top of page
  • Writer's pictureMatthew Feargrieve

Bitcoin and the Environmental Cover-up

Investment management consultant MATTHEW FEARGRIEVE examines the deleterious environmental impact of Bitcoin mining, and the collusion of institutional players in concealing the ugly truth from retail investors.

Bitcoin and the environmental cover up

Bitcoin consumes a staggering amount of energy. According to the Cambridge Bitcoin Electricity Consumption Index, the entire Bitcoin network consumes more energy annually than countries such as Ireland and Switzerland – combined.

With the surge in Bitcoin’s popularity since its inception in 2009, the amount of electricity being used for its production and transacting can nowadays be measured in terawatts. A terawatt is one trillion watts. To give you some idea of the scale of Bitcoin’s energy consumption, the US consumes around three terawatts in a year. Experts believe that Bitcoin currently consumes multiple terawatts in a year.

A single transaction of Bitcoin has the same carbon footprint as 680,000 Visa transactions or 51,210 hours of watching YouTube.

A paper from 2018 from the Oak Ridge Institute in Ohio found that one dollar’s worth of Bitcoin used 17 megajoules of energy, more than double the amount of energy it takes to mine one dollar’s worth of copper, gold or platinum. Another study from the UK published last year opined that computer power required to mine Bitcoin quadrupled in 2019 compared with the year before, and that Bitcoin mining has even had an influence on the pricing of power in some utility markets.

Bitcoin mining and the hunger for power

Bitcoin is carbon intensive because of the ‘mining’ process used to produce and transact it. First, highly sophisticated computers solve complex algorithms to produce new bitcoins. Specialist ‘miners’ then verify the legitimacy of Bitcoin transactions on the blockchain.

Only 21 million bitcoins will ever exist. The more it is mined, the harder and more complex the algorithms become to access it. This intentionally mirrors valuable commodities which, as they become scarcer, become harder to mine.

As commodities become more scarce, the higher their price. Similarly with Bitcoin. And so it is by design that Bitcoin consumes more energy the higher its price rises.

Earlier in its short history, Bitcoin could be mined on an average computer. Now that over 18.5m bitcoin have been mined, production requires computers big enough to fill whole buildings. These computers require huge amounts of electricity to run.

A defensible position?

Bitcoin apologists point to a fact flagged up by the Cambridge Bitcoin Electricity Consumption Index, which is that the energy wasted by plugged-in but inactive home devices in the US alone could power Bitcoin mining for 1.8 years.

The defence of Bitcoin’s energy consumption usually invokes an image of cryptocurrency being a global value transfer and storage system that is necessarily costly to maintain.

But there are, fundamentally, economic rather than environmental arguments against this stance, that focus on Bitcoin having no intrinsic value (unlike other mined commodities such as gold) and being significantly more volatile than traditional investor safe havens such as gold or the Swiss franc. Bitcoin's claim to being a stable store of value has always been a contentious one.

Proponents of Bitcoin assert that its mining is increasingly being done with electricity from renewable sources, and that the energy used is far lower than that of other, more wasteful, uses of power.

But environmentalists point to the fact that Bitcoin miners will go wherever electricity is cheapest and that may mean places that rely on coal. The majority of Bitcoin mining takes place in south-east Asia, where coal-fired power stations remain dominant.

China is a prime example of this. Two-thirds of China’s electricity comes from coal. And China has the most Bitcoin mines.

Given that Bitcoin mining rigs are mobile, it may be supposed that they will follow the cheapest electricity – which will not be the cleanest.

Consider Elon Musk’s recent US$1.5 billion investment in bitcoin. This is somewhat contrary to Tesla’s stated mission of to accelerating the world’s transition to sustainable energy. It also offsets completely the US$1.5 billion that Tesla received in 2020 through taxpayer-funded environmental subsidies.

There has emerged, coincidentally with the surge in Bitcoin prices, a nascent argument that mining can in time help utilities become more profitable, whilst using excess energy when it is not needed for traditional energy demand, which will hasten the shift to renewable energy. But the mathematics invoked to support this view are recondite, to say the least, and many financial and environmental players believe that the argument is a specious one, specially cooked up to help Bitcoin’s PR.

The Bitcoin industry's ultimate last defence is to posit market pressure as an incentive for it to use clean and renewal energy sources. If miners fail to transition to a more renewable energy model in a timely manner, experts predict that both investors and consumers will move to other, less environmentally-damaging cryptocurrencies. The industry, though, shows little sign at the moment of wanting pro-actively to prevent such a loss of business, as it rides an all-time high price surge.

There are, though, some encouraging signs of market pressure coming to bear. Jack Dorsey, CEO of Twitter, has promised to invest US$10 million in developing cleaner technologies for the production of the cryptocurrency. And in Europe, Aker Solutions, an international engineering company based in Norway, will build Bitcoin mining facilities that use renewable energy.

The Ethereum difference

Not all crypto enthusiasts think that cryptocurrency need be reliant on coal-fired power, notably the investor of Ethereum Vitalik Buterin who, in an effort to seem cleaner than Bitcoin, is working on changing Ethereum’s mining system.

At the moment the Ethereum system works similarly to Bitcoin, where the most powerful computers have an edge in getting the most bitcoins as they compete to be the first to complete a transaction. Buterin plans to change Ethereum’s system so that miners enter a pool and are randomly selected to complete the transaction, receiving an ether in return. This method is intended to ensure that less electricity will be used to mine the currency.

As for Bitcoin, its mining will continue to require substantial energy consumption for as long as the digital currency’s price remains high.

Bitcoin as ESG risk; and an Institutional cover-up

The more energy Bitcoin consumes, the more institutional investors will be obliged, by their own governance rules, to treat it as an ESG risk asset. The link between problem and investment is explicit. Bitcoin consumes more energy the higher its price rises. This ought to give the bigger of the most recent Bitcoin investors, like JPMorgan, Morgan Stanley and Goldman Sachs, food for thought.

Indeed, the two major investment trends looming large over the asset management world – Bitcoin’s stratospheric surge and investors’ rush towards responsible investing across all mandates – seem set for a head-on clash, when it comes to Bitcoin.

We may detect a whiff of conspiracy in the way that the environmental consequences of Bitcoin mining – long known to institutional investors – have thusfar been hidden from retail investors.

Institutionals have had a visible hand in the emergent cottage industry of encouraging retail investors to bet on cryptocurrencies, and the concealment from retail investors of concerns about their deleterious social consequences and poor governance protocols can only have been fostered by institutional investors as well as by the mainstream Bitcoin players.

Some of the biggest institutional investors in the world have been singing Bitcoin's praises for months now. They own Bitcoin and are hoping to encourage more buying and so boost the price upwards. Small investors, when reading the increasingly ubiquitous "Buy Bitcoin" advertisements on the street, would do well to remember that the big guys always hype a product that they want to shift it, at inflated prices, to the retail public.

The retail public is always last to the party, after the institutionals have filled their pockets and exited. The feeding frenzy is particularly shameless in the case of Bitcoin, because the financial regulatory systems of the US and Europe are seemingly unequipped to police Bitcoin and other cryptocurrencies.

The stakes are high for Bitcoin proponents and investors alike. Either its energy consumption increases, with ugly and hard-to-ignore environmental consequences, or the price collapses. That’s a major headache either way for Bitcoin players.

Either way, the public - and financial regulators - are unlikely to have much sympathy. As the comedian John Oliver observed, "Bitcoin is everything you don’t understand about money combined with everything you don’t understand about computers".

Add "environmental damage" to this, and Bitcoin alienates itself even more.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his investing blog here and see his Twitter feed here.

Recent Posts

See All


bottom of page