As we continue to field questions from clients about whether or not it would be a good idea to add Bitcoin or some other type of Cryptocurrency to their portfolios, as we stated in our last blog, Bitcoin is not an asset and Bitcoin is not a true currency. I find it interesting that it is also not Socially Responsible at this point. Three reasons:
1. Bitcoin Mining Requires Energy
Mining, actually means adding more bitcoins to the digital currency ecosystem generated through a computational process. You do it by letting your computer hardware calculate complex mathematical equations, which can be done at any given time of the day. Doing so enables you to become an integral part of the bitcoin network, not only by securing the network through your dedicated hardware, but also by generating more coins to put into circulation. This is all done using computer hardware that, uses 121 Terawatt-hours of electricity every year, the BBC reported in 2021—more than the entire country of Argentina.
These astronomical energy costs are due to the competitive nature of proof-of-work blockchains. Instead of storing account balances in a central database, cryptocurrency transactions are recorded by a distributed network of miners, incentivized by block rewards. Bitcoin block rewards are new bitcoins awarded to cryptocurrency miners for being the first to solve a complex math problem and creating a new block of verified bitcoin transaction. These specialized computers are engaged in a computational race to record new blocks. Interesting concept but also very intensive for the hardware.
2. Bitcoin Produces Excessive Carbon Dioxide Emissions
Coal and other fossil fuels are currently a major source of electricity worldwide for cryptocurrency mining operations. However, burning coal is a significant contributor to climate change as a result of the carbon dioxide that the process produces. According to a report by CNBC, bitcoin mining accounts for about 35.95 million tons of carbon dioxide emissions each year—about the same amount as New Zealand.
Alex de Vries, an economist and creator of the website Digiconomist, which measures bitcoin’s energy consumption, told Fortune last month that around 70 percent of bitcoin mines around the world were powered by fossil fuels, mostly coal.
Pretty incredible to think of Bitcoin producing the same emissions as that of an entire country!
3. Bitcoin Generates Electronic Waste
In addition to energy consumption, use of fossil fuels, cryptocurrency mining also generates a significant amount of electronic waste as hardware becomes obsolete. The amount of e-waste a single Bitcoin transaction generates is equivalent to throwing two iPhones in the trash, according to a new study, published in Science Direct, by researchers from MIT and the Dutch central bank.
Unlike other computer hardware, the specialized circuits used for mining cannot be reused for any other purpose, and they quickly become obsolete. According to Digiconomist, the bitcoin network generates between 8 and 12 thousand tons of electronic waste every year.
The Bottom Line
Whether you’re in favor of cryptocurrencies or against them, there’s little doubt that bitcoin and other proof-of-work blockchains use enormous amounts of energy. Much of this energy usage comes from burning coal and other fossil fuels and does not fall in line with ESG initiatives.
Jack Schniepp is a CERTIFIED FINANCIAL PLANNER™ (CFP®, ChFC®), financial advisor and the owner of Cascade Financial Strategies. CFS is a registered investment advisor licensed in Oregon, California, Washington, Arizona and Idaho. They specialize in socially responsible investing which integrates environmental, social, and corporate governance (ESG) criteria into portfolio construction.