Bitcoin’s water consumption: A new environmental threat?

Bitcoin, the world’s leading cryptocurrency, has long been under scrutiny for its environmental impact due to the energy-intensive nature of its mining process. 

Since its inception in 2008, Bitcoin has never been hacked. Its tight security, provided by its proof-of-work (PoW) consensus mechanism, provides value to the cryptocurrency.

PoW, however, is energy-intensive and relies on complex cryptographic algorithms requiring vast computational power.

The global popularity of Bitcoin (BTC) has resulted in its network energy consumption sitting at 147.61 terawatt-hours per year as of Dec. 7, close to the yearly average energy consumption of countries such as Poland, Ukraine and Malaysia, according to the University of Cambridge.

Bitcoin’s PoW consensus mechanism has become an immutable security guarantee, but some see it as an environmental nightmare.

While the Bitcoin mining industry increasingly shifts to renewable energy sources to address these concerns, new studies now point toward another ecological problem: the high water consumption of crypto mining.

Bitcoin mining’s growing thirst for water

A recent study titled “Bitcoin’s growing water footprint,” authored by Alex de Vries — a data analyst and researcher at Vrije Universiteit Amsterdam and De Nederlandsche Bank (DNB) — found that Bitcoin’s water consumption has the potential to harm the environment.

The Bitcoin mining industry has grown yearly and continues to reach new all-time high hash rates. This trend is set to continue as the price of BTC surges.

As with any computer, cooling is essential for mining devices to work optimally.

Bitcoin mining rigs have hundreds of machines that reach very high temperatures as they try to solve the complex mathematical challenges PoW presents.

Water is often used for cooling systems and air humidification systems. Additionally, water may be indirectly used to generate electricity.

As the study states, “The water footprint of Bitcoin in 2021 significantly increased by 166% compared with 2020.”

De Vries admits the challenge of quantifying the direct water footprint due to limited public information. However, with the retrieved data combining direct and indirect water consumption, he estimates that the total annual water footprint for United States Bitcoin miners could range from 93 to 120 gigalitres (GL), equivalent to the average annual water consumption of around 300,000 U.S. households.

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Furthermore, Riot Platforms, one of the largest Bitcoin miners in the world, is constructing a new mining facility in Texas, which will raise the total water footprint to 121.2–147.8 GL, as per de Vries.

Based on all the collected data, de Vries told the BBC that every Bitcoin transaction uses, on average, enough water to fill a backyard swimming pool. As he outlines in his study:

“With the network handling 113 million transactions in 2020 and 96.7 million in 2021, the water footprint per transaction processed on the Bitcoin blockchain for those years amounted to 5,231 and 16,279 L, respectively.”

Additionally, de Vries told the BBC that an estimated 6 million times as much water is consumed with each Bitcoin transaction than is used in a typical credit card swipe. The statement was based upon data from another recent report titled “The water and carbon footprint of cryptocurrencies and conventional currencies.” Per his calculations, conventional cashless transactions consume about 2.6 milliliters of water.

De Vries further introduces a controversial solution for the heavy resource consumption of Bitcoin: changing its validation protocol from proof-of-work to proof-of-stake (PoS).

Ethereum recently made this crucial change, reducing its energy demand by 99%. But with it came an unavoidable expense: centralization. One of Bitcoin’s core existential values is to remain decentralized and independent of any dominating party.

Is the cost per transaction really accurate?

For ClimateTech investor Daniel Batten, this study is biased, as de Vries is an employee of the DNB, the Dutch Central Bank. As Batten stated on X (formerly Twitter):

Why the @BBCNews article on Bitcoin and Water is a monument to journalistic lazinesshttps://t.co/BRGRXzAeBW

The day after the Independent publish the results of a high quality independent study on Bitcoin, the BBC publish the junk-science of a known anti-Bitcoin lobbyist using…

— Daniel Batten (@DSBatten) November 29, 2023

Batten opposes de Vries’ solution of switching Bitcoin to PoS, telling Cointelegraph: 

“Bitcoin’s energy usage has the potential to be a positive environmental externality on its own merits, because that energy use is predominantly sustainable, highly flexible, incentivizing renewable development (backed up by research and quantified now), using curtailed and stranded energy that others cannot, stabilizing the intermittency of renewable power on grids and, most importantly, allowing us to mitigate methane. PoS-based blockchains have none of these potential use cases.”

Batten also pointed out that Cambridge University has previously argued that criticizing Bitcoin based on the supposed energy cost per transaction is not entirely accurate, as “transaction throughput (i.e., the number of transactions that the system can process) is independent of the network’s electricity consumption. Adding more mining equipment and thus increasing electricity consumption will have no impact on the number of processed transactions.”

Furthermore, one transaction on the Bitcoin blockchain could include hundreds of payments or “​​represent billions of timestamped data points using open protocols.”

He contended that measuring the water use per transaction could therefore be similarly misleading.

De Vries told Cointelegraph that the indicator is simply “an efficiency metric that captures the average water use per transaction processed on the Bitcoin blockchain for the years 2020 and 2021.”

Batten also claimed that no recent studies about Bitcoin’s usage of renewable energy or similar positive aspects of crypto mining were considered in de Vries’ reports.

Bitcoin mining can help nations with water scarcity

It is undeniable that Bitcoin mining requires a high amount of energy. Any industrial process that consumes energy will result in water consumption. However, unlike many other industries, Bitcoin mining is location-agnostic. Therefore, Bitcoin miners can operate virtually anywhere where electricity and the internet are available.

Batten demonstrates in his blog how Bitcoin mining could, in theory, actually help countries facing water scarcity, noting it is estimated that almost 20 countries will suffer from high or extremely high water scarcity by 2040.

The Middle East and North Africa are among the driest locations on earth. In this region, the situation is extreme, with a constant decline in rainfall in the last 30 years, which has resulted in nations using more water than they receive.

As David Hannah, a professor of hydrology at the University of Birmingham, told CNBC, the Middle East “has very limited conventional water resources, and some of the groundwater resources are saline.”

These countries have begun to use desalination, but making potable water through this process is expensive and energy-intensive.

Naturally, the Middle East is the region most reliant on desalination. The industry is critical for residents’ survival, so countries such as the United Arab Emirates have made ambitious plans to power these desalination plants. The UAE is in the process of constructing one of the most extensive solar infrastructures in the world, aiming for a capacity of 5 gigawatts by 2030.

Considering this information, how could Bitcoin mining benefit countries with water scarcity that require desalination? Batten builds his argument on two points.

Firstly, Bitcoin miners could accelerate the buildout of renewable power for desalination. Any electricity provider will encounter the issue of excess capacity. The overproduced energy cannot be stored easily, so it becomes wasted if no consumers or buyers are available.

Renewable energies such as solar power create virtually infinite electricity but do so irregularly. Additionally, the ideal location for producing energy may be isolated from its consumers.

Bitcoin miners are the perfect fit, as they are potential buyers of excess solar-powered electricity. This fact may accelerate the setup of new solar energy capacity, as developers can rest assured they have potential buyers to rely on before launching the project. Consequently, Bitcoin mining can help transition to renewable-powered desalination, and the UAE could meet its water security goals without endangering its emission-reduction goals.

Secondly, Bitcoin mining may increase the efficiency of the operational production of desalination. Efficiency gains in operating costs mean water can be desalinated close to the operating cost.

Both technologies can complement each other. Heat is used directly for desalination, and almost 100% of the energy used by Bitcoin mining rigs is transformed into heat.

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The emanated heat energy can be used directly for desalination, but with the caveat of earning revenue from Bitcoin mining. In conclusion, there is an improvement in the water-per-dollar ratio, resulting in more water desalinated for the same net cost.

Overall, a point critics of Bitcoin mining tend to miss is the potential adoption by the renewable energy industry.

Bitcoin: To be or not to be

Bitcoin has long had a negative public image regarding its environmental impact. One way to promote its benefits and usability is to present empirical facts demonstrating that crypto mining can utilize all energy created and result in favorable economics.

According to Batten, the Bitcoin mining narrative is already starting to shift. For him, “the higher use of sustainable energy, better data visibility and quality independent reporting, and publications such as the KPMG and IRM [Institute of Risk Management] reports and the ACS Sustainability Journal — authored by a decorated scientist who is highly regarded in his field — showing how Bitcoin mining ‘supercharges’ the renewable transition” could be a catalyst for this new era for Bitcoin’s public image.

The dilemma is whether Bitcoin or a decentralized digital currency is considered a valuable tool for global society. If not, then Bitcoin’s mining energy is a complete waste. If yes, then its energy usage is a necessary investment for a future with a currency for the people.