In a rollercoaster month for cryptocurrencies, a new white paper by Galaxy Digital claims that bitcoin (BTC) mining uses half the energy consumed by the global banking system on a yearly basis.
While the report's authors write "there is no denying that the Bitcoin network consumes a substantial amount of energy," they say their efforts highlight a lack of data transparency when it comes to the traditional banking industry's energy consumption.
Bitcoin's rollercoaster month
It's been a rough few days for bitcoin owners. Considering the cryptocurrency was created as a means to break away from centralized banking, the digital coin's value has been surprisingly reliant on one man in recent times.
Only three months after Tesla announced it would accept bitcoin payments amid its $1.5 billion investment in the cryptocurrency, Tesla CEO Elon Musk made the cryptocurrency's value dive after announcing on Twitter that the company was canceling the option for BTC payments, citing environmental concerns.
This week, Bitcoin dropped by $43,000 in value within hours after Elon Musk tweeted a seemingly affirmative response to someone else's post suggesting Tesla could soon "[dump] the rest of their bitcoin holdings."
Cryptocurrency climate concerns
As Elon Musk explained at the time, Tesla's decision to cancel bitcoin payments came due to concerns over the "rapidly increasing use of fossil fuels for Bitcoin mining transactions, especially coal, which has the worst emissions of any fuel."
Following Tesla's announcement of its $1.5 billion investment in bitcoin, the company was criticized by commenters claiming bitcoin's impact on the environment goes against the electric vehicle automaker's original mission statement.
"Tesla got $1.5bn in environmental subsidies in 2020, funded by the taxpayer. It turned around and spent $1.5bn on Bitcoin, which is mostly mined with electricity from coal. Their subsidy needs to be examined," David Gerard, author of Attack of the 50 Foot Blockchain, told the BBC at the time.
Several studies have claimed that global bitcoin mining — which relies on increasingly complex blockchain computations, and which is largerly carried out in China — consumes more electricity and releases more CO2 than entire countries.
Comparing crypto to the traditional banking system
The new report by Galaxy Digital asserts that, despite bitcoin's large carbon footprint, it currently uses half the energy required for global finances.
Published on Friday, May 14, the authors of the new report estimated that the entire global bitcoin network consumes 113.89 terawatts per hour of energy. Based on that calculation, bitcoin's energy consumption is approximately half of the traditional banking system's 263.72 terawatts per hour and gold mining's 240.61 terawatts per hour.
The team at Galaxy Digital Mining wrote an excellent white paper examining #bitcoin’s energy usage.— Galaxy Digital Research (@glxyresearch) May 14, 2021
Did you know that 19x more energy is lost in transmission than Bitcoin miners consume? Great research here—and we open sourced our methodology.https://t.co/bTR40GdiSP pic.twitter.com/wjd92RmC1l
Galaxy Digital's white paper also stated that the gold and financial system's energy data lacks transparency, meaning that many were unaware of the difference in energy demand between those systems and the more transparent bitcoin.
It's worth noting that the firm's white paper was not published in a scientific journal with peer-review requirements, though it was given an open-source release, meaning anyone can read and verify the report's calculations — including, for example, how they reached the estimation that the world's ATMs consume 3.09 terawatts per hour.
Several outlets, including Business Insider, have pointed out that Galaxy Digital's bitcoin energy usage estimation is lower than that of Cambridge's Centre for Alternative Finance, which placed bitcoin's energy consumption at 128 terawatts per hour as of March 2021 — still a little over half that of the traditional banking system.
It's also important to point out that the Galaxy Digital white paper doesn't provide a transaction-to-transaction comparison between traditional banking and bitcoin. Comparing the number of bitcoin transactions per day — approximately 286,000 — to those of traditional banking — over a billion each day — suggests that bitcoin's energy consumption would dwarf that of traditional banking in a like-for-like comparison.
Still, pro-crypto campaigners argue that groups such as the recently founded Crypto Climate Accord are working with the crypto industry to shift it to 100 percent renewable energy by 2030. Be prepared, as another Elon Musk one-eighty is never off the cards.
Editor's Note 20/05/21: A previous version of this article incorrectly stated that the Galaxy Digital white paper claims a switch from traditional banking to bitcoin transactions would halve the financial sector's energy consumption. This was corrected.