Is Cryptocurrency Greener Than Gold?
Cryptocurrencies and Bitcoin in particular require quite a lot of energy in order to run and secure its network, a process commonly known as mining. For many, the numbers are truly concerning, in particular if we consider its implied massive carbon footprint. Just recently the energy required to secure the network topped the entire energy consumption of Chile. So, is cryptocurrency in general just getting a bad rap from the media, or are they truly big wasteful energy hogs?
Side By Side
Mining is not the only thing Bitcoin and gold share. Originally designed as a “peer to peer electronic cash system”, Bitcoin evolved into what is now commonly accepted as “digital gold”, a safe haven alternative for new generations and the potential to become the infrastructure of the new economy. Bitcoin currently requires a whopping 77.78 TWh annual energy consumption. More importantly, its carbon footprint is comparable to a country like New Zealand, at almost 38 Mt CO2.
Ethereum, the second ranked cryptocurrency by total market capitalization, has an annual average energy consumption of around 8 TWh, which, while certainly not insignificant, doesn’t move the needle quite as much, leaving Bitcoin to face the consequences and usually framed as the main “perpetrator”.
On the other hand, gold mining is just one part of the equation. The gold industry comprises of much more than that, from retail companies to commercial and central banks, the precious metal needs to be transported globally and secured, variables that blockchain technology aim to disrupt. Just focusing on gold production and mining alone, the estimated annual consumption is above 150 TWh, almost twice as much as Bitcoin. However there’s a strong argument to be made: gold does require a lot more energy than Bitcoin, but it also dwarfs its total value, production and utility.
Besides its long history as currency and safe haven, gold has quite a lot of industrial demand as a rare metal, in many cases directly linked to clean energy applications like solar. Gold mining, while not as polluting as other rare metals, is a very resource demanding process overall and will likely remain so for years to come, even if gold companies continue to push forward by adopting greener processes, recycling coming as a quick example.
Bitcoin miners are constantly looking to cut costs and find the cheapest, efficient energy to power their rigs, as around 60 to 80% of miner revenue alone accounts for power expenses. Regions where energy is cheap, renewable and abundant is obviously the preferred choice for mining operations around the world. This includes mostly hydropower—with China the most obvious example—but also fossil fuels, nuclear, solar and wind sources.
Paraguay is a notorious yet often overlooked example, almost all of the energy generated from this small South American country comes from renewables, being home to the second largest dam in the world, Itaupú. As the country's domestic consumption is low, the excess energy is regularly sold to Brazil and neighbouring countries. This gives us a glimpse into the near future where excess renewable energy could be instantly switched to mine Bitcoin in order to create a highly liquid, 24/7 available, global co-operative market, warranting the efficient production and trading of green energy trading.
The disruptive force of blockchain technology and its unique features, such as being cheaper, faster and easier to both transfer and store is what can ultimately push cryptocurrencies over the line, as it is important to remember that Bitcoin and other cryptocurrencies do not simply aim to replace gold in its current role.
If successful, blockchain technology could not only replace some features of gold, but central and private banking, giant financial companies (Visa for example), paper currency and minting, insurance, supply chain and others (without considering the expenses associated with corporate offices, logististics and transportation just to name a few) harboring unlimited potential to upgrading the current financial system as we know it.