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Following Tesla’s initial Bitcoin investment and payment support for Tesla purchases on 8 February 2021, many critics alleged that the car-maker is supporting an asset that is presumably heavily reliant on fossil fuels.
As a result, it wasn’t long before Tesla stopped accepting Bitcoin as a payment method for its vehicles. This was followed by a mining outrage in China, which resulted in a significant drop in hash rate, with those who were critical of BTC’s power consumption returning to attack the network.
In this article, we will examine key arguments concerning Bitcoin and its power utilisation and separate the facts from the fiction.
Bitcoin Carbon Footprint dilemma – How much truth is there to the study?
Various studies have reported various aspects of BTC’s carbon footprint over the last few years, but the methodology has been a little shaky. Because the network’s power is derived from determining hash rate, the equipment used by different miners makes a significant difference. As a result, studies have typically assumed a data set spanning the upper and lower bounds of efficiency.
The question now is whether renewable or non-renewable sources should be used. One of the best research indices in this respect was developed by the Cambridge Centre for Alternative Finance, one which suggested that Xinjiang in China contributes to 30% of the total BTC hash rate. Sichuan, Inner Mongolia, and Yunnan followed up with 19%, 7.5%, and 7%, respectively.
Now, the difference in the national ratio of renewable and non-renewable electricity production underlines the primary issue with the generalization of data. This report drafted by the Economists’ Intelligence Unit, for instance, found that more than 85% of the electricity used in Yunnan and Sichuan is generated through hydroelectricity.
Such narratives only got pushed under the radar when mainstream institutions such as the Bank of America cited in 2021,
“Nearly 60% of Chinese electrical generation is from coal-fired power plants, with less than 20% coming from natural gas or renewables. In other words, the main input into Bitcoin mining is coal, not exactly the cleanest source of energy on planet Earth.”
The data set produced by each entity reads a different opinion so, it is better to observe the consumption from a utility point of view.
Visa v. BTC – What is the actual hook?
Now, according to the Bitcoin Energy Consumption Index, every Bitcoin transaction is responsible for 545 kg of carbon emissions, 1,147 kg-watt of consumed electricity, and 104 grams of electrical waste. In comparison, a Visa transaction uses a fraction of the power. While, factually, it is true, here is the key difference.
Both Bitcoin and Visa are distinct monetary settlement systems. Bitcoin is completely self-contained and operates on its own network, with all functionality passing from one peer to another taking place on the blockchain. Nic Carter recently explained the various levels associated with Visa. According to him,
“Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve, and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.”
As a result, when a large wire transfer power consumption is compared in context with Bitcoin, the results are more comparable rather than selecting one visa user to a visa merchant.
The following section of this article will investigate whether Bitcoin is depriving other projects of energy and whether the recent mining outrage is justified by those who claim Bitcoin is entirely dependent on coal power.