Someone has transferred ~$1 billion from a bitcoin wallet quiet since 2015

As bitcoin pushes toward new highs, billionaire philanthropist Bill Gates is sounding an alarm on the cryptocurrency's strikingly high carbon footprint–which is only bound to worsen as mainstream adoption of the world's largest cryptocurrency soars as expected.

Key Facts

"Bitcoin uses more electricity per transaction than any other method known to mankind,” Gates told the New York Times in a recent interview, calling himself a "bitcoin skeptic," and adding that "it’s not a great climate thing.”

To Gates' point, Alex de Vries, a data scientist at the Dutch Central Bank, estimates that each bitcoin transaction requires an average 300 kg of carbon dioxide (CO2)–equivalent to the carbon footprint produced by roughly 750,000 Visa swipes.

That's because nearly all cryptocurrencies, bitcoin included, document every single transaction on what's called a public ledger, which helps ensure transactions are transparent and safe from tampering, but continuously requires additional storage space, or "blocks."

Blocks are created by miners, who are awarded bitcoin for their work, running code around the clock on special hardware called rigs–a process that consumes the same amount of energy annually (around 78.5 terawatt-hours) as nations like Chile, Austria and Finland.

Compounding the problem, mining networks are largely based in China, which sources much of its power from fossil fuels like coal, and as the cryptocurrency becomes more popular, its energy consumption has soared by a factor of 10 since just 2017.

"Adding cryptocurrencies to a portfolio will make it less green," says Gerald Moser, the chief market strategist at Barclays Private Bank, adding that mining generates the same amount of electronic waste as countries like Luxembourg, given that mining equipment generally becomes obsolete every 18 months or so.

Crucial Quote

"Mining is a process that makes Bitcoin extremely energy-hungry by design, as the currency requires a huge amount of… calculations for its ultimate goal of processing financial transactions without intermediaries (peer-to-peer)," says de Vries, who created Digiconomist, a website that tracks bitcoin's energy consumption, in 2014.

Surprising Fact

A single bitcoin transaction uses roughly 707.6 kilowatt-hours of electrical energy–equivalent to the power consumed by an average U.S. household over 24 days, according to Digiconomist. On a yearly basis, bitcoin consumes more energy than all but 38 countries, falling in line with countries like Finland, Chile and Austria.

Tangent

China's Inner Mongolia region plans to shut down its cryptocurrency mining projects by April after it failed to meet government-mandated goals for reduced energy consumption in 2019. The U.S. hasn't cracked down federally, but some states–like New York and Washington–have issued restrictions on mining.

Chief Critic

“We believe that cryptocurrency will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally,” Square CEO Jack Dorsey said in December as the company announced the launch of its Bitcoin Clean Energy Investment Initiative, a $10 million fund for companies making bitcoin mining more energy-efficient.

Tesla's (TSLA) $1.5bn (£1bn) investment in bitcoin (BTC-USD) has a carbon footprint equivalent to the annual emissions of 1.8m cars, according to estimates from Bank of America.

Analysts on the investment bank's global commodity research team on Wednesday published a major report on bitcoin, concluding that the cryptocurrency has a large and growing impact on the environment.

"We believe ESG-minded [environmental, social, and governance] investors have to pay attention to the enormous environmental costs of Bitcoin," Bank of America concluded.

The investment bank calculated that a $1bn investment in bitcoin would produce the same carbon emissions as the annual output of 1.2m cars due to energy usage associated with bitcoin.

Tesla announced a $1.5bn investment in bitcoin last month. Based on Bank of America's figures, the carbon footprint would be equivalent to 1.8m cars.

Critics have already highlighted the environmental impact of Tesla's bitcoin investment, which many argue undermines the electric car maker's green credentials.

Tesla said at the time of its bitcoin investment that it was part of efforts to "further diversify and maximize returns on our cash". The company added that it hoped to accept bitcoin payments in future.

Bank of America poured cold water on this rationale, saying there was "no good reason to own BTC unless you see prices going up."

"Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism," Bank of America said in its report. "As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply."

Bank of America's research found that:

The bitcoin network's energy usage is already comparable to countries like Greece, the Netherlands, and the Czech Republic;

Energy consumption is comparable to American Airlines or the US Federal Government;

Bitcoin's estimated energy consumption has grown more than 200% in the past two years;

Bitcoin accounts for about 0.4% of global energy consumption at a $50,000 price point;

75% of the network's computer power is based in China, where more than half of all electricity comes from high polluting coal-fired power plants;

Half of all Chinese bitcoin mining is based in the province of Xinjiang, where 80% of power comes from coal;

"A single bitcoin purchase at a price of ~$50,000 has a carbon footprint of 270 tons, the equivalent of 60 ICE [petrol/diesel] cars."

Tesla's (TSLA) $1.5bn (£1bn) investment in bitcoin (BTC-USD) has a carbon footprint equivalent to the annual emissions of 1.8m cars, according to estimates from Bank of America.

Analysts on the investment bank's global commodity research team on Wednesday published a major report on bitcoin, concluding that the cryptocurrency has a large and growing impact on the environment.

"We believe ESG-minded [environmental, social, and governance] investors have to pay attention to the enormous environmental costs of Bitcoin," Bank of America concluded.

The investment bank calculated that a $1bn investment in bitcoin would produce the same carbon emissions as the annual output of 1.2m cars due to energy usage associated with bitcoin.

Tesla announced a $1.5bn investment in bitcoin last month. Based on Bank of America's figures, the carbon footprint would be equivalent to 1.8m cars.

Critics have already highlighted the environmental impact of Tesla's bitcoin investment, which many argue undermines the electric car maker's green credentials.

Tesla said at the time of its bitcoin investment that it was part of efforts to "further diversify and maximize returns on our cash". The company added that it hoped to accept bitcoin payments in future.

Bank of America poured cold water on this rationale, saying there was "no good reason to own BTC unless you see prices going up."

"Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism," Bank of America said in its report. "As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply."

Bank of America's research found that:

The bitcoin network's energy usage is already comparable to countries like Greece, the Netherlands, and the Czech Republic;

Energy consumption is comparable to American Airlines or the US Federal Government;

Bitcoin's estimated energy consumption has grown more than 200% in the past two years;

Bitcoin accounts for about 0.4% of global energy consumption at a $50,000 price point;

75% of the network's computer power is based in China, where more than half of all electricity comes from high polluting coal-fired power plants;

Half of all Chinese bitcoin mining is based in the province of Xinjiang, where 80% of power comes from coal;

"A single bitcoin purchase at a price of ~$50,000 has a carbon footprint of 270 tons, the equivalent of 60 ICE [petrol/diesel] cars."

Bitcoin is powered by a decentralised network of computer "miners", which process transactions in return for rewards. Tasks get harder as the network grows and rewards — in bitcoin terms — get smaller, meaning more computer power is needed. That, in turn, leads to greater CO2 emissions due to higher electricity usage.

Bank of America's experts said there was a "relatively linear relationship between bitcoin prices and bitcoin energy use." Higher prices lead to more emissions, as the promise of bigger rewards — in dollar terms — lures more miners.

"The rising complexity of the system creates ultimately a vicious environmental cycle of rising prices, rising hashpower, rising energy consumption and, ultimately, rising CO2 emissions," analysts wrote.

Furthermore, analysts concluded that it takes a relatively small amount of money to move prices higher. The paper concluded that inflows of just $93m would push bitcoin's price up by 1% — 20 times less than the level it would take to move gold up 1%.

"We do not find many other human activities that have a higher carbon footprint per dollar of inflow," analysts said. "As a reference point, we calculate that a $1bn dollar inflow into bitcoin is equal to 1.2 million cars driven over the course of a year or 12.7 million barrels of oil.

"With limited amounts of capital pushing prices higher... rising bitcoin prices can quickly lead to astronomical CO2 emissions."

Renewed focus on bitcoin's carbon footprints comes amid a surge in the cryptocurrency's price. Bitcoin has risen over 400% since last October, recently reaching a new all-time high of more than $61,000. The rally has coincided with a flurry of interest from institutional investors and major corporations.