We’ve averaged-out our ratings to a 1.33, which serves to represent that Bitcoin has certain points that make it unsustainable and others that not only make it sustainable, but that can change the world in everything from racial/socioeconomic equity to the decentralization of finance. We would recommend holding off on buying Bitcoin until/if it moves to a ‘Proof of Stake’ (PoS) model.
Rather, if you would still like to get into the Cryptocurrency/Blockchain movement, we would recommend buying other cryptocurrencies such as Ethereum. Ethereum, like Bitcoin, uses Blockchain technology that decentralizes and can empower billions of people. However, since Ethereum uses PoS, it is more energy-efficient, hence making it a better option, while maintaining many of the characteristics that make Bitcoin so wonderful.
We look forward to the possibility of Bitcoin changing its source-code to utilize PoS (as decided democratically by the Bitcoin community) as Ethereum proves the potential of the PoS model and draws more miners (due to needing less electricity and giving more frequent miner/validation rewards). Even if the Bitcoin community becomes divided in the ‘PoW vs PoS argument’, there is the opportunity for a ‘hard fork’ to have two simultaneous versions of Bitcoin, each following their own model (PoS or PoW).
If we don’t give PoS a chance (and the cryptocurrencies, such as Ethereum, that have taken the risks to transition to them), we will promote a status quo of propping-up energy-inefficient cryptocurrencies, thus not incentivizing the Bitcoin community to act and change Bitcoin’s source code.
Bitcoin is a digital currency that was created in 2008 under the domain name of “bitcoin.org” and information about the cryptocurrency was first distributed in a whitepaper. Bitcoin’s creator remains anonymous and goes by the alias of Satoshi Nakamoto. The use of the coin officially began in 2009 following the housing market crash.
- To grasp what Bitcoin is made of, think of a string of numbers and letters that give each bitcoin a unique identity. With this number and letter combination, you are able to make purchases by sending another person this code. To visualize it: “Look at the serial number on your regular banknotes. Now imagine you can give those notes to someone else just by telling them the serial numbers rather than having to give them the dollar bills or euro notes” (Bicoins.net (http://bicoins.net/) - What is bitcoin made of).
- Bitcoin is very secure and transparent as transactions in Bitcoin are embedded in a decentralized ledger called ‘the Blockchain’ that is viewable by anyone that downloads the Bitcoin Network software (Bitcoin Core).
- The ‘Bitcoin Network’ is a decentralized peer-to-peer network of computers (nodes) all across the world that have downloaded the Bitcoin Core software (from “bitcoin.org”) and work to mine Bitcoin, verify transactions, and/or keep track of the Blockchain (the massive ledger of transactions)
- Bitcoin is independent of the government and is secured from being eroded by inflation (money printing presses) caused by any government. Rather, Bitcoins are created during ‘Bitcoin Mining’ via the Bitcoin Network’s code (Bitcoin Core). Currently, it is believed that there is a limited supply of Bitcoin that will ever exist, so this process won’t go on forever and you can compare Bitcoin to something like Gold or any limited resource. According to Bitcoin Magazine, there are only 21 million bitcoins that can be mined in total. In the ten years since the launch of Bitcoin 18.5 million Bitcoin have been mined, leaving only about three million more coins remaining. While 88% of Bitcoin has already been mined the mining timeline is extended due to the halving of rewards that occurs every four years. Doing this helps to lower Bitcoin’s inflation rate by half every four years. Halving extends the mining timeline; the final bitcoin is unlikely to be mined before the year 2140. However, it is possible the Bitcoin protocol will be changed by then to allow for a larger supply.
- The product of Bitcoin itself does not have much environmental harm. In fact, the use of blockchain technology for payment can lessen economic social issues and make payments more secure and transparent. It’s more about how Blockchain technology is powered and what the physical hardware is made of that causes environmental concern.
[How is it used?]
Every transaction is energy-intensive to make the blockchain decentralized. The blockchains are stored in a lot of people’s computers, which are called nodes. Those nodes could be users or miners. Each node has a copy of all transactions ever made. This makes it extremely difficult for fraud to occur as records are immutable.
[HOW DOES ‘BITCOIN MINING’ WORK?]
When someone makes a transaction with Bitcoin (e.g. purchasing a coffee with some Bitcoin!), that transaction becomes part of a ‘massive worldwide pool of unvalidated transactions’. All around the world, computers part of the Blockchain (a peer-to-peer network) scoop up a handful of these transactions from this pool and work to create a ‘block’ (a bunch of these transactions) to validate them.
In order to create a ‘block’, each computer has to solve a difficult cryptographic mathematical calculation called a ‘Proof of Work’. Whichever computer comes first in solving this difficult math calculation, gets to define what is the next ‘block’ in the worldwide ledger of financial transactions (the Blockchain; the chain of ‘Blocks’). Next, all the other computers in the decentralized Bitcoin Network verify the ‘block’ that was created and quickly move onto racing to create the next ‘block’ to add onto the Blockchain.
Any computer that works to create a ‘block’ uses their own electricity. Thus, the computer that comes first is renumerated in Bitcoin for their hard work. This is how new Bitcoin is created (created and renumerated by the Bitcoin Network’s autonomous code, not by any one person). This is what Bitcoin Mining is.
This ‘Bitcoin reward from Bitcoin Mining’ is why computers all around the world are willing to spend their own electricity to process the transactions of people they don’t even know.
At first, bitcoins could be mined with relatively low electricity and CPU usage from a personal laptop. However, the mining process is designed to get increasingly difficult (and has gotten a lot more competitive with more and more people/nodes joining the Bitcoin network to become ‘Bitcoin Miners’), which means increasingly stronger computers have to be used. Now, mining happens in mining farms that use specialized and expensive ‘mining rigs’, which is where a plethora of sustainability issues arise..
[WHAT IS A MINING FARM?]
“A mining farm is a room or warehouse dedicated to mining cryptocurrencies. The farm can be a basement in a house with 2 ASIC machines or a large warehouse with dozens of GPUs and ASICs. Mining farms contain large power supplies, huge fans to cool the equipment and more than one person running them.” (bitnewstod
So here is the environmental problem: the power supply for the GPUs, ASICS, and for the fans. This uses up a lot of energy. In fact, “in 2015, it was estimated that one Bitcoin transaction required the amount of electricity needed to power up 1.57 American households per day. Fast forward to 2021, and it has most likely gotten worse” (investopedia).
Furthermore, although this would be much harder to quantify in this review, we must be cognizant of the environmental issues of using various metals and human resources to manufacture and assemble these ‘mining rigs’.
“Some bitcoin proponents note, meanwhile, that the existing financial system with its millions of employees and computers in air-conditioned offices uses large amounts of energy too.”
– how environmentally friendly are banks and their investments in the fossil fuel industry? If peer-to-peer cryptocurrencies, online crypto exchanges, and other financial technologies replace traditional brick and mortar financial exchanges and institutions, would it actually be holistically worse? (looking at the big picture).
We need to be aware that Bitcoin, unlike the finance industry and its many many expansive offices, is entirely dictated by code and millions of computers/nodes around the world. It is entirely possible, that a decentralized financial system separate from human inefficiencies can be a better option for the industry as a whole (in terms of carbon footprint). Yes, there will/is be scaffolding around these Blockchain and Crypto technologies (centralized cryptocurrency exchange websites, yet-to-be-created centralized online services for this young industry, etc). However, holistically speaking, labyrinthine air-conditioned offices with employees ranging from HR to middle managers to executive suites is definitely a lot more bloated than a growing decentralized global network of computers mining and sending Bitcoin. Remember, there is no ‘Bitcoin Inc.’ monopolizing this and creating some Silicon-Valley-esque HQ. The real question may be, how energy-intensive will the non-miners be (the scaffolding I mentioned)?
[WHAT ENERGY SOURCE IS CURRENTLY MOST USED TO POWER THIS?]
A lot of mining happens in China where coal is used to power the mining farms, which is the dirtiest form of energy, leading to a great amount of pollution. “Some industry players and academics warn that the dominance of Chinese miners and lack of motivation to swap cheap fossil fuels for more expensive renewables means there are few quick fixes to the emissions problem.” Researchers have estimated bitcoin production to have generated 22 million metric tons of CO2 a year, which is the amount of greenhouse gas a small country produces.
[IS THERE ROOM FOR CHANGE?]
1. First of all, the question comes up: If the electricity comes from green energy, then all these electricity issues are mitigated, right? Unfortunately, the worldwide energy demand for Bitcoin is so high that is practically impossible to produce enough green electricity for all the mining. As we know, green electricity is still cost-intensive in many countries compared to other (environmentally degrading) energy production methods.
Currently, 2% of Bitcoin mining is done by Icelandic mining farms. These mining farms use electricity produced from geothermal energy since Iceland has low-cost and reliable electricity due to its unique geothermal-laden volcanic geography. It is unlikely that all the world’s mining farms will migrate to Iceland, nor can Geothermal be used in other countries to the extent and cost-effectiveness it is used on Iceland.
If greener energy is not the most realistic short-term solution, then perhaps we should look to how we can improve ASICS to become significantly more energy-efficient and how can we use more environmentally-conscious material sourcing to produce ‘mining rig’ equipment.
2. In line with making more environmentally sustainable mining hardware, how can we make the Bitcoin software more environmentally sustainable too? Currently, Bitcoin uses ‘Proof of Work’ that allows any Bitcoin miner (anyone who has a computer) to create ‘blocks’ and (if they are the first to create a block) get renumerated in newly created Bitcoin. However, ‘Proof of Work’ is very energy-intensive. Furthermore, ‘Proof of Work’ means that if one single entity does more than 50% of ‘Bitcoin mining’, they can approve fraudulent transactions onto the Blockchain (creating money out of thin air, using money twice, etc).
An alternative to ‘Proof of Work’ is ‘Proof of Stake’, which is less energy-intensive and instead uses ‘validators’ to verify transactions, which would thus instead require someone to own 51% of all the Bitcoin in the world (near impossible) to approve fraudulent transactions onto the Blockchain. Currently, Ethereum is transitioning from a ‘Proof of Work’ model to a ‘Proof of Stake’ model. However, Bitcoin has not made this move as of yet.
Both the ‘Proof of Work’ and ‘Proof of Stake’ models either indirectly or directly favor richer miners in a feedback loop. ‘Proof of Work’ requires miners with the expensive mining rigs to even have a chance at being the first one to create a ‘block’. The Bitcoin miners with enough money to buy the best mining rigs usually tend to mine the most Bitcoin, hence they get even richer. ‘Proof of Stake’ limits validification to ‘validators’ who get chosen if they own Bitcoin in the first place. These ‘validators’ get renumerated with Bitcoin for their work, hence they get even richer.
The decentralized structure of Bitcoin means that anyone (any computer that is) can mine for the coin. There are individuals who work alone, while others join mining “pools” that combine their resources to improve their odds of receiving a Bitcoin reward. Just as resources are shared to increase their chances, rewards are also shared among the pool. Successful identification of the block hash earns a reward for the pool which is then shared using the pool shares mechanism, dividing the reward based on the amount of work a particular member’s computer is contributing to the mining pool. Most of the Bitcoin mining pools are in China; it is estimated that Chinese pools control about 81% of the network hash rate (the hash rate is the speed at which any particular type of mining machine operates at).
In the early days of Bitcoin, miners worked from their personal/home laptops, and the majority of them were mining from the U.S. However as the mathematical problems became more intricate, more computer power was needed. Hence the Chinese mining operations have come to dominate. China leads the race in Bitcoin mining for two main reasons: they have access to cheap power and a robust domestic manufacturing base that produces the specially designed chips used in their mining rigs.
There are also large companies, many of which are startups, that have mining efforts. There is Riot Blockchain, Marathon Patent Group, and Canaan to name a few. Riot Blockchain is a U.S. mining company that has been doing really well. Its stock has a market capitalization of more than $1 billion. Canaan is based in China and manufactures the hardware that can be used for coin mining.
There are some risks that come with Bitcoin mining that should be understood. Due to the extensive amount of energy that mining requires runs the risk of compromising internet security on public Wifi networks. This happened at a coffee shop in Buenos Aires (https://securingtomorrow.mcafee.com/consumer/consumer-threat-notices/starbucks-bitcoin-mining/), when users were infected with malware that caused a 10-second delay when logging in to the cafe’s Wi-Fi network. The malware authors were using this time to access the users’ laptops for mining. Additionally, millions of websites are being compromised to access users’ devices for mining. This has become such a widespread problem, that over 1 billion devices (https://www.coindesk.com/opera-browser-introduces-cryptocurrency-miner-protection-for-smartphones/) are believed to be slowed down by web-based mining. But a slowed device is not even the worst thing that could happen. A device that is “cryptojacked” could have 100 percent of its resources used for mining, causing the device to overheat, essentially destroying it.
We are not aware of any labor issues related directly to Bitcoin mining. However, Coinbase has been at the center of complaints surrounding racial discrimination. In the fall of 2020, employees at Coinbase, the most valuable U.S. cryptocurrency company, came forward with complaints of racist and discriminatory treatment. There have been 23 current and former Coinbase employees who have spoken up about their struggles with the company’s management of Black employees. This unfortunate example of racial discrimination in the workplace was described by the affected employees as a reflection of the diversity problem within the tech field.
Image Source (Screenshotted): https://pixabay.com/ja/illustrations/%E3%83%93%E3%83%83%E3%83%88%E3%82%B3%E3%82%A4%E3%83%B3%E3%83%AD%E3%82%B4-bitcoin-3284066/