Study Claims Bitcoin Alone Could Exceed Paris Limits, but Some Experts Disagree

A study published yesterday in the renowned scientific journal Nature warned that power consumption used to power bitcoin transactions alone could send global warming to critical danger levels specified during the 2015 Paris Agreement. The magnitude of this problem would depend on the rate of future bitcoin adoption and usage, the paper said.

The issue of bitcoin’s power consumption, necessary to complete the cryptocurrency’s Proof of Work (PoW) challenge, has been often cited in media as a critical weakness of person-to-person transactions.

The paper’s lead author, associate professor Camilo Mora of the University of Hawaii’s Department of Geography and Environment, based this outlook on the examples of historical mass adoption rates of new technologies, such as credit cards and dishwashers.

Arraying bitcoin’s potential adoption against those historical rates, the study stated that “if [bitcoin’s] rate of adoption follows broadly used technologies, it could create an electricity demand capable of producing enough emissions to exceed 2 °C of global warming in just a few decades.”

Reducing emissions to keep warming below 2 °C is already regarded as a very difficult challenge given the increasing human population and consumption as well as a lack of political will. Then came Bitcoin.

Camilo Mora, et al

 

Methods and Accuracy

Mora’s paper used 2017 as a reference year for calculating the Bitcoin network’s energy cost in terms of CO2 consumption. To calculate their figure, the paper’s researchers chose randomly from a list of suitably modern (2017) bitcoin mining hardware for every block mined, and averaged together that electricity consumption.

The team then tracked the country locations of each block produced during that year, and using a formula of average CO2 emissions in every country where the each PoW calculation was “likely to be resolved,” applied a country-specific rate of CO2 emission to each block based on average power consumption. Adding these calculations together gave Mora a figure of 69 metric tons of CO2 consumed during 2017.

This figure is far higher than some other estimates, and indeed the rate of CO2 emission coming from the bitcoin network is a highly debated subject. But, critically, Mora’s study did not derive power consumption assumptions from an estimated percentage of profits used to pay for electricity as is common, but rather directly from mining machines’ averaged consumptions specs - sidestepping one of the most contentious disagreements on this subject.

A Bitcoin Cash Fan?

The paper reckons that improvements in bitcoin mining hardware could allay some of the impact of mining, due to an increase in efficiency, but cautions that “reducing Bitcoin’s carbon footprint should not rest solely on some yet-to-be-developed hardware but include simple modifications to the overall system, such as adding more transactions per block or reducing the difficulty or time required to resolve the proof-of-work.”

The battle of bitcoin block sizes is one of the issues that led to the Bitcoin Cash (BCH) fork of Bitcoin last year, with BCH opting for bigger block sizes. Bigger blocks equate to less competition for mining power, and thus lower difficulty PoW operations.

The reduction in difficulty of the PoW algorithm, in the event that bitcoin’s popularity and adoption continues to increase, seems unlikely however, as increased price will mean increased competition to mine blocks - even after next year’s halving.

Another unknown is how the Lightning Network, an in-work offchain payment protocol layered atop the Bitcoin network, will affect all of this if it manages to succeed and gain widespread adopting. It would necessarily draw some of the workload away from the miners, as this is its precise objective; but a widespread adoption of Lightning would probably mean much more overall use of the Bitcoin network, potentially maintaining - or even increasing - current levels of mining requirement. Simply put, nobody knows what would happen.

Other arguments

The bitcoin activist Andreas Antonopoulos is often asked about environmental damage caused by running the Bitcoin network, during his talks. He typically responds in two parts.

His first response is that much energy production is wasted in certain parts of the world, and that setting up mining operations at those locations can constitute a form of “energy arbitrage.” Secondly, he points to the banking and financial system that Bitcoin could stand to eventually replace, and draws attention to the enormous amount of energy gone into supporting its vast infrastructure - physical banks, office towers, data centers, and the like.

Others have taken to social media in the same vein, criticizing the study's focus on bitcoin in particular as especially harmful.

 

Bitwise’s Global Head of Research: ‘Bitcoin Is Like Gold … Just in the 1970s’

Siamak Masnavi

In an article published earlier this week, Matthew Hougan, the Global Head of Research at Bitwise Asset Management, argues that Bitcoin is too volatile to be considered a "store of value", but that is OK because if you want to become wealthy, what you really want is "an emerging store of value". 

Hougan's article for Forbes, which came out on Wednesday (August 21), was addressing the claim made in a Barron's article published on August 16 that questioned the claim that Bitcoin is a safe haven asset.

In particular, Hougan highlighted this paragraph from the Barron's article:

This week certainly would appear to qualify as a good test for an asset’s safe-haven bona fides... There was a market meltdown in Argentina, escalating trade tensions between the U.S. and China, inversion of the Treasury yield curve (viewed as a recession indicator), grim economic news from Germany, and anti-government protests in Hong Kong.

The author of the Barron's article was trying to point that despite all the global turmoil that week, Bitcoin ended the week down 10%.

Hougan says that we should not take from this that Bitcoin is not digital gold. He says that, in fact, Bitcoin is behaving just like gold did in the 1970s. 

According to Hougan, "safe haven assets are supposed to be boring." For example, he points out that gold's annualized rate of return since 1980 is only 2.3% per year, which when adjusted for inflation, comes to -0.7% per year. In other words, it has been basically been "holding its value", which is what you want in a "store of value."

He then says that if, however, "you’re interested in wealth creation," then "history suggests you don’t actually want a store of value; you want an emerging store of value" (i.e. "an asset that has all the characteristics of a store of value, but doesn’t yet have widespread acceptance amongst investors").

Hougan looked at the history of gold and found that the "vast majority of returns gold has enjoyed in the modern era came in the 1970s":

  • 1970s: 1,365% 
  • 1980s: -22% 
  • 1990s: -28% 
  • 2000s: 281%
  • 2010s: 50%

He says:

The 1970s was, of course, when the U.S. abandoned the gold standard. At the time, people didn’t know what to make of gold. Would it succeed as a 'safe haven' asset, untethered from the dollar, or be cast aside as a 'barbarous relic,' as John Maynard Keynes once called it? The result was a period of significant volatility, as the two forces argued back and forth. There were years, like 1975, when gold tumbled in value, falling 25%. And years, like 1979, when it soared, rising 120%

He also says that the daily price volatility of 1970s gold was not that different from Bitcoin's daily price volatility:

There was daily volatility too: In 1973, gold’s price moved more than 3% one out of every ten days! Sounds almost like bitcoin to me.

He then notes that just like the uncertainty about the future of gold back then made it a risky asset to own, it was that risk that "led to gold’s volatility and strong returns," and that as "evidence mounted that gold would in fact continue to serve as a safe haven, returns spiked and more investors made gold a part of their portfolios." Hougan believes that the same scenario is now playing out for Bitcoin.

Hougan considers Bitcoin to be "an emerging store of value" that will keep increasing in value over time as more and more investors "gain greater confidence in bitcoin’s place in the world" and as it gets "easier for institutional investors and financial advisors to buy."

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