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Assessing whether Bitcoin’s energy consumption makes sense

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After Tesla’s initial Bitcoin investment and payment support for Tesla purchases on 8 February 2021, many critics followed up on the company’s position by alleging that the car-maker is supporting an asset that is presumably heavily reliant on fossil fuels.

Ergo, it wasn’t long before Tesla dropped BTC as a payment method for its vehicles. This was followed by a mining outrage in China, one which led to a significant drop in hash rate, with those critical of BTC’s power consumption out to attack the network once again.

In this article, we will be looking at key arguments related to Bitcoin and its power-utilization and differentiate all the facts from all the fiction.

Bitcoin Carbon Footprint dilemma – How much truth is there to the study?

Over the past few years, various studies have reported different aspects of BTC’s carbon footprint, but that methodology has been a little sketchy. As the network’s power is drawn from determining hash rate, the kind of equipment used by different miners makes a whole lot of difference. Hence, studies have usually assumed a data set between the upper and lower bound of efficiency.

Now, the question arises between renewable and non-renewable sources. One of the best research indices in this respect was developed by the Cambridge Centre for Alternative Finance, one which suggested that Xinjiang in China contributes to 30% of the total BTC hash rate. Sichuan, Inner Mongolia, and Yunnan followed up with 19%, 7.5%, and 7%, respectively.

Now, the difference in the national ratio of renewable and non-renewable electricity production underlines the primary issue with the generalization of data. This report drafted by the Economists’ Intelligence Unit, for instance, found that more than 85% of the electricity used in Yunnan and Sichuan is generated through hydroelectricity.

Such narratives only got pushed under the radar when mainstream institutions such as the Bank of America cited in 2021,

“Nearly 60% of Chinese electrical generation is from coal-fired power plants, with less than 20% coming from natural gas or renewables. In other words, the main input into Bitcoin mining is coal, not exactly the cleanest source of energy on planet Earth.”

The data set produced by each entity reads a different opinion so, it is better to observe the consumption from a utility point of view.

Visa v. BTC – What is the actual hook?

Now, according to the Bitcoin Energy Consumption Index, every Bitcoin transaction is responsible for 545 kg of carbon emissions, 1,147 kg-watt of consumed electricity, and 104 grams of electrical waste. In comparison, a Visa transaction uses a fraction of the power. While, factually, it is true, here is the key difference.

Bitcoin and Visa are both different monetary settlement systems. Bitcoin is completely self-contained and it is a network of its own where all functionality from one peer to another peer takes place on the blockchain. Nic Carter explained the multitude of levels associated with Visa recently. He stated,

“Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve, and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.”

Hence, when you compare a large wire transfer power consumption in context with Bitcoin, the results are more comparable rather than picking one visa user to a visa merchant.

The next part of this article will look into if Bitcoin is depriving other projects of energy or not and whether the recent mining outrage is justified by those who claim that Bitcoin is wholly dependent on coal power.


Biraajmaan covers market trends of major cryptocurrencies. As a graduate in engineering, his interests lie in Blockchain technology. With over a year as a journalist, his articles focus on US and UK markets.
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