Is the US Dollar “Greener” than the Global Bitcoin Mining Market?

US Dollar Requires 265 Times More Energy Than Bitcoin Mining

Critics of bitcoins often point to the energy it takes to mine. Tesla’s CEO Elon Musk said, “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.” Elon clearly has a valid point, however, when one considers the environmental impact of the US Dollar, this hypothesis may be a lot less straight forward.

Bitcoin is a cryptocurrency that is built upon an encrypted and decentralized peer-to-peer network, in which transactions are recorded on public ledger. When one pays another in bitcoins, the transaction must be carried out and confirmed by a set of rules based on the network participants’ consensus. Those network participants (miners) operate computing infrastructure to validate ledger transactions by performing computational proof-of-work algorithms, which when completed, renders them a reward paid in Bitcoins. Given a finite supply of bitcoins over time, mining operations require increasingly more computing power, and thus more electricity.

Bitcoin’s goal is to rival or someday replace centralized fiat currencies such as the US dollar through its decentralized, peer-to-peer structure. While it is important to point out the environmental sustainability of bitcoin mining, it must also be put into context with fiat alternatives such as using the US Dollar. As one has undoubtedly learned in introductory economics courses, the US dollar holds its value based on the collective “trust and confidence” of society that the US government will pay its obligations. In short, the value of the US Dollar is inextricably linked to the federal government, its debts, and its operational expenditures including, but not limited to, its vast global superpower status maintained through its global military dominance and geo-strategic positioning. It would be fair to say that to maintain this superpower position fossil fuels (and hence coal) play a vital role in this vast global supply chain. Furthermore, the daily operations of the US Federal government consume inconceivably large amounts of energy to maintain daily operations, not to mention the energy required to operate the world’s largest military within our own borders and abroad.

Given that the value of the US Dollar is linked to the US government, one may consider that the energy consumed by the US Federal government should be taken into account when determining how “green” the US dollar or any other fiat currency is when compared to cryptocurrencies. For the purpose of this article, we will not count the budgets and energy consumption of the 50 state governments or consider the various other “geopolitical costs” related to maintaining US dollar dominance. If one was to count up all of the computing infrastructure to run the basic needs of the federal government and U.S. financial system it would eclipse the global energy required to operate cryptocurrency mining.

The 2020 US budget totaled $4.8 trillion dollars. According to the Energy Information Agency, “the U.S. federal government consumed 915 trillion British thermal units (Btu) of energy during the 2017 fiscal year (FY), or 20% less than a decade before. The slight decline in FY 2017 marks the fifth consecutive decline in annual federal government consumption.” This is the energy consumption needed at the federal level (not including states) to maintain the US dollar. It is important, putting aside geopolitics, to note that the EIA also shows that the defense agencies account for nearly 80% of the US federal government energy consumption. Furthermore, according to the EIA, over the past decade the US federal government has worked to reduce its energy consumption with a consistent year-on-year decline.

A recent Business insider article entitled “The higher bitcoin goes, the more energy it will use, and it’s already using as much as Sweden” outlines the growing energy consumption of global bitcoin mining. This article states “Alex de Vries, a Dutch economist who created the Bitcoin Energy Consumption Index, estimates the electricity used has doubled since 2017 to between 78 terawatt hours (TWh) and 101 TWh a year. More than half of bitcoin miners in China, where most use coal.” When converting 101 TWh to British Thermal Units (Btu) the total energy consumption of bitcoin is 3.44 Trillion Btu.

Given that it takes 915 trillion Btu to run the US federal government and, by extension, maintain the trust and confidence in the US ability to pay its obligations, one can compare that to the 3.44 trillion Btu for the entire global market of bitcoin mining energy consumption. This equates to the US Dollar alone requiring 265 times more energy than the global bitcoin mining market. Despite the energy consumption of bitcoin mining, the largest cryptocurrency is still “greener” than the US Dollar in terms of energy consumption.

Further analysis of fiat currency energy consumption is underway. I will also be releasing an upcoming review on eco-friendly decentralized bitcoin alternatives (i.e. proof-of-stake projects) as well as projects that will support the future global “big data” and Internet-of-Things (IoT) economy. These illustrative high level figures by no means justifies or negates the need for more environmentally conscious currencies. It does, however, equally put the spotlight on fiat currencies which also takes tremendous amounts of energy to maintain. Cryptocurrency are in its infancy, and new strong competitors to the Bitcoin are emerging that require far less energy which will only widen the energy consumption gap between cryptocurrencies and government backed fiat currencies like the US dollar. In short, fiat currencies come at great expense and are not “greener” or more eco-friendly instruments by any objective measure.

Ag has 20 years of experience in private weather forecasting, international business development, IoT, and is preparing an upcoming Greenland expedition.