The different energy narratives of bitcoin and banks are a matter of perspective

The Carbon Bankroll Report was released on May 17th as a collaboration between the Climate Safe Lending Network, The Outdoor Policy Outfit and Bank FWD. The collaboration made it possible to calculate the emissions caused by a company’s cash and cash equivalents and investments such as cash, cash equivalents and marketable securities.

The report revealed that cash and investments are the top sources of emissions for several large companies including Alphabet, Meta, Microsoft and Salesforce.

The energy consumption of the flagship PoW blockchain network, Bitcoin, has been the subject of a debate that has criticized the network and its participants, particularly miners, for contributing to an ecosystem that could aggravate climate change. However, recent findings have also put the carbon impact of traditional installations under the radar.

Bitcoin is often slandered because of “images”.

The Carbon Bankroll Report was prepared by James Vaccaro, Executive Director of the Climate Safe Lending Network, and Paul Moinester, Executive Director and Founder of the Outdoor Policy Outfit. Regarding the impact of the report, Jamie Beck Alexander, Director of Drawdown Labs stated:

“Until now, the role corporate banking practices are playing in fueling the climate crisis has been unclear at best. This landmark report shines a floodlight. The research and findings contained in this report present companies with a new, critical opportunity to help transform our financial system from fossil fuels and deforestation to global climate solutions. Businesses that are serious about their climate promises will welcome this breakthrough and will urgently work towards leveraging this lever for systemic change.”

Some metrics the report highlights regarding the climate impact of the banking industry include:

  • Since the Paris Agreement was signed in 2015, 60 of the world’s largest commercial and investment banks have invested $4.6 trillion in the fossil fuel industry.
  • Banks like Citi, Wells Fargo and Bank of America have invested $1.2 billion in this industry.
  • The largest banks and asset managers in the United States were responsible for financing the equivalent of 1.968 billion tons of carbon dioxide. If the US financial sector were a country, it would be the fifth largest emitter in the world after Russia.
  • Emissions from investing, lending and underwriting activities are 700 times higher than the direct operational emissions of global financial firms.

Cointelegraph spoke to Cameron Collins, an investment analyst at Viridi Funds — a crypto mutual fund manager — about the reasons behind the excessive vilification of the Bitcoin network. He said:

“It’s easy to imagine a warehouse with high-performance computers consuming electricity, but it’s not so easy to imagine the downstream impact of cash in circulation funding high-carbon activities. Most of the time, it’s these images that demonize bitcoin mining. In reality, the entire banking system uses more electricity to operate than the bitcoin mining industry.”

In addition to the “images” shown, there have been various efforts to understand the exact energy consumption of the operation of the Bitcoin network. One of the most widely accepted metrics for this complex variable is calculated by the Cambridge Center for Alternative Finance and is known as the Cambridge Bitcoin Electricity Consumption Index (CBECI).

At the time of writing, the index estimates the annual energy consumption of the Bitcoin network at 117.71 terawatt hours (TWh). The CBECI model uses various parameters such as network hash rate, miner fees, mining difficulty, mining equipment efficiency, electricity cost, and power consumption effectiveness to calculate the annual consumption for the network.

The growth in the number of participants and the associated activity in the Bitcoin network is reflected in the monthly electricity consumption of the network. From January 2017 to May 2022, the monthly power consumption has increased 17-fold from 0.62 TWh to currently 10.67 TWh. In comparison, companies like PayPal, Alphabet and Netflix have seen a 55x, 38x and 10x increase in their carbon emissions, respectively.

Collins went on to speak about perceptions of the Bitcoin network that could change in the future. He added that if more people approached Bitcoin (BTC mining) as a financial service, the mood regarding PoW networks could change, and the public could appreciate it more as an essential service as opposed to a reckless gold rush . He also emphasized the role of community thought leaders in communicating the true nature of Bitcoin mining to policymakers and the general public.

Solve the energy problem together

Recently, there have been several examples of the bitcoin mining community collaborating with the energy industry – and vice versa – to work on mutually beneficial methods. American energy company Crusoe Energy uses wasted fuel energy to mine bitcoin, starting in Oman. The country exports 23% of its total gas production and aims to reduce gas flaring to absolute zero levels by 2030.

Even US energy giant ExxonMobil couldn’t help but get in on the action. In March of this year, news broke that Crusoe Energy had struck a deal with ExxonMobil to use surplus gas from oil wells in North Dakota to power bitcoin miners. Traditionally, energy companies have resorted to a process known as gas flaring to get rid of excess gas from oil wells.

Related: Not stranded anymore? Bitcoin miners could help solve Big Oil’s gas problem

A report released by the Bitcoin Mining Council in January revealed that the bitcoin mining industry increased the sustainable energy mix of its consumption by nearly 59% between 2020 and 2021. The Bitcoin Mining Council is a group of 44 bitcoin mining companies accounting for over 50%. the mining power of the entire network.

Cointelegraph spoke to Bryan Routledge, Associate Professor of Finance at Carnegie Mellon University’s Tepper School of Business, about the comparison between Bitcoin’s carbon emissions and traditional banking.

He explained: “Bitcoin (blockchain) is a recording technology. Is there another protocol that would be comparably secure but not as power intensive as PoW? I’m sure a lot of people are working on that. Similarly, we can compare bitcoin to the recording of financial transactions in regular banks.”

The block reward for mining a block of Bitcoin is currently 6.25 BTC, over $190,000 by current prices, and the current average number of transactions per block is around 1,620 according to data. This means the average transaction reward could be estimated at over $117, a reasonable reward for a single transaction.

Routledge further added: “Traditional banks are much larger and therefore have a large overall environmental impact. But for many transactions there is a much lower cost per transaction – e.g. B. an ATM fee. BTC arguably has many advantages. But becoming more efficient certainly seems to be an important step.”

Because measuring Bitcoin’s true impact isn’t really a quantifiable effort due to the significant changes that the technology and currency represent, it’s important to remember that Bitcoin’s energy consumption cannot be denigrated in isolation. The global financial community often tends to forget the high impact of the current banking system, which cannot be offset by corporate social responsibility and other incentives alone.