Why Bitcoin’s Dirty Price Should Alarm You
MANILA, Philippines — More than a decade after the creation of the first Bitcoin, the cryptocurrency has slipped into the mainstream. Although you probably can’t pay with it at your local supermarket just yet, Filipinos are already accepting the idea.
At a glance, we can see how:
- the Philippines ranks 15th out of 157 countries in crypto adoption, according to the American Blockchain Analytics Society On-chain analysis
- an estimated 4% of Filipinos own cryptocurrency, with Bitcoin being the most popular, according to data from crypto payment gateway company TripleA
- Philippine crypto trading volume jumped 362% in 2021, according to the Bangko Sentral ng Pilipinas
In emerging markets like the Philippines, cryptocurrency is often used as a cheaper and faster way to transfer money from abroad.
The surge in the price of Bitcoin has also attracted investors eager to make a quick profit. Indeed, crypto adoption is on the rise, and it is helping Filipinos save money on remittance fees and earn from speculation.
The catch: Bitcoin happens to be by far the dirtiest cryptocurrency.
To understand why, we need to look at how Bitcoin works. Bitcoin relies on the proof-of-work system where “miners” around the world solve complex mathematical problems to create new coins and verify transactions.
The fastest miner to solve the problem is paid in Bitcoin. This decentralized network of miners secures Bitcoin since transactions are recorded separately by miners everywhere. Think of thousands of accountants all checking each other’s work.
Unfortunately, this also increases the cost of energy. This means that every transaction, regardless of amount, will go through hundreds of thousands of computers, rather than a centralized network. As a result, a single Bitcoin transaction uses as much energy as one million Visa transactions, enough energy to power an average air conditioner for almost seven months.
An estimate by the Cambridge Bitcoin Electricity Consumption Index showed that Bitcoin operates on around 144 terawatt hours (TWh) per year. That’s more electricity than the whole of the Philippines used in 2020, around 102 TWh.
We can also compare the energy consumption of Bitcoin with our current payment systems. This includes the creation, distribution, transaction, and disposal of banknotes, coins, and credit and debit cards — basically, everything in our wallets and bank accounts.
The International Monetary Fund estimates it consumes 47 TWh per year. That’s three times less than Bitcoin uses, and Bitcoin isn’t even used in day-to-day transactions yet. If people started using Bitcoin in every convenience store, this energy cost would increase exponentially.
Digital currency, physical waste
Another problem with bitcoin mining is the amount of e-waste it produces.
When there are more miners, it also becomes harder to make new coins. This means that miners constantly need the best and most powerful computers to win the race.
Ten years ago, miners could mine coins on their desktop computer. That won’t be enough now, especially when other miners have entire warehouses full of specialized computers, each one being 100,000 times faster than even the best personal computers.
On average, miners update their devices every 1.3 years, according to a study published in the journal Resources, Conservation, and Recycling. That leaves about 30.7 metric kilotons of e-waste every year – on a per-transaction basis, that’s like generating as much e-waste as two iPhones. And this litter problem isn’t going away anytime soon. As Bitcoin prices rise, more miners will likely join the network, which will put more pressure to upgrade their hardware to stay ahead. The result: even more waste.
Is all this worth it?
While other industries like mining may have larger environmental footprints than crypto, it’s always fair to ask whether Bitcoin creates enough value to justify its outsized cost of energy and waste.
This is where Bitcoin hits a wall: it’s wasteful by design. Ultimately, only one miner earns the Bitcoin reward.
All the work done by other miners is simply discarded because they didn’t earn. In a way, this proof of work secures the system. It takes so much computing power to manipulate Bitcoin that it just wouldn’t be profitable. But it also means that legitimate transactions waste a ton of energy.
This energy consumption translates into potentially huge carbon emissions. A recent study by the Technical University of Munich, ETH Zurich, and the Massachusetts Institute of Technology estimate that only 25% of the Bitcoin network’s energy comes from renewables.
Bitcoin mining can spew around 65 million tons of carbon emissions per year, which is worse than advanced economies like Singapore and Israel.
Ultimately, whether this is justified comes down to how we define value. If we consider Bitcoin as an alternative to current payment systems, we find that it is much less time, energy and carbon efficient than what we have today. (LILY: [ANALYSIS] Cryptocurrency Opportunity in the Philippines)
But even if we consider it as a store of value like gold, we realize that the price of Bitcoin does not behave in any way like the price of gold, it even sometimes evolves in the opposite direction. If so, where does the future of Bitcoin go from here?
A sustainable future
The answer may come from other cryptocurrencies in mind. Cryptocurrencies are gradually moving from the proof-of-work system to what is known as proof-of-stake. This new system uses much less energy.
Ethereum, the second most popular cryptocurrency, is expected to make the switch this year. This new system is expected to reduce Ethereum’s energy consumption by 99.95%, bringing the energy cost per transaction down to the same level as Visa.
But Bitcoin itself has no intention of changing. This means that the most popular cryptocurrency in the Philippines will likely continue to consume resources. Although the Philippines does not host many miners, we still rank among the best when it comes to crypto transactions.
As authorities consider imposing a crypto tax, its heavy environmental cost should factor into the decision-making.
As more and more Filipinos hold their investments, send their remittances, and transact in Bitcoin, we must be aware of the immense energy cost this entails. – Rappler.com
Lance Spencer Yu is a Rappler trainee. He is studying management of financial institutions at De La Salle University.