If Bitcoin hits $500,000, mining it will spew more CO2 than Mexico or Brazil
Now that Bitcoin’s price is rebounding from the sub-$30,000 lows of late June, the cryptocurrency’s champions are making still more jaw-dropping predictions on where it’s headed—or they’re replaying their former Brobdingnagian forecasts.
Fundstrat Global Advisors’ Tom Lee foresees a surge to $100,000 by the close of this year. That’s more than double its price of $46,000 at midafternoon on Aug. 13. Billionaire Tim Draper, an early investor in Tesla, Twitter, and Skype, is calling for $250,000 by the end of 2022. Cathie Wood of ARK Invest and ARK’s cryptocurrency analyst Yassine Elmandjra expect Bitcoin to reach $500,000, though they haven’t advanced a timeline for that feat.
The king of the bulls may be MicroStrategy CEO Michael Saylor, who has famously been amassing Bitcoin in his corporate treasury. Saylor believes that Bitcoin’s market cap is destined to explode from today’s $870 billion to $11 trillion, though he hasn’t said how fast it will ramp up to those heights. In that scenario, each coin would fetch $14 million.
These devoted fans, however, aren’t acknowledging a storm cloud that darkens Bitcoin’s future. If Bitcoin goes on a moonshot as they expect, its notorious carbon footprint will expand in lockstep. The industry that now sends as much carbon skywards as the nation of Greece will spew multiple times more, matching the emissions of far larger industrial nations. Put simply, unless Bitcoin goes green in the biggest of big ways, its built-in economics guarantee that as its price soars, the tonnage of carbon dioxide it gushes will rocket, too. For now, its zealots’ riches can grow only in tandem with Bitcoin’s carbon impact.
Bitcoin’s carbon footprint swells or shrinks with its price
At its price of roughly $46,000 on Aug. 13, annual revenues from mining Bitcoins are running at around $16 billion, including transaction fees paid to miners. Right now, producers are making tons of money because of the confluence of two forces: the currency’s fivefold jump in price over the past year, and the crackdown in China that, for now, has decimated half the world’s production, greatly boosting profits for the rest-of-the-world miners.
But let’s look out a few years. In late March of 2024, the Bitcoin algorithm dictates that the number of new coins released every 10 minutes will be halved, from 6.25 to 3.125. If Bitcoin’s price doesn’t budge, the industry will be a lot less profitable. Its champions predict just the opposite: a run in price that will much more than compensate for the decline in the number of coins the miners win each year. (By the way, that scenario has already played out three times.)
In the years to come, Bitcoin mining will become far more competitive, and its profitability will follow the economic laws governing all competitive businesses: When profits are enormous, new rivals jump in and drive those profits back to free-market levels. “The cost of ‘making’ a Bitcoin will eventually rise to the price of a Bitcoin,” says Alex de Vries, a Dutch economist whose website Digiconomist tracks Bitcoin’s carbon emissions. Of course, that “cost” includes a return on the miners’ capital decent enough to keep them in the game. Say Bitcoin’s price rises to $100,000 by Christmas of 2024, the “halving year.” That doubling from today’s prices would about equal the 50% decline in the number of coins awarded annually. The total size of the industry would expand by around 8%. Hence, the miners would be generating around 8% more CO2 than today. Bitcoin’s emissions would be getting moderately worse, even as developed nations rush to meet the goal for zero net emissions.
Of course, Bitcoin’s current environmental profile is already sowing consternation among such supporters as Elon Musk. But Musk, Saylor, and other standard-bearers should weigh the impact if Bitcoin hits a number like the $500,000 Wood is predicting. Say it reaches that summit at the end of 2024, or even a couple of years later. The industry’s size would explode from today’s $16 billion to $86 billion. In economic terms, it would “cost” the world’s miners the same $86 billion, including their modest profit margin needed to keep them cranking, to win those tens of billions in Bitcoin (again, adjusted for the halving in 2024).
De Vries reckons that 60% of all miners’ costs go to electricity over long periods, with the balance for capital expenditures, maintenance, overhead, and other expenses. So they’d be paying a total of $52 billion for power in three or more years (60% of their $86 billion in costs). By de Vries’s estimates, the average cost of electricity across the network is $40 a megawatt-hour (mwh). All told, the industry would be pumping 1.3 billion mwh of electricity a year ($52 billion spent on electricity at $40 per mwh). That’s around nine times the 140 million mwh in power generation that represented the peak output before the flight from China. De Vries estimates that the Bitcoin network now emits 475 grams of CO2 for each megawatt of power deployed. If that formula holds, Bitcoin at $500,000 would be belching 617 million metric tons of carbon a year.
That volume exceeds the footprint for Australia by 56%, Brazil by 40%, South Africa by 40%, and Mexico by 33%. Bitcoin mining would be spreading 70% more carbon gases annually than the United Kingdom’s 352 million metric tons. Its pollution levels would approach Germany’s at 696 million tons. The U.S. is now emitting 4,921 million tons a year. At a Bitcoin price of $500,000, the global industry would match an incredible 12% of the CO2 that drives the great American industrial engine, and heats and cools our 140 million homes.
Of course, many factors could improve this dire picture. Bitcoin could make a sharp shift toward wind, solar, and hydro. Or the demand for power could become so great that miners simply won’t be able to find the extra capacity they’re seeking to capitalize on the sumptuous prices. On the other hand, as America and other nations embrace renewables, more and more fossil fuel plants will be looking for new customers. Today, Bitcoin miners are already restoring shuttered natural gas plants from New York to Kentucky to Texas. In Pennsylvania, entrepreneurs are even reviving the fading waste coal business. No, a green future for Bitcoin isn’t inevitable as the current trends show.
For its fans, Bitcoin’s soaring price is its birthright as an incorruptible currency, a safe store of value, or a profitable place for companies to park excess cash. They’re not talking about the environmental blight that is part and parcel of that destiny.
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