Does Bitcoin really do harm to the environment?

Tesla’s decision to halt Bitcoin transactions has led to an overall drop in the cryptocurrency market as of May 2021 and stimulated a new environmental concern among those who care.

Elon Musk has blamed the public ever-growing demand for cryptocurrencies for the recent global overuse of resources. These resources would go on the mining process, exceeding the amount of electricity consumed by the whole of Argentina (according to data recorded by Cambridge University). To prove their worry about the environment rather than trying to manipulate the crypto prices, Tesla has decided to retain $2.5 billion worth of Bitcoin and promised to relaunch the crypto transactions once they are more environmentally friendly.

Are those environmental issues actually that alarming? Why does Elon Musk have to be concerned about them, and is it his intention to manipulate the market?

The real electricity problem

Analysis from Cambridge Bitcoin Electricity Consumption has pointed out that the entire cryptocurrency market is now using more electricity than Sweden or Malaysia, and it is the essential technology behind it – blockchain - is to blame.

The Bitcoin ledger is neither under the control of any authorities nor belongs to a particular government or organization. It is updated by a global computer system continually. Miners – PCs with premium GPU setups – are used to address complex mathematical problems to verify the validity of the transactions, with Bitcoin paid as a reward. Many cryptocurrencies are adopting this operational mechanism, including Dogecoin, whose prices are escalating with the support of Elon Musk himself.

The real issue thus lies in the fact that for the last three years, these mathematical problems have grown in their difficulty levels, causing the mining machines to consume far more energy than before. Meanwhile, the 70% rise in the Bitcoin price from December 2020 to April 2021 has attracted even more risk-takers into the mining game. While more people build their miner setups to find themselves a position in the market, more electricity and natural resources are used, directly inflicting damage to the environment.

The electricity problem, therefore, does exist.

Benefits from the overuse of energy?

Elon Musk is not the sole individual concerned about the environmental impact of cryptocurrency mining. Authorities in various regions of China have proposed banning such activities due to their detrimental effects on local resources. However, contrary to these concerns, cryptocurrency mining has inadvertently spurred the development of sustainable and renewable resources. This occurrence is primarily due to the significant reduction in production costs compared to a decade ago.

Moreover, as resource exploitation approaches its limits, mining processes are gradually becoming more energy-efficient. This shift occurs when miners no longer find fixed monthly electricity costs feasible or when cryptocurrency mining stabilizes, resulting in less price volatility and a consistent number of miners.

However, these factors only marginally mitigate the environmental impact of crypto-mining. The energy consumption often outweighs the profits earned by miners, resulting in a net negative effect on the environment. As a result, our environment bears the brunt of these consequences.