Sunday, May 23, 2021



Crypto-currencies are not just the latest speculative bubble.  Bitcoin (and others) may be virtual commodities but they have big real-world impacts, and are a threat to our attempts to contain climate change. Stopping their contribution to CO2 intensive emissions must surely be the simplest of credibility tests for international agreement in the forthcoming international climate negotiations, COP 26. 

Alarm over the carbon footprint of bitcoin is the latest illustration of the convergence of climate change issues with a widening range of social and economic issues. We are witnessing a collision between two of the most disruptive themes in today’s global economy - sustainability and the cryptocurrency explosion.

Cryptocurrencies were already a controversial subject, promoted by libertarians as an alternative to national currencies, a currency that would be outside the control of governments or “inflation promoting” central banks, and a means to improve on existing payments systems. They are however also seen as potentially damaging innovations, whose main application may prove to be, at best, facilitation of criminal activity, tax evasion and money laundering, and whose main product has no real function or value other than as a vehicle for speculative investment. At worst they may simply be an elaborate Ponzi scheme.

What is bitcoin, and could it replace other currencies?

The Cambridge University Judge Business School (JBS) provides useful summary descriptions[1]. Bitcoin is a virtual currency whose proponents believe it could represent the future for payments systems of all kinds – the future of money. The three main functions of money are to act as a unit of account, a medium of exchange and a store of value. Bitcoin’s price volatility militates against its future either as a unit of account – the unit in which most transactions are priced and value is measured, or a medium of exchange. As a store of value it has been compared to gold, in having a limited supply, with the potential to become more and more valuable as bitcoin use increases. This third function is, at least theoretically, a more credible possibility. After all gold has a price that is disconnected from its use in jewellery and its value in industrial applications.

However these ambitions for bitcoin seem to hinge, inter alia, on its ability to see off the competition from thousands of other crypto currencies, many of which can also promote themselves as payment systems. These include dogecoin (dog e-coin, or doggy coin?), originally a joke currency that now has holdings worth up to a nominal $ 80 billion.

Mainstream economic commentators and financial authorities have been almost universally sceptical or even scathing. The European Central Bank has compared the rise in crypto prices in recent months to “tulip mania” and the South Sea Bubble of the 1600s and 1700s.

The joke-coin makes a mockery of the idea that crypto investing should be considered a serious pursuit. Its very existence undermines the notion that bitcoin derives value from its scarcity. While bitcoin’s total supply will eventually be capped at 21m, as written into its original source code, there is no limit to the number of copycat cryptocurrencies that compete with it — there are now almost 10,000, and dogecoin itself has no hard supply cap. [Jemima Kelly, FT, 11 May 2021]

None of this will deter the bitcoin evangelists, and it is certainly true that many people will have made a great deal of money out of the gyrations in the bitcoin price. However early entrants often make money out of Ponzi schemes of all kinds, and one worry for financial stability is the destabilising effect of an eventual crash, possibly bankrupting thousands of smaller, later investors and speculators. The collapse of financial pyramid schemes in Albania in 1997 brought the country to the brink of civil war.

Bitcoin’s Extraordinary Energy Consumption

Mining bitcoin is intrinsically a highly decentralised and indeed largely anonymous activity, so direct measurement of its energy consumption is not possible. The Judge Business School have attempted to research the carbon footprint of bitcoin, highlighted by the recent pronouncements from Tesla’s Elon Musk. This reflects the huge amount of computing power absorbed in searching or “mining” new bitcoins, and its impact on fossil use in electricity generation. The numbers, and even more importantly the growth, are extraordinary.

In April 2018 some 17 million bitcoin had been mined[2], and the JBS estimate that the annualised rate of electricity consumption at that time was 36.4 TWh. In May 2021 the number of bitcoin had grown to 18.6 million, but JBS estimate the annualised rate of electricity consumption had grown to 148 TWh, an amount larger than that of a medium sized country such as Sweden or Argentina This 2021 level of power consumption, resulting in more generation from the most polluting coal-fired power stations, could be close to 150 million tonnes of CO2. The JBS consumption estimates from which this number is derived are central estimates and JBS suggest much much higher upper estimate bounds.

Other sources offer equally alarming estimates. One estimate by Chinese academics[3] published in the scientific journal Nature Communications in April found that, without policy intervention, bitcoin in China alone would generate 130m metric tonnes of CO2 emissions by 2024.

The implication of the JBS trend growth, or of this alarming estimate for China, is that we could easily see bitcoin mining exceed 1% of global CO2 emissions in a few years. This may sound small but global GHG is an aggregation of individually small issues. Aviation, for example, to which far more attention is paid, accounts for only about 2.5 % of CO2.

This accelerating rate of energy use is intrinsic to the bitcoin process as mining becomes increasingly difficult. Inefficiency is a necessary consequence of its security requirement. Higher energy use is also encouraged by a rising bitcoin price, and by the fact that much of bitcoin mining takes place in jurisdictions with high coal based power and where electricity is subsidised or seriously under-priced. The increasing “inefficiency” of bitcoin mining implied by these numbers is not remediable; it is intrinsic to the bitcoin design, and indeed to that of other cryptocurrencies.

The Carbon Footprint and Implications for the Global Climate Challenge

The carbon footprint of bitcoin, and other similar cryptocurrencies depends on how the electricity is generated. Crypto promoters attempt to argue that this is or can be from renewable resources and therefore that the carbon footprint should not be an issue. This is a nonsense argument. Low or zero running cost renewables will always be used in power systems before fossil plant is brought into play, so any additional power demand will normally result in extra production from the generating plant at the margin. In almost all geographies this will be fossil plant for the next few decades, and all the extra CO2 emissions attributable to bitcoin will reduce the available carbon budget.

Two particular concentrations of bitcoin mining have been in highly fossil dependent Iran, where illegal use of subsidised power for crypto mining is believed to resulted in major city blackouts, and China, which relies very largely on coal generation.  The current growth of mining in China is of increasing concern to the Chinese authorities on environmental grounds, and the FT reported[4] that the government of Inner Mongolia, which is particularly reliant on coal generation, has come under particular pressure to crack down on bitcoin mining.

Implications for COP 26 and Global Agreement

The clearest possible priority in the global effort to reduce GHG emissions is to seize, with urgency, the “low hanging fruit”; these are the easy measures which have little or no real economic or social cost and deliver immediate savings. Since CO2 in the atmosphere is cumulative we know that immediate emissions prevented are more valuable than the same saving in 20 years time.

Stopping or severely discouraging emissions attributable to crypto currencies falls in this category. There is little or no real cost in economic terms, and perhaps economic and social positives if the world has one fewer set of Ponzi schemes and speculative bubbles. Reduced subsidies to fossil fuel is one of the instruments to discourage mining, and will also help reduce emissions and fund low carbon alternatives. No major physical investments or disruptive lifestyle changes are required to dispense with cryptos, and the carbon saving is immediate and substantial.

It does however need concerted international agreement. What better simple “win” with which to start COP 26 negotiations than a general agreement to apply measures which will discourage any use  of cryptocurrencies dependent on high energy input[5].

The Chinese approach of criminalising bitcoin mining may not be universally acceptable, although most countries have plenty of laws and regulations prohibiting the release of other dangerous substances.  Bitcoin was designed to “escape” any such central control from authoritarian regimes or central banks, and mining is highly decentralised. However there are plenty of other effective measures that governments can take to minimise the attractions of crypto currencies. These include wide restrictions on the use of cryptos as a means of payment (Turkey, Morocco, and India), and controls over the holding of bitcoin by pension funds or other regulated investment vehicles.

For COP 26 a declaration of intent to eliminate the crypto emissions threat might be a small step, but a useful one that sends a powerful message..


[1]  “Bitcoin is a software protocol and peer-to-peer (P2P) network that enables the digital transfer of value across borders without relying on trusted intermediaries. … an open and permissionless system: anyone can participate in the network, as well as send, store, and receive payments. Bitcoin has its own cryptocurrency called bitcoin (BTC), as the universal unit of value within the network. New bitcoins are issued … through a process called mining.“ It is a virtual currency, and the Bitcoin protocol specifies that a maximum of 21 million bitcoins will ever be created. Of this 21 million, it is estimated 17 million have been create to date, of which some 4 million have simply been “lost”. It is intrinsic to this virtual currency that, once lost, they can never be found.


[3] Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China.  Jiang, S., Li, Y., Lu, Q. et al. Nature Communications, April 2021.

[4] Chinese province sets up hotline to report suspected crypto miners. [FT. 20 May 2021]


[5] Not all such currencies do. Restrictions on bitcoin, and likely subsequent collapse of the bitcoin bubble, would however send a significant warning to future cryptos, even those with much lower energy implications.


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