national, economic independence.

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The future: A long and winding road ahead

The adoption of Bitcoin for practical purposes, like payments, has been slow to gain global traction, though it has seen gradual growth over the years. In 2024, it appears that the traditional financial industry is increasingly accepting its former adversary. The recent approval of Bitcoin Exchange-Traded Funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) could potentially reshape the overall narrative. Notably, this development isn’t universally embraced within the original Bitcoin community, with concerns raised about potential reductions in Bitcoin’s decentralisation and departure from its original philosophy.

As a consequence, the discussion surrounding Bitcoin’s energy consumption may diminish in public discourse, given that both individual and institutional investors now have a convenient means to invest in the cryptocurrency. However, the current situation also presents numerous opportunities to hold the community accountable and develop innovative solutions promoting renewable energy use, grid stability, and a positive environmental impact. Achieving this may necessitate cooperation from significant stakeholders such as mining companies and increased transparency regarding energy sources.

The comprehensive debate surrounding Bitcoin encompasses a multitude of arguments, both in favour of and against its use. A fair evaluation requires careful consideration of both sides, taking into account practical applications and potential benefits. In theory, Bitcoin has the potential to replace a significant portion of the existing financial system and support individuals previously excluded from it.

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Journal reference

Treiblmaier, H. (2023). A comprehensive research framework for Bitcoin’s energy use: Fundamentals, economic rationale, and a pinch of thermodynamics. Blockchain: Research and Applications4(3), 100149. https://doi.org/10.1016/j.bcra.2023.100149

Dr. Horst Treiblmaier is a Full Professor and Head of the School of International Management at Modul University Vienna, Austria. He has worked as a Visiting Professor at Purdue University, the University of California, Los Angeles (UCLA), the University of British Columbia (UBC), and the University of Technology in Sydney (UTS). His research interests include the economic and business implications of blockchain, as well as the evolution of the token economy. He teaches blockchain-related topics and is a frequent speaker at academic conferences and industry events. In 2022, he was awarded the Blockchain Frontier Award by the Blockchain Research Institute (BRI).