But Bitcoin could be so much more than digital gold.
Image: Shutterstock. Composition: Jordan Pearson
As technical roadblocks continue to hamper Bitcoin’s use as a functional currency, many have taken to defining it as digital gold. But if Bitcoin were to replace gold as a commonly accepted store of wealth, a recent comparison of Bitcoin mining and gold mining suggests that it would be bad for the planet, environmentally speaking.
Even though they’re not identical activities—bear with me on this point—according to blockchain consultant Alex de Vries at Digiconomist, Bitcoin mining is at least 3.25 times more energy-intensive than gold mining, per dollar mined. That’s if all Bitcoin mining were to use the most efficient machines—Bitcoin mining may be closer to 6.91 times more energy-intensive under the more pessimistic assumption that many Bitcoin miners are running old (and less efficient) equipment.
Bitcoin was originally labeled as peer-to-peer electronic cash, and this use may have justified the waste inherent in Bitcoin mining. But since the system became active in 2009, transaction fees and network congestion climbed, making Bitcoin less viable as an everyday currency. For some, this has repositioned Bitcoin—which has always been a sort of “reserve” cryptocurrency, accepted as “stable” payment for alternative coins—as having a future as a gold-like digital store of value.
Read More: Bitcoin Is Unsustainable
De Vries compared some available numbers estimating the energy intensity of gold mining to figures from the Bitcoin Energy Consumption Index he previously created. He compared the figures for gold mining to his own estimate of Bitcoin’s power consumption, as well as a simpler measure that multiplies the total network hashrate by the power consumption of the most efficient miner available.
There are unaddressed considerations in De Vries’ calculations, like the pollution stemming from mine tailings, or the extraction of raw materials to produce the computer chips that mine Bitcoin, for example. Then there’s the potential impact of mining sites on surrounding communities—and the human atrocities documented in some of these same places. But as a general estimate, Digiconomists’ numbers conclude that Bitcoin is the more energy-intensive of the two assets to mine.
Bitcoin’s future as a more wasteful store of value than gold isn’t a foregone conclusion, however. While Bitcoin has some of gold’s characteristics, like a limited supply, Bitcoin is really a secure public ledger that can be used to track ownership and timestamp information, and bitcoins—the units of currency—exist as entries on that ledger.
Bitcoin mining is fundamentally different from gold mining because the main goal is to secure this decentralized ledger. Miners receive bitcoins as a reward (for now), but that’s not the point. Gold mining just digs up more gold. But if Bitcoin’s future is to literally be digital gold, then maintaining Bitcoin’s ledger becomes more analogous to gold mining.
In any case, Bitcoin mining is absolutely much smaller than gold mining right now: Gold miners dig up roughly $134 billion worth of the shiny metal every year, according to Digiconomist (my own estimate, based on the World Gold Council’s numbers, puts that figure at around $118 billion). Bitcoin miners, for their part, currently only collect bitcoins at a yearly rate of $4.56 billion worth at today’s prices, and will do so until the block reward halves sometime in 2020. It may be more energy-intensive to mine, but Bitcoin’s impact on worldwide energy consumption and carbon emissions is still much smaller than gold.
If Bitcoin were to become solely a store of value like gold, though, and captured half of gold’s outstanding value, its electricity consumption would certainly jump in step (according to my own calculations, described here). Given Bitcoin’s significantly larger energy footprint, this would likely exacerbate its sustainability problem. Until we radically decarbonize our global energy mix, making energy use less harmful for the environment, this would be bad news for the climate.
This isn’t to say that Bitcoin has no chance of improving its environmental friendliness. Scaling technologies like the Lightning Network show some promise to dramatically increase Bitcoin’s capacity for transactions—thus increasing the economic and social value humanity gets in exchange for all of that energy use. Perhaps another, more efficient cryptocurrency could dethrone Bitcoin. For example, Ethereum is planning on moving to a less resource-intensive “proof of stake” mining approach, which could drastically reduce energy use.
As a full-fledged replacement for gold, though, Bitcoin could well eclipse gold’s sizeable environmental price tag. Arguably, the value of both Bitcoin and gold comes down to belief. How much of the planet do we believe they’re worth trading for?
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