Are Cryptocurrencies Really Bad For The Environment?

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Bitcoin gets a lot of bad press for the electrical power that it uses. Sure, the bitcoin wallet in your computer or phone itself doesn’t use much electricity, but the creator(s) set the system up to pay people to build the infrastructure needed to make your wallet work with everyone else’s wallets. This practice, called bitcoin mining, uses many computers all over the world to process transactions. The “miners” get some bitcoin themselves so people will actually want to lend their computers to the network.

We then get tweets like these:

Bitcoin uses ~100 TWh of energy per year, due to its massive appreciation.

This is about 30x the annual energy usage of Tesla’s current global fleet 🤯

— Disruption Research (@DisruptResearch) January 30, 2021

The numbers are roughly accurate, and every couple of months we see media reports like this one telling us how “Bitcoin requires enough power for a country of more than 200 million people,” along with other apples-to-oranges comparisons like “the electricity consumed by minting bitcoin could power all the tea kettles in Britain for 21 years.”

There’s no denying that the electricity is being used, and there’s no denying that there is an environmental impact, especially when a lot of the bitcoin processing happens in China, where there’s still a lot of coal power. The problem is definitely real, but we can’t understand the problem unless we look at it in context.

Let’s Talk About Energy For A Minute

I’ve read that a gallon of gasoline contains up to 500 man-hours of energy. Energy, in physics terms, is the capacity to do work, so it’s a good way of looking at that gallon of gas. To move a gas-powered car down the road 10-50 miles (depending on the car, of course) with raw manpower would probable require 100 people to push and pull on it for several hours, so that’s probably accurate. You could also use the gallon of gas to run power tools and do things like blow leaves and sand around, or break concrete and rocks. With manual tools like brooms and hammers, those tasks would take a lot of time, but power tools use energy to get that job done faster.

When we think about 100 terawatt-hours, that’s the energy needed to output a trillion watts for an hour, or half that for twice as long, etc. It’s all about what work could be done with the energy, and a watt is defined as the energy needed to keep an object moving at one meter per second against a force of one newton. Do this for an hour, and you’ve put out one watt-hour of energy to do it.

Electric cars go 3-5 miles on a kilowatt-hour (kWh, or enough for 1000 watts of work for an hour) of electricity. They move 3,500 pounds of mass at varying speeds over that distance, overcoming things like rolling resistance, air resistance, and all the other forces trying to keep a car from not moving.

Now that we’ve talked about what a watt of power is, let’s take a look at what work Bitcoin is doing with that 100 TWh of electricity per year.

What Currencies Do

It wouldn’t be accurate at all to say that the power going to run bitcoin is wasted. As a currency, bitcoin is doing work with those trillions of watt-hours.

Before modern telecommunication and transportation were a thing, people had to literally move messages with messengers. My grandmother grew up in northern Mexico, and knew some of the Tarahumara/Rarámuri and runners from other tribes who inhabited the mountains near the ranch she grew up on. By the mid 20th century, much of the United States was past needing things like outhouses and running messengers, but the small town she grew up in literally had one telephone well into the 1960s and many people didn’t have indoor plumbing by then.

Native tribes would pass messages by having people literally run through the wilderness with the information. Before telegraphs, there was the Pony Express, a system of relay riders and stagecoaches that reduced messaging time between California and the east coast to about ten days. Most historical empires had similar services, like the Roman Cursus Publicus. The ancient Chinese had standardized wagon track widths to ensure that the vehicles would be able to travel in each others’ ruts and not get stuck.

The daily work we take for granted from machines today was grueling labor for past generations. What takes us a few taps on a rectangular piece of glass would literally take people days of sun-up to sun-down running or horse riding to accomplish.

Money is kind of like the runners and riders when it comes to economic activity. Milton Friedman’s short talk on pencils explains it best:

There’s no “Pencil Czar” who coordinates all of this economic activity. The money does the work, because people set prices for the things they sell. When a company wants to sell pencils, they need to get a price from the manufacturer, who needs to get a price for all of the raw materials and components (like the eraser) to build the pencils. The people supplying the materials get prices from other people who mine or grow the stuff. They have to get prices for tools, labor, water, and everything else it takes. The laborers at every step know what their needs are, and try to get a job that covers all of the basic needs and some of their wants, and all of these things have a price on the market.

The laborer at the graphite mine doesn’t have to find someone to barter graphite for food. He hands the graphite off to the mine’s owner, gets money, and then buys things like food, housing, and entertainment.

You don’t have to believe in free markets like Milton Friedman to see the utility of money. Yes, it can be a brutal and unfair system to many involved, but the conveyance of value signals between people of different cultures, languages, and legal jurisdictions is what keeps everything moving.

This Isn’t Magic

Providing mediums of exchange isn’t some magic system that happens for free. A great deal of work goes into making currencies and keeping them working.

Anciently, currencies were rare commodities like gold, silver, and sometimes even tulip bulbs. The commodity had to be mined out of the ground, requiring great labor and coordination to accomplish without today’s power tools. Governments would buy these materials and mint coins, which gave everyone trading the coins an authoritative measure of exactly how much gold or silver was contained in each coin.

It was often tempting for rulers to debase currency by literally putting less gold in it. This then allowed the ruler to mint more coins, and use them to buy more good and services than the coins were really worth. Smart people would catch on quickly, and see what the king was up to, and prices would go up as people covered their asses from being ripped off. Knowing how much of that a ruler could get away with, catching and hanging counterfeiters, and other tasks were the monetary policy of the day.

From the miner to the king to the merchant, lots of effort was put in to maintain the monetary system that conveyed price messages in the kingdom and outside of it. All of this effort was worth it to maintain a thriving economy.

On the other hand, kingdoms and feudal lords who screwed this up would cause immense suffering for themselves and those who were depending on them to get it right. The bubble of tulip bulb prices and the subsequent bust is a great example of how this can go wrong.

I don’t know how many watt-hours were consumed in a kingdom annually maintaining the currency, but it was probably in the gigawatt or terawatt-hour range.

The US Dollar

While the US abandoned the gold standard decades ago, there is still a considerable amount of work that goes into keeping the dollar running.

Divisions of the US Treasury print the actual money, and that’s going to create emissions at every step. There’s also the US Mint, and it not only produces, but ships giant heavy loads of coins all over the country. These dollars and cents are actually Federal Reserve Notes, though, so they’re just the tip of the iceberg.

The federal reserve system itself is huge. At the top, there’s the presidentially-appointed Board of Governors, who in theory try to keep the economy stable and avoid Weimar or Zimbabwe-style hyperinflation. Below them are the twelve Federal Reserve Banks, who have large offices in many US cities, not counting their headquarters. Each facility is guarded by the Federal Reserve Police. These banks are connected to all of the many commercial and consumer banks you see everywhere. Even the smallest towns often have at least one bank, and all of them work with the Federal Reserve Banks.

Look at the banks themselves, which engage in fractional reserve lending. They have a great many thousands of branch offices everywhere, and you have to keep the lights on at each of these offices. They have a computer for each teller, a computer for each drive-thru teller, a computer for every clerk, a server, networking gear, and computerized ATMs, many of which are located outside of a bank, and the little ATM unit must have its own power, air conditioning, heating, etc. The ATMs have armies of armored car personnel, maintenance personnel (who are often armed because they’re targets for attack), just to make sure you can pull a $20 bill out.

Banks and businesses work together to make sure that even the money from Taco Bell is picked up by armed guards in a heavy and polluting armored vehicle that is made to look like a van, but is in fact as tough as many military tactical vehicles. All of this adds weight, which adds to emissions greatly.

All of the people working at these facilities commute to and from work, creating their own emissions.

I don’t know how we’d go about adding up how many terawatt-hours of energy goes into maintaining the Federal Reserve System, the associated banks, and everyone else moving dollars around to make sure the dollar keeps humming. I would venture to guess that the amount is greater than 100 terawatt-hours in each US state.

Now, factor in that the US dollar is a popular reserve currency in many countries, each of which are expending energy to handle.

Bitcoin Isn’t That Bad, Considering What It Does

The relatively small impact of bitcoin and other cryptocurrency is dwarfed by just one fiat currency’s maintenance emissions costs. Other major currencies, like the Euro or the RenMinBi, are all taking similar levels of heavy lifting to keep moving.

While some of the transactions cryptocurrency facilitates aren’t legal, and sometimes are deeply immoral, it is facilitating them, and that work would happen in other more environmentally impactful means if bitcoin didn’t exist. Just one truck smuggling drug money to Mexico creates nasty emissions, and there are many of them crossing the border daily. These trucks sit and idle for hours waiting for a cursory inspection and maybe some quick bribery before crossing.

Criminal enterprises will move their value around, and bitcoin is probably a much lower impact method than truckloads of smuggling on top of the effort and emissions that normally goes into maintaining the dollar.

While it’s important that we find ways to reduce emissions from cryptocurrencies, it’s also important to not forget that we need to be reducing emissions in government-run currency systems. The funniest thing is when we see the occasional government official tell us that bitcoin’s emissions are bad while their convoluted system is belching out far more pollutants.

Either way, we need to be reducing emissions everywhere we can. Clean energy for banks, electric armored vans, and many other clean technologies could go a long way toward helping with this.