Square Defends BTC as ‘Green’ – Citi Disagrees

Today is Earth Day and the debate is raging about BTC’s impact on the environment. 

In the latest salvo, fintech giant Square along has published a white paper outlining ways that BTC can pave the way for a greener future.

The white paper, which includes data supplied by ARK Investment Management, was released as part of Square’s BTC Clean Energy Initiative, an effort to support companies working to integrate forms of environmentally sustainable BTC mining. In it, Square claims that BTC mining and renewable energy is “well suited” to accelerating an energy transition.  

Square’s white paper

The white paper makes one central claim: that BTC mining is an opportunity for a global transition to renewable energy. (Note that Square has put 5% of its cash in BTC while ARK is a big investor in Coinbase, so both companies have a stake in BTC’s reputation).

Notably, Square suggests that clean energy sources—like solar and wind power—are hitting a bottleneck because of unreliable power supplies and grid congestion. The company also asserts that BTC miners can act as a “flexible load option” enabling power grids to deploy “substantially” more renewable energy. 

BTC mining, Square claims, is an “ideal complementary technology for renewables and storage.” And by combining BTC miners with renewables plus storage projects, Square asserts that renewable energy like solar and wind becomes more profitable. 

In turn, this could improve the returns for solar and wind projects, act as a catalyst for new wind and solar projects, and provide renewable grids with readily available “excess” energy. In short, Square claims that BTC mining is a vital ingredient if we want to push renewable energy industries forward. 

But despite Square’s optimistic outlook for the BTC network’s future, its rosy projections rely on some questionable assumptions. 

Square’s BTC assumptions

Square’s white paper relies on several assumptions, and not all of them are justified. 

For one, Square describes BTC miners as “location agnostic,” and only requiring an Internet connection to function. Based on the relevant geographical data about BTC mining operations, this statement is open to question. 

In this 2019 study published in science journal Joule, an analysis of IP addresses showed that over two-thirds of the BTC network’s computing power (68%) is based in Asia. Only 17% and 15% of the network’s computing power was found in Europe and North America respectively. 

Today, Cambridge University’s BTC Mining Map finds that China commands 65% of the world’s BTC mining industry. These figures point to a clear preference among miners for setting up operations in Asia. 

The Square white paper also alleges that the Levelized Cost of Energy (LCOE) by energy source shows that hydro, wind, and solar are all cheaper than fossil fuel energy sources like coal. That may be true, but it still doesn’t mean that BTC miners have flocked—or will flock—to renewable energy to power their operations. 

Cambridge University study found that, for now, 39% of the BTC network’s power comes from renewable energy sources. Meanwhile, some of it is powered by some of the dirtiest energy there is. Case in point: just last weekend, a coal mine in China’s Xinjiang region flooded and shut down. This resulted in BTC’s hash rate suddenly following to its lowest point since November 2020—showing that BTC is still heavily reliant on non-renewable energy. 

One of the reasons for this may be, as Quantum Economics’ BTC analyst Jason Deane previously told Decrypt, is that “China’s current obsession with coal plants—despite greenhouse emission promises—means that certain miners can take advantage of cheap “dirty” power in some regions.”

Square’s report also suggests that BTC mining could encourage investment in solar power or other forms of renewable energy. Of course, this may turn out to be true, but BTC miners are incentivized by what is best for their businesses. 

Square rightfully points out that renewables—by levelized cost of energy—are cheaper than coal. However, as Geoff Morphy, president of North American BTC mining company Bitfarms, recently told Decrypt, “As we expand, can we stay with pure hydroelectricity? We don’t know. If we do switch to some type of carbon because the world has an opportunity where there’s surplus somewhere, and we can take advantage of that surplus, then we will.”

Doubting Square’s green energy optimism

Not everybody agrees with Square’s lofty expectations for a green BTC future. 

Citi, who just last month suggested that BTC may one day be the currency of choice for international trade, has since qualified its projection to say BTC’s energy consumption is “a problem in a world that is increasingly aware of the impact of investment decisions on the environment.” 

The bank’s report also suggested—like Square—that the use of renewable energy might be the solution for BTC down the line. Citi pointed to the fact that almost 40% of all BTC mining is based on renewable energy today, and added that the “decentralized nature” of BTC may allow miners to optimize their energy consumption in the future. 

With that being said, the data suggests BTC’s energy consumption (and resulting carbon footprint) is going in the wrong direction. Today, Cambridge University suggests BTC consumes approximately 113 TWh of energy per year, while Digiconomist, a website dedicated to unearthing the unintended consequences of technology, puts the figure closer to 100 TWh. 

This time last year, Cambridge University and Digiconomist put BTC’s energy consumption at 74 TWh and 75 TWh respectively.

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