Mainstream circles have long perceived Bitcoin mining as a wasteful industry that has a negative impact on the environment, but data and research indicate that the sector has comparable effects to conventional industries.
The Cambridge Bitcoin Electricity Consumption Index (CBECI ) has emerged as a reputable gauge of the Bitcoin network’s energy consumption, and researchers from the Centre of Alternative Finance have gone on to add other gauges, including a Bitcoin greenhouse gas emissions index.
The CBECI was launched in July 2019 to provide reliable data-driven insights into questions about Bitcoin mining’s energy-intensive nature and associated environmental impact.
In a wide-ranging interview with CCN, lead researcher Alexander Neumüller unpacked the methodology behind the Cambridge Bitcoin Electricity Consumption Index, perceptions around the environmental impact of Bitcoin mining, and the incentive for the industry to gravitate toward stranded and renewable energy sources.
Neumueller also highlighted divided opinions over Bitcoin’s perceived negative environmental impact from critics, while supporters maintain the potential for mining to benefit society in several ways.
“However, the intricate nature of the industry and the lack of information are often under-recognized, making room for cherry-picked data points and biased perspectives,” he said.
Neumüller provided insights and commentary on the ecosystem ahead of an announcement from the Cambridge Centre for Alternative Finance that it had revised CBECI methodology on Aug. 31.
The revised methodology reflects a focus on recent developments in Bitcoin mining hardware and an increasing hashrate and whether the CBECI was providing reputable estimates for its indexes.
A key question centered around the cause of substantial increases in hashrate in recent years as newer mining equipment eclipsed older models in computing power. The CBECI has long been limited in its ability to assess the type of hardware miners use and their distribution due to a scarcity of data.
As Neumüller explained, CBECI’s original methodology assumed that all profitable hardware models released less than five years ago equally fuelled the total hashrate.
The result was a “disproportionately large number” of older mining hardware compared to newer models in the methodology’s assumed hardware distribution during exceptionally profitable mining periods.
Neumüller’s team found that newer equipment appeared to be underrepresented compared to equipment nearing the end of its life cycle – leading to the revision of the CBECI methodology.
Using United States mining hardware import data from manufacturer Canaan, the researchers hypothesized that increases in network hashrate can be attributed to more recently released mining hardware.
“This hypothesis was based on US import data, and we sought additional evidence to validate it. If Canaan’s sales data is representative of the industry, it corroborates this claim.”
The CBECI has become a useful tool for the Bitcoin curious and environmentalists alike, providing a variety of different metrics, data visualizations and relatable comparisons for the layman to wrap their head around Bitcoin mining’s footprint.
The CBECI itself reflects the Bitcoin network power demand and was the original index providing a theoretical lower and upper bound with a best-guess estimate of the annualized consumption of the network.
The section also includes three estimates for Bitcoin mining hardware efficiency, which is a measure of the amount of electricity (joules) required to perform a given amount of computational work (one terahash) per second.
The CBECI’s Bitcoin Mining Map has also been widely sourced as an accurate representation of the geographical distribution of the Bitcoin mining ecosystem.
The index proved useful to reflect on China’s eventual clampdown on Bitcoin mining and the subsequent exodus of mining hardware and hashrate distribution to other parts of the world.
The CBECI also includes a more recent metric that provides different range estimates for greenhouse gas emissions caused by the Bitcoin network.
The metric proposes three different potential estimates. One which assumes a hydro-only scenario, another overall estimate that assumes a variety of different energy sources are used and a coal-only scenario to paint a picture of the potential emissions of the network.
The comparisons that follow have been a regular feature of news articles, research reports, investor notes given their relatability. Drawing parallels to the energy consumption of nation states featured regularly alongside CBECI’s annual electricity consumption country ranking which features the Bitcoin network at number 34.
Bitcoin’s activity is estimated to use 113.2 TWh per year and the CBECI notes that notes that “Bitcoin’s closest and most referenced real-world analog is gold.”
The two assets exhibit utilitarian similarities as stores of value and also appear to have common consumptive traits, referring to the proportional relationship between unit price and increased production resulting in increased resource consumption.
Bitcoin’s power consumption also pales in comparison to energy-intensive demands like global air conditioning requirements, which totalled 2199 TWh per year in 2018.
Neumüller is the first to point out that the CBECI is often the source of comparisons made or parallels drawn to varying takes on Bitcoin’s environmental footprint.
“There are those for instance, who don’t like our country comparisons, so we try to cater to a broad audience and show it in different contexts. In the end, people can form their own opinions.”
Neumüller added that the Institute has opted not to have an opinion on the metrics that it provides, which has allowed the CBECI to be a source for both critics and proponents alike.
“I think this is what really gave us credibility over time on both sides and I think this is what we want to continue”.”
What’s the Incentive to go Green?
The CBECI’s lead researcher also weighed in on whether an inherent incentive then for miners to either use stranded or green energy or renewable energy over fossil fuel power sources.
Neumüller pointed to Bitcoin’s all-time hash rate and mining difficulty levels in 2023 as a sign of the times, with many miners struggling to operate profitably in tandem with prolonged depressed BTC prices.
As the researcher notes, prices paid for electricity remain a ‘make or break’ factor in running a Bitcoin mining firm.
“There is an incentive, I guess, and this is fair to say, of trying to find low-cost access to electricity, and that is in many cases renewables.”
Neumüller also pointed to symbiotic relationships developing between mining companies and oilfields which make use of flared gas as an energy source for BTC mining. Making use of stranded or would-be-wasted energy might not be ‘renewable’ but it creates value out of an otherwise wasted resource.
The researcher also admitted that the question around proof-of-work mining and its perceived environmental impact still need further data-driven insights.
Neumüller also said that more work needs to be done to ascertain whether Bitcoin mining is crowding out other industries in areas or regions with excess supply of renewable electricity.