Justin Sutton-Parker and Sara Grundström of Hydro66 provide a fresh perspective on digital currencies
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Published: 5 November 2021
This Article was Written by: Justin Sutton-Parker - Computer Science PhD Researcher MBA, Sustainability and Leadership
Main image: Creating just 0.05g CO2/kWh, the hydropower created at this Hydro66 site is over 5,000 times less CO2-intensive than the EU average electricity generation of 253g CO2/kWh
This article first appeared in our Sustainable IT special issue of of My Green Pod Magazine, distributed with The Guardian on 05 November 2021. Click here to subscribe to our digital edition and get each issue delivered straight to your inbox
Until 700-600 BC, when China invented paper money and the Lydian society minted coins, humans were comfortable with bartering.
Following unforeseen situations such as global pandemics and planned innovations – such as our smartphone becoming our new wallet – we have become much more accepting of a cashless society.
Computing facilitates this digital exchange; countless streams of data requests travel across internet technologies, adding and subtracting to and from balances all over the globe.
If it is all just binary code, then why do we even need a physical currency that is determined in value by various governments’ economic and political objectives? One answer is that if the balance of what’s available versus who holds it becomes infinitely flexible, then we return to the problem of limited perceived value.
A decentralised currency
The arguably smarter answer is that we have evolved, by way of the fourth and digital industrial revolution, to a point where we simply don’t need physical currency. If that’s the case, why not use a digital cryptocurrency, such as bitcoin?
One of the most compelling benefits of cryptocurrency is that it is truly decentralised. Bitcoin is not issued by a central authority; it is immune to government interference and manipulation – and therefore control.
Obviously, this concept is viewed by some as a threat to the status quo. Shifting from an economic strategy based on closed systems and centralised power to one without censorship creates opportunity for apparently over-whelming change.
The digital currency footprint
Considering anthropogenic interferences such as excessive consumerism are driving the current 1°C global warming, are concerns around losing centralised control valid – or simply a reaction to protect institutions from necessary evolution?
Focusing on climate change, the loudest voices of opposition suggest digital currencies are bad for the environment. Using this perspective to discredit emerging monetary technology feels counterintuitive.
Following the death of the gold standard in 1971, the world has relied on the US dollar standard.
Almost 90% of international currency transactions are conducted in dollars, 60% of foreign exchange reserves are held in dollars and almost 40% of the world’s debt is issued in dollars – even though the US only accounts for around 20% of global GDP.
The dominance of the dollar is in part facilitated by foreign policy that ensures most traded oil is bought and sold in US dollars. This is why it is known as the ‘petrodollar’.
As the current global reserve currency of choice is only viable due to the promotion of the most polluting industry on the globe, it’s reasonable to ask why the environmental card is being played so hard against a digital currency that offers a credible global reserve alternative.
The environmental charge levelled against digital currency is around excessive electricity consumption. Digital currency is mined, not in a conventional sense, but using sophisticated computers to effectively solve highly complex computational maths problems.
Each solved problem acts as proof of a completed transaction block, meaning the digital currency network is fully audited, verified and openly published for inspection every 10 minutes. At today’s value, a successful bitcoin miner can earn £331,000 in newly issued bitcoin for completing a 1MB block.
This computationally intensive process is designed to act as a peaceful barrier to entry for those who would otherwise seek to steal value or rewrite the chain of transactions. You could say bitcoin’s energy consumption is a required feature.
‘Ultra-efficient data centres such as Hydro66 are surely the answer to enabling digital currency whilst safeguarding the planet. With a power usage effectiveness (PUE) of 1.07, we use 50% less energy than the average EU data centre. Combined with 100% renewable local electricity, this means 7,500 times less CO2 is emitted from energy-intensive operations such as High Performance Computing – simply by siting data centres in the optimal location.’
Business development manager for Hydro66, a Northern Data company
At an estimated 110TWh per year, digital currency’s total mining impact represents 0.1% of all global primary energy consumption. However, electricity consumption doesn’t directly equate to greenhouse gas (GHG) emissions.
In addition to the electricity consumed, ‘location-based carbon intensity’ calculations crucially add an emissions value to every kilowatt hour according to where it was consumed.
To explain, electricity is accounted for in GHG terms using a value called carbon dioxide equivalents (kgCO2e), and categorised as scope 2 emissions because the electricity is purchased for consumption.
Every 1 kWh of energy consumed is multiplied by a factor that reflects the carbon intensity of the national grid of the country that produced the electricity. As a country adopts more low-impact energy sources such as wind, solar and hydro, the factor decreases.
As an example, if conducted solely in the USA, the global bitcoin mining impact of 110TWh would be 47.5m tCO2e. Conducting the same mining in Sweden, where the factor is 0.01189, would decrease the pollution 97% to 1.3m tCO2e.
Unlike oil prospecting or gold extraction, digital currency mining is not restricted by geography; it can be conducted in data centres where high levels of renewable energy supply already exist.
Recent research suggests that miners have been availing themselves of low-cost renewable energy for some time. Reports indicate that overall, bitcoin mining has globally adopted the use of 56% renewable energy sources.
For context, the global average adoption for renewable energy per TWh is just 21%. This means that bitcoin mining is creating 125% less pollution per unit of electricity used than comparative human activities.
As always, context is important. Despite being highlighted as an energy-intensive industry by concerned activists, accurately positioning bitcoin alongside other global electricity consumption sources reduces the crypto mining industry to insignificance.
Digital currency mining is equivalent to less than 0.25% of building-related consumption, or 0.3% of transportation. If the footprint does grow, research also hypothesises renewable energy for mining will support new solar developments underwritten by base-load guarantees offered by bitcoin miners.
Despite environmental concerns, the popularity of digital currency is swelling. This year, the aggregate value of cryptocurrencies peaked at $1.8 trillion, with bitcoin 47% of the total.
In a world where global powers seek to challenge the petrodollar system by suggesting oil be bought in alternative currencies such as the euro, ruble or yuan, the irony may be that they eventually drive wholesale bitcoin adoption.
Digital currency is decentralised, secured by cryptography and constantly verified; it answers the Byzantine Generals’ Problem of how a society should establish a money that all members can trust and agree upon without having to trust each other.
If a cashless consumer society and the need for a new global reserve currency becomes a reality – and cryptocurrency is feasible from both a security and longevity perspective – perhaps it’s worth exploring and debunking the myths around its environmental cost. An alternative approach may be to help stakeholders identify where best ‘green mining’ can drive further renewable adoption.
Considering bitcoin as a new global currency, or a mechanism for achieving financial inclusion for some of the world’s most underserved populations, helps to explain the energy consumption of the new green gold.
As the mining network grows more transparent about its energy use, and as educational efforts about the value propositions take hold, we might achieve a broad consensus that bitcoin energy use is a justified and reasonable cost to society.