Bitcoin's (BTC-CAD) power consumption has made it a pariah in an investment landscape increasingly focused on sustainability. Analysts claim the cryptocurrency uses as much as energy as American Airlines (AAL), the country of Greece, or the U.S. federal government as mining computers solve math problems to build up its blockchain ledger.
However, a new report suggests bitcoin isn't emitting as much as certain pillars of the global economy. Galaxy Digital, a New York-based crypto firm founded by former hedge fund manager Michael Novogratz, says the world's most popular digital currency is using far less juice than banking and gold.
"Bitcoin's energy usage has become an easy target for criticism," authors Rachel Rybarczyk, Drew Armstrong and Amanda Fabiano wrote in the report. "It is easy to estimate Bitcoin's energy usage. This results in frequent criticism of Bitcoin, but these critiques are rarely levied against other traditional industries."
Indeed, such analysis can be done in real time with resources such as the Cambridge Bitcoin Electricity Consumption Index. It shows rising energy usage beginning in late-2020, as bitcoin's price skyrocketed. Galaxy Digital found the total electricity consumption of the bitcoin network topped 113.89 terawatt-hours (TWh) at the time the report was written.
Quantifying the energy footprint of the financial sector or gold industry is far more challenging. For the banks, Galaxy Digital looked at four key areas of electricity consumption: data centres, bank branches, ATMs, and card network data centres. It estimates the global energy consumption of the banking system is 238.92 TWh per year.
For the gold industry, Galaxy Digital relied on greenhouse gas emissions estimates published by the World Gold Council to determine an annual energy usage of 240.61 TWh per year. The authors concede this estimate may omit some key sources of energy use, "like the energy and carbon intensity of the tires used in gold mines."
A report by silver and gold dealer Money Metals looking at hidden sources of energy use in the industry found that Barrick Gold consumed nearly 25,000 tons of rubber tires in 2013 which require oil to produce, for example.
"Viewpoints on Bitcoin's energy consumption range from wasteful to justified to anywhere in between," the Galaxy Digital authors wrote.
"On one end, critics believe that Bitcoin is merely a tool for speculation or illicit activity, attached to a network with an unjustifiable environmental cost. On the other, supporters view Bitcoin as a monetary revolution that will be a boon to humanity. We at Galaxy believe in Bitcoin and the broader ecosystem."
The debate has divided famous observers, with Bill Gates and Warren Buffett taking dim views on bitcoin's value, and Twitter (TWTR) chief executive officer Jack Dorsey and Tesla (TSLA) boss Elon Musk enthusiastically backing the cryptocurrency.
Musk has recently acknowledged bitcoin's large emissions footprint, and stopped accepting it as payment for his cars. His tweets last weekend are said to have sent the price of the cryptocurrency to its lowest level since the end of February, as investors speculated that he may sell his holdings.
To be clear, I strongly believe in crypto, but it can’t drive a massive increase in fossil fuel use, especially coal
— Elon Musk (@elonmusk) May 13, 2021
To clarify speculation, Tesla has not sold any Bitcoin
— Elon Musk (@elonmusk) May 17, 2021
Looking to cater to investors who share Musk's bullishness for bitcoin, and concerns about emissions, Toronto-based Ninepoint Partners announced it would offer "carbon neutral exposure to Bitcoin" through one of its ETFs (BITC-U.TO). The firm says it would spend an undisclosed portion of its management fee on offsets.
Tom Rand, author of Climate Capitalism, sees this putting pressure on the already tight carbon offsets market for a purpose that adds little economic value from the emissions it creates. He cautions that "greenwashing" is a significant risk for climate-conscious investors.
"If you're going to offset, you should be offsetting important economic activity, not bitcoin," Rand said. "The duckers and divers who are making money off of bitcoin want to keep it spinning up. It is absolutely fundamental to the way bitcoin is run that it will always be an energy hog on every transaction."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.