UW/H study takes a close look at the environmental impact of Bitcoin mining

Bitcoin mining is increasingly being discussed as a potential driver of the energy transition - despite the fact that it consumes enormous amounts of energy and produces considerable amounts of electronic waste. The idea: surplus renewable energy could be used for mining processes; this could promote the expansion of sustainable energy generation and stabilise power grids. A recent study by Maximilian Gill, Dr Jona Stinner and Prof Dr Marcel Tyrell from the Chair of Banking and Finance at Witten/Herdecke University (UW/H) calls this promise into question. It shows that Bitcoin mining could slow down the transition to a sustainable energy supply in the long term.

What is Bitcoin mining?

Bitcoin is the first and best-known cryptocurrency. It works without a centralised authority such as a bank and allows people to send and receive money digitally. Mining is the process by which transactions in the network are validated and new bitcoins are created. Miners use powerful computers to compete with each other and earn new bitcoins. These are awarded to the first person to add a new block to the blockchain - a digital register in which all Bitcoin transactions are stored securely and immutably. The earnings from this competition are high - currently around USD 52 million per day. However, as the process requires specialised hardware and enormous amounts of energy, the ecological balance is problematic: the energy consumption of the Bitcoin system is roughly equivalent to that of a country like Poland and the amount of electronic waste generated annually is comparable to that of the Netherlands.

Proponents of Bitcoin mining argue that surplus renewable energy, which cannot be fed into the electricity grid or only at low prices due to weather-related fluctuations, could be used for mining. This would allow the operators of the generation plants to earn more money, which in turn would incentivise more investment in renewable energy. As the surplus energy is generated emission-free, mining would not cause large CO₂ emissions.

However, current research by UW/H scientists shows that while the use of surplus renewable energy reduces the CO₂ emissions of the Bitcoin system, it also leads to an increase in electronic waste. The reason for this is that falling energy costs lead to an increase in the amount of mining hardware operated. Under plausible conditions, for example with low prices for surplus energy and a large proportion of renewable energy in the Bitcoin system, the overall negative environmental impact could even increase.

Long-term challenges for a sustainable energy transition

The study comes to a sobering conclusion: although Bitcoin mining can promote the expansion of renewable energies in the short term, it makes the transition to a sustainable energy economy more difficult in the long term. The reason: Bitcoin mining is more profitable and reduces the economic incentives to invest in storage technologies and grid infrastructure - both of which are essential for a sustainable energy transition.

Maximilian Gill explains: "Producers of renewable energy have several options when there is surplus energy: They can invest in grid infrastructure to transport energy or in storage technologies to make solar energy usable in the evening, for example. Alternatively, they can utilise the energy directly for Bitcoin mining and thus generate short-term income. This is attractive and reduces the pressure to invest in long-term infrastructure, which is essential for moving away from fossil fuels."

The research results show that the promise that Bitcoin could advance the energy transition falls short. "In the long term, Bitcoin mining could slow down the actual goal of the energy transition - the switch to renewable energies," emphasises Gill.

Further information: The full study by Witten/Herdecke University can be found here: Economic Limits of Bitcoin's Environmental Promises: Pathway or Pitfall for the Green Transformation?
by Jona Stinner, Marcel Tyrell, Maximilian Gill :: SSRN