Greener Pastures: On Bitcoin, Ethereum, and Energy Consumption

Michal Khatab | 5/31/2021

As Bitcoin investors and stakeholders watch the value of their portfolio drop, many can’t help but blame one man for the current volatility. Elon Musk, a long-time advocate for a greener future, recently stopped the acceptance of Bitcoin as a payment for Tesla cars citing environmental concerns. The sell-offs that followed were instant. This news comes shortly after he announced Tesla would accept Bitcoin as payment, causing massive spikes in both purchase volume and price. Investors previously pointed at the opportunity as mainstream adoption, but potential market manipulation aside, many believe Elon’s latest concerns hold real weight. 

Bitcoin’s Energy Consumption 

The energy consumption of Bitcoin is substantial. Reports have claimed the Bitcoin economy has energy consumption levels on par with CO2 emissions of entire developing nations around the world such as Jordan or Sri Lanka. In an interview with New York Times, Bill Gates stated that “Bitcoin uses more electricity per transaction than any other method known to mankind”. Alex de Vries, a data scientist at the Dutch Central Bank, estimates that each transaction requires an average of 300 kg of CO2. The average VISA swipe requires about 0.0004 kg of CO2 in comparison. To put it into another metric, a single Bitcoin transaction is estimated to use 707.6 kilowatt-hours of energy – the same amount consumed over 24 days by the average U.S. household. 

Source: Digiconomist.com

Source: Digiconomist.com

Part of Bitcoin’s energy consumption problem lies within the security of the technology itself. The blockchain public ledger is essentially a running document that memorizes and transcripts every single transaction ever made with Bitcoin. While this does ensure transparency and security, it also requires a massive amount of storage space. While a 2019 study by investment firm CoinShares estimated 73% of Bitcoin miners use some form of renewable energy as part of their power supply, ranging from small private solar panels to China’s massive hydropower dams, the study falls short in quantifying exactly how much energy comes from renewable vs non-renewable sources. A number difficult to calculate given the decentralized nature of Bitcoin. 


Devil’s Advocate 

A counterpoint that many fail to take into account is the lack of infrastructure required for the Bitcoin economy. While miners and nodes use energy to support the public ledger, it’s not entirely different from global banks with massive skyscrapers housing thousands of employees (often running entirely off non-renewable energy sources). To put this into perspective, Morgan Stanley’s One New York Plaza offices in Manhattan is about 1.2 million square feet. In the US, large office buildings use an average of 20 kilowatt-hours (kWh) of electricity and 24 cubic feet of natural gas per square foot annually. That’s 24,000,000 kWh and 28,800,000 cubic feet of natural gas every year. Keep in mind, that’s only one building for one bank. A quick google search reveals Morgan Stanley, a company with worldwide presence, has no less than 2 office buildings in Manhattan alone, and over 1,200 globally.

Ethereum: Journey from POW to POS

This leads us to Ethereum, where Co-Founder Vitalik Buterin reiterated his thoughts on the technology’s shift to ‘Proof-of-Stake’ (POS) from ‘Proof-of-Work’ (POW). The POS model is a significantly more energy-efficient system than POW. Expectation is that a 99.95% reduction in energy use is entirely possible from the switch, expected to be rolled out between late 2021 and mid 2022. To put things simply, where a POW model requires all the miners to be working and using energy for every transaction on the network, POS selects a single random miner for each transaction. As one can imagine, the potential to save energy is pretty immense.

How to Trade the Green Wave - (While We Wait for ETH 2.0)

Cryptocurrencies are a young technology. Since their inception, they have gone through numerous changes and forks, constantly optimizing and reworking the technology to better suit people’s needs. For one man to call it quits does not spell the end for an entire technology, nor the end of his own journey to discover the crypto that is most aligned with his businesses ethos — and it certainly hasn’t stopped the broader progression of Bitcoin, Ethereum, and all the other cryptoassets out there. 

If Elon Musk is so worried about the energy consumption of Bitcoin, perhaps he should be looking forward to the release of Ethereum 2.0 and it’s shift to Proof of Stake.

And if investors are looking for an immediate alternatives to bet on the ESG movement in crypto, there are a number of digital assets that use a fraction of the energy Bitcoin and Ethereum currently utilize:

  • Solana (SOL)

    [Market Cap $8.4 billion | Rank 16]

    The Solana protocol is designed to facilitate decentralized app (DApps) creation and provide DeFi solutions for developers. It aims to improve scalability of legacy blockchains such as as Ethereum by introducing a proof-of-history (PoH) consensus combined with the underlying proof-of-stake consensus of the blockchain. Its native token, SOL allows for 65,000 transactions per second which is around 10,000 times faster than Bitcoin and 4,000 times faster than Ethereum.

  • Hedera Hashgraph (HBAR)

    [Market Cap $1.86 billion | Rank 51]

    Another DAG-based cryptocurrency and smart contract platform that differs from Nano due to it’s Proof of Stake consensus mechanism and broader platform service offering (smart contracts and file services). HBAR passed the number of ETH transactions on May 6th, 2021, making it one of the world’s largest cryptocurrency networks. Due to it’s POS nature, similar to ADA above, HBAR claims to be 250,000 times more energy efficient than Bitcoin, using just 0.001 kilowatt hours per transaction (kWh), compared to 1545 kWh for Bitcoin, 99 kWh kWh for Ethereum, and 0.003 for Visa.

  • Nano (Nano)

    [Market Cap $680 million | Rank 93]

    Nano is a hybrid Proof of Work payment-focused coin that does not rely on mining at all, and therefore holds one of the smallest energy footprints in crypto (0.000112 kWh/transaction), and holds claim to being a faster, feeless and greener alternative to Bitcoin and other earlier cryptocurrencies.  Nano utilizes Directed Acyclic Graph (DAG) technology, which varies from a traditional single ledger blockchain, and allows for much more efficient transactions.

    *Buyers Beware: Alternative cryptocurrencies (aka Altcoins) are an extremely risky assets, within an already risky investment class.

Final Thoughts

While the current energy consumption needs of Bitcoin are a valid worry, Clearblock holds the steadfast belief that concerns have been overblown by the media’s recent reporting. A joint research paper recently published by Square (NYSE: SQ) and Ark Invest even suggests that Bitcoin and the broader crypto mining ecosystem is “key to an abundant, clean energy future” — as they expect the cryptocurrency to accelerate the widespread adoption and deployment of green energy sources such as solar and wind, as those sources are actually shown to make the mining process more affordable & profitable for miners.

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Sources: leafscore.com | digiconomist.net | gemini.com/cryptopedia

The views above are opinions of the author and Clearblock Insights. They are not to be taken as investment advice.

[Disclosure - Clearblock employees own both BTC, ETH, SOL and NANO each mentioned above]

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