We've seen the tweets and we've seen the hashtags. Every time an influencer champions clean energy crypto, the market goes crazy. While that volatility can create investment opportunities, it undermines confidence in this fledgling economic landscape.
What's the real deal? How much carbon does bitcoin consume? How does crypto actually compare to other currency types and commodities? We all know that mining an ounce of gold, or extracting a karat of diamonds doesn't come "carbon free". How do these commodities compare with crypto and should the clean energy hype really drive that much volatility into the crypto market? Further, why aren't we making noise about reducing the carbon cost of far "dirtier" commodities?
Just to be 100% clear, I support a clean energy approach to crypto. It's essential to seeing this crypto landscape scale globally. I'm kind of a "clean air, clean water, clean energy" guy. We take care of that and a lot of other things start to fall into place.
Since creating crypto coins only requires electrical energy [exclusive of hardware costs], the carbon cost of the energy is relatively easy to measure. For this post, we will pick on #bitcoin since it's usually the main crypto coin in this conversation. Bitcoin's carbon footprint has, in the last few months, been compared to the total carbon footprint for entire countries like New Zealand. So while this sounds staggering, let's look at that a bit closer at the numbers. New Zealand's GDP currently stands a shade over $200B. By comparison, that's about 30% of the [current] market cap of Bitcoin. Using a dollar cost basis, the carbon cost of New Zealand's GPD is 3 times more carbon expensive than Bitcoin.
Interestingly, Bitcoin has also been compared to the carbon footprint of London, ExxonMobile, the US Federal Government and many other entities as well. A single bitcoin [transaction] takes approximately 1,500Kwh of electricity to produce. That consumption rate has a known carbon footprint that we can reliably calculate at 0.92lbs of carbon per Kwh. A single bitcoin transaction therefore, has a carbon footprint of 0.62 metric tons of carbon. Interestingly, Ethereum has about 1/10th the carbon cost for a single transaction at 133Kwh. While both of these may sound like a lot, we need to consider the carbon cost of gold, silver, steel, oil and other commodities.
Gold for example, costs approximately one full metric ton of carbon PER ounce of gold mined. Given that Bitcoin is approximately 20x the [current] value of gold, which is the greener investment? It would take 21 ounces of gold and 21 tons of carbon to generate the equivalent value in bitcoin. Looking to compare bitcoin to standard commodities? How about one ton of finished steel? 1.85 metric tons of carbon are produced per ton of finished steel, or about twice that of what a single bitcoin consumes.
Now go back and think about Fiat currencies and try to calculate the carbon cost of a single US dollar. Pretty staggering and not easy to calculate. Elon was absolutely right to challenge the crypto industry as it grows to be "green and clean". What the broader audience must consider is that all currencies and all aspects of commerce generate carbon costs. Some of them far higher and far dirtier than crypto. The volatility response in the crypto markets to a call for green energy represents an unreasonable knee-jerk reaction. Would a call for "green gold" produce a crash in the gold markets? Unlikely.
Crypto at least has a clear path to clean energy and can continue to scale as our global economies grow and change. We can't say the same for fiat currency and commodities however. Perhaps our world leaders will follow suit and renew the challenge their own economies to clean up their act.
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