How to Make Bitcoin Transactions Environmentally-Friendly

So you’ve read the news about Bitcoin mining consuming a lot of energy. And while the numbers are difficult to verify and the methodologies seem to vary according to the institution behind the study (and its financial interests), some rough estimates suggest that miners across the world use a lot more electricity than entire countries (popular examples include Argentina, Ireland, and Switzerland).

Critics of Bitcoin mining suggest that all of this computationally-intensive activity is wasteful and unnecessary in a context where nation states and individuals pledge to reduce their carbon footprint. They also point out to the fact that Visa and Mastercard transactions are still greener in terms of energy consumption, so the switch from traditional finance makes a lot less sense in their ecology-centric view.

It’s very likely that these same critics live in first-world countries that are governed by rather stable democracies that don’t limit their economic or private property rights, but that’s besides the point. Personally, I can argue that energy production is infinite and not some kind of zero-sum game where we decide what use case is worthwhile and which one should disappear – and instead of ranking our civilization’s priorities, we should think of ways to reduce the environmental impact of existing energy consumption trends. Planting trees and working towards the preservation of ecosystems might be a good start.

But what do I know? As a bitcoiner, I might be biased towards supporting my preferred form of money. Just like mainstream media journalists and environmental scientists defend their own favorite form of money and suggest that nothing else should exist. As humans, we are subjective according to our own limited knowledge and narrow understanding of the world.

So where does this lead us? Are we going to let the oceans boil as we become sovereign from oppressive nation states? Are we going to replace the proven Proof of Work with something experimental that consumes less electricity? Is it really worth it to drain the entire energy of the Sun to fuel our libertarian pipe dream as we sip the financial sovereignty Kool-Aid?

In this article I’m going to try to debunk some common myths about Bitcoin mining and energy consumption. At the end, I’ll also suggest ways to make your transactions more environmentally-friendly (spoiler alert: it involves the Lightning Network and/or sidechains like Liquid or DriveChain).

What Is Bitcoin Mining and How Is It Tied With Transactions?

In a nutshell, Bitcoin mining is the process through which transactions get confirmed in new blocks that add up to the blockchain. As miners solve a complex mathematical problem to compete for the discovery of blocks, the successful ones get two rewards: a block reward subsidy (the reward is called a coinbase and gets halved every 4 years) and the sum of fees from the newly-confirmed transactions.

These rewards act as an incentive to keep the operations going and make sure that they stay honest in relation to the consensus rules – if miners try to cheat, then full nodes will automatically invalidate their work and make it wasteful.

The term “mining” originates from the Bitcoin whitepaper, where Satoshi has written an analogy between the Proof of Work block discovery process and the more traditional gold mining. This comparison is useful because it simplifies the understanding of the phenomena involved and also introduces us to the resource exchange: to get the mining rewards, electricity and CPU time get expended.

But the comparison between Bitcoin mining and gold mining is not very relevant from two points of view:

– we know the total supply of bitcoins and where to find them (unlike gold, which can exist in larger quantities than we think and may also be found on other planets or asteroids);

– if we spend more resources on Bitcoin mining equipment and consume more energy, we won’t be getting more bitcoins (unlike gold, where enough resource allocation can lead to a greater discovery of mines and quicker extraction). Thanks to the dynamics of the Nakamoto consensus, the mining difficulty increases when the activity gets more intense (more participants join the competition) and decreases when the activity gets lower. This adjustment takes place every 2016 blocks (approximately 2 weeks) and makes sure that the addition of new coins follows the schedule.

To put it in a different perspective, mining is Bitcoin’s equivalent of having the banks settle a transaction – the entities involved check the validity of the money, transfer it from one party to the other, and then exchange fees according to the nature of the service.

The main difference is that Bitcoin accomplishes this feat without trusted third parties or centralized institutions. Everything is decentralized and autonomous from the political decisions of governments and central banks.

So Bitcoin mining is an integral part of having a decentralized, trustless, and censorship-resistant network. The only drawback is that miners and nodes require a lot of energy to verify/confirm each transaction and function according to the consensus rules. In the next section I’m going to explain how we shouldn’t minimize this cost and how we can actually reduce it without a security tradeoff.

Bitcoin’s Proof of Work vs Proof of Stake

Usually, this narrative of Bitcoin being wasteful is also promoted by altcoin investors and developers who promote their own Proof of Stake systems. But as any competent security expert will tell you, pursuing an ideological path will not always help a system withstand attacks. For all of its heavily-marketed greenness, Proof of Stake is oligarchic in nature and leads to a rather irreversible decentralization which consolidates the status of an elite few. Not only this, but it’s also very experimental and has yet to prove its efficiency on the long term.

Ethereum developers might brag about their Casper PoS implementation and its friendliness to the environment, but there’s a reason why its release has been delayed for years. Do you really think that Bitcoin, a trillion dollar asset which benefits from the best and most experienced developers in the space, wouldn’t have already made the switch to a better technology if it was provably-superior?

Not even the second cryptocurrency by market capitalization wants to take the extra risk without proper testing – but at least it does a better job in the marketing/PR department, as it conveniently deflects from the fact that gamers use their video cards to mine it. After all, Ethereum does use some of its centralizing premine to finance development and get good publicity.

It’s also worth noting that there are Ethereum proponents who agree that Proof of Stake is inferior from a security and wealth distribution standpoint – and to better understand this view, I recommend Donald McIntyre’s excellent analysis on the topic (whose summary you can find in the table below).

The argument isn’t only about Ethereum’s planned transition to Proof of Stake. For instance, EOS’ system of Delegated Proof of Stake (DPoS) has generated situations of dishonesty – the community-elected block producers have found ways to buy votes that keep them in power and thus establish cartels that ultimately centralize the network. Not only that this goes against the intentions of creating trustless and decentralized systems that scale, but ends up becoming pointless – it’s less efficient than a fully centralized setup like Amazon’s Web Servers, yet just as easy to control.

Furthermore, Proof of Work is very dynamic and allows for participants to invest external capital into securing the network. This means that you can acquire coins and participate in the network’s security without buying the bitcoins of current holders. You don’t influence the price or perpetuate a scheme, you merely provide a service and receive rewards.

In Proof of Stake, you secure the network by locking your coins and you receive rewards according to the amount of coins you’ve locked. This means that newcomers who want to participate in staking will have to buy the coins from old timers. And this sounds a lot like a Ponzi scheme, where established hierarchies get overturned only if early adopters sell their coins to newcomers. Once the stream of newcomers stalls and the current stakers see returns of diminishing value, the network might be in serious trouble.

In comparison, Proof of Work allows for some very dramatic changes. Miners will cease to operate if their profitability diminishes. Mining farms and hardware manufacturers such as Bitmain can make terrible management decisions and lose the throne in a matter of months. Nothing is set in stone, and new players can enter the mining game without requiring the permission of a foundation, federation, or human-governed political structure.

Bitcoin will probably never switch to Proof of Stake and mining will go on for the foreseeable future. But what about governments? They can ban Bitcoin mining, can’t they?

Bitcoin Mining, Pools, and Government Bans

Wait, so Bitcoin has mining pools? As in miners that get together and centralize their hashrate to maximize their chances to get rewards? How are they any different from federation members, block producers, major stakers, delegates, and other entities which operate in Proof of Stake systems?

If you look at a graph which ranks mining pools by hashrate, you will find that a large percentage of Bitcoin mining takes place in China. This doesn’t look much like decentralization, does it?

F2Pool, Huobi, Poolin, Antpool, Via.BTC, and BTC.TOP are all located in China, so what if the government decides to shut them down? Can Bitcoin withstand a 40% hashrate drop? Well, it’s not that simple. And in order to explain the arguments, we will have to define mining pools.

So let’s say that I decide to mine bitcoins from home. I bought myself a fairly powerful machine, I benefit from low-cost electricity, and therefore I should be able to make a nice profit from the operation. There are two approaches to it: I can either mine as a solo operator and compete for the entire reward with very low chances in relation to the rest of the network, or I can join a pool to increase my chances while sharing all rewards with the other participants of the mining pool.

Slush (whom you can hear in S4 E8 of the Bitcoin Takeover Podcast) is the inventor of the world’s first mining pool. Back in November 2010, Satoshi Nakamoto himself reacted to this game-changing element which was introduced to the Bitcoin security dynamics.

If I were to play the devil’s advocate for the concept of mining pools, I’d say that concentrating and professionalizing hashrate objectively offers more efficiency and predictability. On the other hand, it’s important for individual mobility and autonomy to exist, so miners can switch to solo mode or join another pool which better represents their interests. This also circumvents potential government bans on mining.

Yes, governments can physically-seize mining equipment and shut down mining rigs. But this will not stop mining from happening. You see, Bitcoin leverages geopolitics and keeps nation states at the edge of financial accountability and at the risk of losing the innovation race. To some extent, Bitcoin is inevitable: are you going to ban mining and convince your allies to do the same? Then another nation will gladly welcome the operations and thus acquire a competitive advantage in what might just turn out to be the reserve currency of the future.

Yes, it’s nice to think in global terms and assume cooperation between nations. But at the same time, the UN Security Council (which seats the USA, Russia, China, the United Kingdom, and France) rarely reaches the required unanimity to vote on issues. The dynamics between Russia, China, and the USA guarantee that we won’t ever have a world government or a dominant ideology. The economic stakes are way too high and there are many cases when the debasement of one’s currency affects the prosperity of the other.

And if you’re not convinced by this argument, then look at how cooperation went on during the covid19 pandemic and how poorly everybody coordinated towards a seemingly-common goal. For every country that instated lockdowns, there was another one which allowed freedom lovers to come in. For every mandatory mask mandate, there was a place which rejected the norm. And for every attempt to create a vaccine passport, there has been a counteraction to enable travelling without such a document.

It’s not like small nation states are entirely accountable to the bigger military powers. Also, it’s not like international waters or the international space don’t exist as alternatives to become the new home of Bitcoin mining. As long as there is an incentive and a clear use case, people will find ways. Governments couldn’t take down Pirate’s Bay (an objectively more centralized enterprise) and they’re going to have a harder time with Bitcoin. And if everything else fails, there’s nothing that stops Bitcoin users from running mining operations under the Tor network from their home computers.

Mining pools currently exist for reasons which concern efficiency. It’s more professional and stable for the network’s hashrate to remain consistent, and it’s also more profitable for individuals to join pools since the rewards are more consistent (but significantly smaller) than in the case of solo mining. Also, there are developer proposals which seek to increase the autonomy of mining pool participants – just because they put together their hash power doesn’t mean that they always agree.

Matt Corallo’s Betterhash is just one example of removing the centralization risks involved in pool mining. Slush Pool (the world’s first mining pool) already offers Stratum V2, which is developed in collaboration with Corallo. But we should never forget that Proof of Work is dynamic and we’re still at an early stage of Bitcoin mining.

In the future, we might find better and more efficient ways to mine. As computation and integrated circuits improve, we shouldn’t be surprised if a few years from now we can encompass a lot of hashing power in today’s Raspberry Pi equivalents. Home mining might become more common thanks to an increased Bitcoin adoption, and it’s likely that retail hardware manufacturers will catch up by offering dedicated consumer electronics.

The current trend of mining professionalization may become a lot more amateurish on a global scale – and in the best way possible. If the miners keep the hardware in their own homes, then the risks associated with physical confiscation and shutdowns get increasingly lower.

Also, we should not forget about the role of Bitcoin in power grid efficiency research. In many cases, Bitcoin mining uses energy that doesn’t get used for any other purposes and would otherwise get wasted. We are still terrible at storing electric energy and our power infrastructure doesn’t always scale up to sustain our ambitions for development (and this isn’t just a Bitcoin issue).

To be able to have more electric cars and other electricity-powered appliances, we need to improve our energy production and distribution. And whether we like it or not, Bitcoin helps in this regard. Though it’s hard to prove, some even argue that Bitcoin accelerates green energy production because sustainable and environmentally-friendly sources are also the most cost-effective for mining. There’s definitely a lot to say and a lot to research in this regard – but it would be foolish to downplay Bitcoin’s role in this scheme.

How To Save Energy and Become Environmentally-Friendly Using Bitcoin

Bitcoin mainchain transactions are essential for the network’s security. But if you want to reduce the energy consumption by making your own Bitcoin transactions environmentally-friendly, you must start using the Lightning Network or sidechains like Liquid and Drivechain.

Lightning is ideal because it can run on a low-powered device like the Raspberry Pi. This means that sending and receiving transactions relies on a computer network in which every device consumes lightbulb levels of energy. For reference, a Raspberry Pi 3B+ costs as little as $6 to run 24/7 for an entire year – this is a lot less than most of your electric appliances. The Raspberry Pi 4 is more powerful and also a little bit more energy-hungry, but it should not raise operation costs to more than $10 per year.

Onboarding the Lightning Network requires at least one transaction on the Bitcoin blockchain to open a channel with somebody else. But as soon as you’re in, you can make an unlimited (well, depending on how many coins you own) number of transactions with high speed, great privacy, Visa-level scalability, negligible fees, and insignificant energy consumption. If you’re looking to minimize your carbon footprint while using Bitcoin, then Lightning is the way to go.

Think of Lightning like it’s a night club tab – you pay an admission fee (the initial base layer transaction) and then you’re free to transact with everybody inside while keeping a private ledger with them. When you leave the bar, someone at the exit will do the accounting for you so that all transactions get charged to determine your final balance.

Or better yet, Lightning is like trading gold certificates: the base layer involves actually moving the gold around (a costly and resource-intensive activity), so you trade ownership certificates with people. When you’re done transacting and want to get your digital gold, you only need to do one transaction which gets your funds unlocked on the Bitcoin blockchain. Entering and exiting the Lightning Network require the base layer. But what happens on the actual second layer is instant, private, and a lot more affordable.

As a Lightning Network node, you can also choose to route other people’s transactions. This means that your channels will allow others to make payments, and your participation as a trustless third party earns you small fractions of the paid transaction fee. Once again, this kind of activity consumes a lot less energy than an iPhone that’s running video games. The cost of operating and maintaining a Raspberry Pi-based operation is low, efficient, and friendly with the environment.

If you’re interested, here’s a guide on how you can set up your own Lightning node with a Raspberry Pi and a general-purpose hard drive. It’s a nice DIY project that can be quite educational and empowering in terms of sovereignty. And the RaspiBlitz code is entirely open source and has been vetted by users for longer than 2 years. If you’d rather buy a pre-built node as a product, check out the Fulmo shop (or LightningInABox in the USA).

The Liquid sidechain is also a lot more energy-efficient than the Bitcoin base layer. But as opposed to the Lightning Network, it’s not as decentralized and not permissionless at all. Also, every operation requires the validation of federation members that run validating servers. This activity is still friendly with the environment, as compared to most traditional ways of processing and routing payments.

In terms of greenness (pun intended, since Blockstream has a mobile wallet called “Green”), Liquid is just as friendly with the environment as Proof of Stake validation systems. It exists for the purpose of helping Bitcoin exchanges move large amount of coins with greater speed and more privacy. And in this process, it helps the Bitcoin network scale in a way which is efficient on all fronts.

The same can be said about other sidechains such as RSK (which helps move Ethereum smart contracts to Bitcoin), Paul Sztorc’s Drivechain (which brings scalability and privacy) and Ruben Somesen’s Softchain, Statechain, and Statechain. With some well-known trade-offs, they provide extra services and conveniences that the Bitcoin base layer doesn’t have.

This way, Bitcoin users who think about their carbon footprint and want to minimize electricity consumption can choose to trade the superiority security and decentralization of the main chain for the peace of mind of reducing environmental impact. There are lots of choices out there, and most of them fulfil the criteria for saving energy. This doesn’t mean that Bitcoin mining will eventually stop – it just means that you as an individual can choose to reduce the amount of energy-intensive base layer transactions that you do. You can voluntarily limit your use of the best means for decentralization just like you can voluntarily become vegan.

But for the rest of the world, there will always be a choice. And just because you know what’s best for yourself and what satisfies your expectations doesn’t mean that something else should not exist. There’s great demand for decentralized non-governmental money, there are billions of people worldwide who need Bitcoin to escape from tyranny, and we can all agree that offering financial freedom to those who need it the most will always outweigh the energy costs.

So if you want to use Bitcoin in a way that’s environmentally-friendly, then use the Lightning Network or one of the sidechains. You’re going to enjoy great speed and privacy, while also reducing your energy use and carbon footprint.

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