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Date: 31-07-2021

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ADA can be an environment-friendly scarce resource

The inflation of money and its printing during the economic crisis is perceived as a problem that is to be fixed by Bitcoin. Is this defensible in the context of negative environmental impact? Do we have another alternative? We have. Cardano can become a green store of value.

Cardanians.io 19-05-2021, 09:35 · 21 mins read
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Mining of Bitcoin

The Proof-of-Work network consensus is designed to require a lot of electricity to ensure security. That is a known fact. What is important for our article is the amount that is required by the Bitcoin mining process. The amount of electricity that is consumed by the mining process directly relates to the price of BTC coins. Miners are backwardly rewarded by the Bitcoin protocol. They receive bitcoins and can pay off the cost of electricity. Miners are either profitable and continue with the business or they can experience loss and quit the business. The volatility of the market is an enemy. The consumption of energy is lower in the bear market but it can dramatically rise in the bull market. At the moment of writing, the Bitcoin electricity consumption index reports that 144 TWh is an annual estimated consumption.

A terawatt hour (TWh) is a measure of electricity that represents 1 trillion watts sustained for one hour. Let’s put the consumption of Bitcoin into perspective with states and global companies. Norway consumes 124 TWh. The state of New York needs 161 TWh. A global company Google consumes 12 TWh, Facebook 5 TWh. The world’s data centers altogether consume 205 TWh.

The problem is that there is no lower and upper bound of the electricity consumption of the Bitcoin protocol and it might be a problem in the future. If the price of bitcoins is low then the consumption of energy gradually decreases. It is good for the environment but bad for the security budget of the Bitcoin protocol. Even worse, the halving process gradually decreases the mining reward that miners will get. The most appreciated feature of Bitcoin is security and that might be threatened. Security increases with the increasing value of bitcoins. So, during the bull markets, the security reaches the top. Unfortunately, the energy consumption as well.

The energy consumption cannot be predicted in advance since the price in the speculative market is unpredictable. Like it or not, investors and whales that put bitcoins on their balance sheets directly push the energy consumption up as well. So, they bear the responsibility for the negative impact of mining on the carbon footprint. People should realize that pushing the price of bitcoins up has negative consequences. We are afraid that many investors, including the institutional ones, do not realize that.

Keeping the Bitcoin protocol secure basically relies on the endlessly growing price of bitcoins. We should ask whether the financial and social impact of the Bitcoin protocol is beneficial for us and we can justify the high energy consumption.

Let’s talk about energy

There is a lot of controversy around Bitcoin mining. Proponents of Bitcoin claim that mining uses renewable energy and thus that everything is ok. On the other hand, the critics say that Bitcoin proponents use “greenwashing” techniques and that Bitcoin runs on coal. In reality, there is no proof and reliable source that would undeniably support the claims. Take all in this article with a grain of salt. We will provide a few links but we are far from saying that we know the truth.

It is estimated that nearly 80% of the Bitcoin mining industry is located in China. You can find the biggest mining farm in China. At the same time, China is currently the world’s largest consumer of coal. Coal is the main resource of electricity in China. Besides coal, hydroelectric is also used for Bitcoin mining. Solar and wind energy plays a negligible role. The key question is what is the ratio between the use of hydropower and coal power.

The extensive usage of coal is supported by a recent accident at a coal mine in Xinjiang that had to temporarily close, causing power cuts across the area and crippling the ability to mine new bitcoins. The incident caused a visible drop in hash rate. As a consequence, it slowed down the production of new blocks.

It is often said that Bitcoin miners search for cheap sources of electricity. Is green energy cheaper than dirty one? There is no equation between cheap and clean energy. It is not so obvious that green energy is also the cheaper one in a given region for the end consumer. Anyway, can we make a difference between clean and dirty energy when consumers take it from the grid? There is no evidence that big Bitcoin mining farms would consume energy from purely green producers. It is highly probable that miners just pay for the electricity and make no difference between clean and dirty one. The debate about green mining is often misleading. In the ideal case, the whole planet should use green energy as much as possible. It is not a good idea to use green energy for Bitcoin mining and let other industries use the dirty one.

China wants its emissions to peak in 2030 and has plans to be carbon neutral by 2060. Probably the best study we have found was published by Nature. The study was written by academics from the University of the Chinese Academy of Sciences, Tsinghua University, Cornell University, and the University of Surrey. It was published by the peer-reviewed journal Nature Communications. The cryptocurrency’s carbon footprint is as large as one of China’s ten largest cities, the study found. The study warns:

“Without appropriate interventions and feasible policies, the intensive bitcoin blockchain operation in China can quickly grow as a threat that could potentially undermine the emission reduction effort taken place in the country.”.

At the hash rate peak, it could account for about 5.41% of China’s electricity generation emissions. The study made by Nature assumes that around 40% of Bitcoin miners in China use coal. They could be producing 130 million tons of carbon a year by 2024.

The problem with this type of study is that it can become obsolete quickly. As we said, the price of Bitcoin is volatile. As the price rises, consumption rises. The question is whether it is possible to consume more green energy in a given region. Let’s provide an example. Let’s assume that the price of bitcoin is 50K USD and at a given moment it is used 50% of renewables energy and 50% of coal energy. What if the price makes 10 X in a short period of time? Can the price of bitcoin jump to 500K USD within a year? We do not think so but it is not out of the game. The question is whether it is possible to increase the production of green energy also ten-folds. Probably not. The rivers have similar flow rates. The sun will not shine more. As a result, the share of green energy can decline to only 5%. It is very likely that to satisfy the higher demand for electricity in a given region the coal will be used.

Another problem with renewables is that they are unstable. The sun does not shine at night. The monsoon season, generally from June to October, brings excessive rain and thus cheap hydroelectricity that can be used for mining in China. The results of studies may be influenced by the period in which they are conducted. If it is in a bear market and rainy season, the result will be very positive in favor of the use of green energy. If it is in a bull market and in the dry season, it is very likely that more coal power will be used.

Having said that, it is hard to find out how much green energy is used for Bitcoin mining and it is impossible to predict how much it will be in the future.

The social aspect of mining

Bitcoin proponents often show that the banking system consumes more energy than Bitcoin mining. For example, Galaxy Digital claims that the banking system consumes approximately 250 TWh a year. We consider the comparison as a very naive attempt to justify Bitcoin mining. The banking system employs a lot of people and it is used by the majority of the population. It is not about whether the current banking system is good or bad and whether it should be replaced. It is about the level of adoption. Bitcoin uses a few percent of the population. Moreover, Bitcoin is mostly used for holding in wallets. Not for real economic activities. The majority of Bitcoin adopters use the banking system. Moreover, Bitcoin mining is not the only energy consumer. We should also take into account the energy that is needed for cooling big mining farms, the energy consumed for ASIC miner manufacturing, exchanges, etc. We think that it makes no sense to make this type of comparison.

To combat climate change, we need to reduce emissions. There is nothing like the Bitcoin industry, car industry, bank industry, etc. We have one planet and we need to reduce the carbon footprint across all industries.

What is a change if Bitcoin mining uses 100% of green energy? None. In the end, other industries will have to use more dirty energy. Let’s imagine a city that fights climate change and achieves 15% of green energy. If Bitcoin miners came and 15% of green energy was consumed by mining then the city would need to use 100% energy from dirty resources again. Bitcoin mining increases the total consumption of energy in the city. Citizens will not care much about which industry is green and which not. Comparing industries with each other and making justification of mining based on that is misleading.

New industries are often ineffective in the beginning and getting more effective later as innovations improve them. We could see many examples in the past. For example, the consumption of cars decreases every year. The reason is that there is competition. Car producers must invent more energy-effective engines to be in line with regulations and attract buyers. The cryptocurrency industry will not be an exception. Regulations will come and maybe energy consumption will become the hot topic. It is ok.

Proof-of-Stake (PoS) is an alternative network consensus to Proof-of-Work (PoW) that does not need to consume so much energy. It is the natural innovation that occurs in all industries. Cardano blockchain is 1.6 million times more energy-efficient than Bitcoin. PoS has provably similar security properties as PoW. The scientist from IOHK has invented a consensus that can replace PoW.

The PoS main-net has been officially launched in July 2020. No major issue has occurred from that time. Cardano is the top 10 project so you can imagine how many people try to attack the network and find some security issue. So far, nothing. We can assume that most network attacks take place at the beginning and the probability that somebody succeeds decreases with time. There are more PoS projects in the crypto industry. Some of them run for a few years. None experienced major issues with the consensus.

The stages of change are these: Shock, Denial, Anger, Bargaining, Depression, and Acceptance. Regarding PoS, we are probably somewhere between the denial and anger phases. Some people are not willing to admit that PoS already works and that it will work. It is a question of time when we get to the acceptance phase. The cryptocurrency space is a very specific place where proponents of projects fight each other. Instead of math and science, toxicity and hate are the main weapons. We believe that at the end of the day, the discussion will be rational and pragmatic.

At the moment, the market has not chosen which projects will be used for building our new decentralized society. It is true that Bitcoin has the largest community as it is the first successful cryptocurrency. On the other hand, adoption and the community is still very small in the global context. Cryptocurrencies should bring us freedom and the option to choose what we want. No minority should try to impose something on the rest of the world in a way that they try to discredit competitors. Unfortunately, it is a common practice in our industry. About adoption, usage and real value of cryptocurrencies will decide the majority. Not the minority. The argument that PoS does not work today no longer holds water. Anyone can try to compromise the network or find a flaw in the scientific work of the Cardano project.

We can have a decentralized financial system and if we decide we can have it without the negative impact on our planet. We can have both Bitcoin and Cardano. More projects have the potential to succeed. The market will decide. The people that will join the space will make their choice. Cryptocurrencies could remedy some financial and even social problems. However, we should always think about how much it will cost us. Sacrificing the environment to solve financial problems is not worth it. The environment is more important to us than finances.

We are afraid that having Bitcoin without a higher adoption and real economic usage can be considered as energy waste. People from the crypto bubble truly believe in their cryptocurrency projects. However, people outside the bubble do not. For them, gold is a hedge against inflation. At the moment, Bitcoin and gold have the very same function with the difference that gold has a higher adoption rate and it is verified by years of existence. People from the crypto bubble do not want to use gold and consider it obsolete. It is fine but to be honest they often do it just for speculation reasons. Can the crypto community honestly say that Bitcoin is a hedge against inflation if there is a high probability that the price of bitcoins will fall by around 80% in the bear market? We think it is not fair. Should we sacrifice our planet to let a few people speculate on price? Definitely not. It is hard to mark the exact border between price speculation and financial revolution. Hence, this topic will always bring controversy.

What environmental experts think about it

Energy consumption is a topic that should not be overlooked. The whole world, China included, fights against climate change so the cryptocurrency industry should join the effort.

Mark Maslin, professor of earth system science at University College London, welcomed recent Musk’s tweets that re-opened debates about energy consumption. He said:

“I was surprised but extremely pleased by Musk’s announcement. It shows that green companies like Tesla are taking all aspects of their business seriously when it comes to mitigating carbon emissions. I hope that other companies follow very quickly to ensure that the purchases of goods are carbon neutral. The motivation behind Musk’s decision is to do the right thing for the environment and to ensure that Tesla maintains their position as a leading green company.”

If we are trying to solve a problem, we need to look at it holistically. It is not possible to innovate in one sector and disrupt the efforts of another. The professor adds:

“If Bitcoin and other cryptocurrencies are going to survive and not go the way of Blockbuster, then they need to evolve and help save our planet. The energy and carbon footprint of cryptocurrencies is well documented: mining for bitcoin uses significant amounts of energy which is often drawn from polluting sources. At the same time, we understand that to reduce our economies’ greenhouse gas emissions in line with the Paris Agreement’s climate goals both the supply of energy needs to shift to zero-carbon sources and energy demand needs to be managed. Booming energy demand and use of carbon-intensive energy sources are not in line with a low-carbon transformation. It, therefore, makes sense to choose lesser polluting alternatives.”

It is a bit scary that a bright tech leader like Elon Musk did not do research in advance and was unaware of the environmental cost of Bitcoin mining. Environmentalists already know that the growth in Bitcoin mining’s carbon contributions is a major barrier to meet the goals of the Paris Accord. It is likely that many other big investors are also unaware of the negative impact of Bitcoin mining on our planet and they hear that for the first time. It is time to think about alternatives. Luckily, the cryptocurrency industry is not only about Bitcoin and PoW. We have Cardano and PoS.

ADA can be a green scarce resource

You might be surprised but the creation of a digital scarce resource is actually a relatively simple task. Cardano has native coins called ADA and there will be only 45,000,000,000 of them. You could name many differences between these projects from the technological standpoint but the fact the supply of coins is limited holds true for both.

Digital scarcity is not a unique feature of Bitcoin. It is easy to replicate it. It is even so easy that Bitcoin and Bitcoin Cash are very similar projects having the same DNA. Litecoin, Dogecoin, and others belong to the same family but they have different monetary policies. You can find many forks of Bitcoin but Cardano is a brand new project that has been built from scratch.

Proof-of-Stake does not rely on solving a complex puzzle. A new block can be created in a few seconds. Cardano is based on math and science. Thus, it is not only environment-friendly but it also has a sustainable economic model and it is better suited to the world of the internet when it comes to throughput.

The security of Bitcoin can drop in a few years if the price of bitcoins will not go to the Moon. For example, the security of Bitcoin remains similar in 2036 only if the price of BTC is 1M USD. It is nearly impossible to attack the Cardano network as the security budget is inherently always present and relies on the distribution of coins. Decentralization is the key attribute of cryptocurrencies and this property, together with security, grows with the distribution of coins, so basically with adoption. Security also relies on the price of ADA coins but at the time of writing it is arguably more expensive to attack Cardano than to attack Bitcoin.

Higher throughput of blockchain is also the key prerequisite for adoption and Cardano is a champion in that respect as well. Cryptocurrencies are mainly about interactions among users and everybody knows that the current major PoW blockchains are not capable of processing transactions quickly and cheaply. It is a major issue that might not be necessarily fully resolved by the second-layer solutions. We simply cannot build an alternative to the financial world on this basis. Cardano is one of the leaders in the crypto industry regarding innovations. With the adoption of the Cardano technology, the financial and social impact will grow and thus also the price of ADA coins.

The real value of economic and social activities will be naturally reflected by the price of ADA coins. There is a direct binding between ADA coins the key attributes of the Cardano network. Holders of ADA coins are also owners of the Cardano network with all decision rights and benefits. This type of binding is possible due to PoS that directly uses ADA coins in the network consensus. You will not find something similar in PoW networks like Bitcoin.

Digital scarcity itself is easily replicable. The most important thing is the adoption of a given project. The adoption will rely on technology the possibilities that the project offers to users. The digital scarce resource is not a goldstone. The value of the network will be measured by the number of users. Cardano is well designed to achieve a higher network effect than the competitors have right now.

Conclusion

The article is unlikely to appeal to Bitcoin proponents. That’s fine and there’s no point in apologizing for it. The topic of mining is difficult to navigate because mining is global, and it is decentralized. Different sources and studies report different results, and as we have stated, as the price rises, everything can change. The article lists the sources we drew from. We hope that this will also help you to get to grips with the topic. Our planet is the most precious thing we have and we should approach the topic in a completely pragmatic and unbiased way.

Cardano was designed so that its operation would not be an environmental disaster for our planet. It’s one of the differences between PoW and PoS. PoS is no longer just a theory on paper. Cardano has brought PoS to reality and everyone can try how the network works. Once we get past the denial phase, PoS will become a reality and will be used. Can Cardano replace Bitcoin? We don’t think so. Cardano can show the world that an eco-friendly scarce resource can be created. Cardano can also be proof that blockchain can be used for real economic activities and does not have to remain forever just an expensive, slow, and environmentally unfriendly database.

Source: ADA can be an environment-friendly scarce resource

Author Cardanians.io
We are cryptocurrency enthusiasts, especially believing in Cardano. We are official ambassadors operating staking pool. We write articles, translate them and develop tools for the community.
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