Why Are People Spreading Falsehoods About Bitcoin’s Water Use?

By now you may have heard some of the fuss around a commentary published in a scientific journal that allegedly details how Bitcoin is destroying the environment by consuming too much water. The commentary has been picked up and spread around by mainstream media, despite its multiple factual and mathematical inaccuracies.

This may trigger some eye-rolling and “here we go again.” For years, we have had to work hard to debunk the false claims about Bitcoin’s energy consumption, which ranged from unhinged declarations that Bitcoin mining would use up all the energy in the world, to more understandable, albeit, lazy confusion about what a Bitcoin transaction even is. We more or less won that – few regulators these days insist Bitcoin mining should be banned because of its environmental impact, instead pivoting to cite its illicit use as the main reason for outright rejection.

Noelle Acheson is the former head of research at CoinDesk and Genesis Trading, and host of the CoinDesk Markets Daily podcast. This article is excerpted from her Crypto Is Macro Now newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are hers, and nothing she writes should be taken as investment advice.

It’s almost as if mainstream media has been searching for another platform from which to justify its judgemental condescension. To this eager audience, data scientist Alex de Vries, founder of Digiconomist, delivered a commentary titled: “Bitcoin’s growing water footprint.”

No conspiracy theories here

It’s a clever idea, if your aim is to reverse the growing global acceptance that Bitcoin mining can be a positive environmental force.

Climate fear mongering has been a tool-of-the-trade for some time in the clicks industry, and it is timely given the ongoing COP28 summit. Combine some existential doom with a scary new financial system that no-one can seemingly control, and the mainstream press will of course lap it up.

What’s more, the new focus is particularly topical – water issues are now a regular feature in my daily reads. This weekend, for instance, economist Mariana Mazzucato and others published a piece in Project Syndicate called “Water and the High Price of Bad Economics.” On Friday, the UN published its Global Drought Snapshot with unsurprisingly chilling statistics. On Thursday, Bloomberg reported on the drought in the Amazon, last week The Economist covered the drought in Panama. I could go on, but you get the picture.

It’s perhaps even more ingenious in that the implied scarcity is in a different category. The “too much energy” debate was pretty easy to debate philosophically – after all, we can make more energy, either by extracting it from the ground or better harnessing the sun’s rays (to choose two examples). Energy is not a zero-sum game. Water, for now, is. If indeed Bitcoin is consuming “too much” water, that’s less water for thirsty citizens or essential agriculture. Running out of water feels more fatal than running out of energy.

And we’ve all seen how the fireball topic of climate destruction can be effectively used to alienate precisely those that could most benefit from Bitcoin: the younger western demographic, who are not as invested in trusting the current system as older generations, and who really should be thinking about how to save amid the currency debasement that’s coming.

Now, I’m not suggesting that de Vries is part of a coordinated effort to discredit the crypto ecosystem, at a time when official recognition of its environmental potential was starting to consolidate and legacy finance was getting ready to embrace the opportunity to service a greater range of Bitcoin products. No, I wouldn’t do that, I’m not a conspiracy theorist.

But you must admit the timing is convenient, and it is remarkable how quickly mainstream media picked up a comment in an obscure scientific journal that I am sure is not part of the journalists’ regular morning reads. Oh, and did I mention that Alex de Vries works for the Dutch central bank?

It just ain’t so

Now, on to the main things that de Vries gets wrong.

This part is important, because it’s going to be up to all of us to patiently explain to anyone who brings this up why the data and the conclusions are factually incorrect.

First, de Vries attempts to calculate the water consumption per transaction. This shows either a misunderstanding of how Bitcoin works or a wilful misdirect, and since de Vries has been researching Bitcoin energy use for at least five years (that I’m aware of), I’m guessing it’s the latter.

Bitcoin miners in aggregate pay for electricity to process blocks of transactions, and the number of blocks is predictable (one every 10 minutes or so). The calculable metric is consumption (of electricity or water) per block. Each block can contain one or thousands of transactions, depending on demand and size (in terms of memory consumption). Currently, there are around 3-4,000 transactions per block, but earlier this year, the number was more like 1,000.

And each transaction can contain one or millions of payments, which de Vries neglects to explain.

Second, de Vries sums together indirect water use via electricity consumption, and direct water use via rig cooling methods, asking us to believe that adding them together produces a useful figure. Water used on-site can be saved for other uses should the Bitcoin miners switch off. Water used by power generators, not necessarily. These are two very different types of water use, which cannot be lumped into one convenient yet irrelevant measure.

Furthermore, the direct use is not necessarily a water “cost,” as much of the water in cooling methods is re-used. And the indirect consumption (by the electricity source) is also not technically a “cost” since much of the water used by thermal power plants is returned to its source after cooling. The water used by hydroelectric generation would not be significantly impacted should Bitcoin miners switch off.

Third, the math is based on very tenuous assumptions. The method de Vries uses is to estimate Bitcoin mining’s energy consumption (based on data from the Cambridge Bitcoin Electricity Consumption Index), apply an approximate geographical distribution, factor in the average energy mix by region and then extrapolate the water used by each type of energy.

Apart from the margin of error in each of those factors, this method assumes that all miners are representative of the grid mix in their jurisdictions. This is not so – miners tend to concentrate around lower-cost sources since energy is their main continuing expense, which skews the relevant mix. What’s more, miners increasingly co-locate with energy producers to reduce waste and take advantage of stranded power.

And the representative geographical mix was based on out-of-date information. Kazakhstan, for example, is given as one of the top-three global mining jurisdictions. That may have been the case in 2021, but today, there are very few Bitcoin miners in Kazakhstan, as the industry was hit by repeated internet outages, energy shortages and regulatory barriers.

And yet, we are told, in a scientific journal, that each Bitcoin transaction consumes enough water to fill a small swimming pool. This is supposed to shock us because obviously (!?) a swimming pool is more useful, and the implication is that more Bitcoin transactions means that fewer people would be able to enjoy aquatic recreation.

Who are the real culprits?

Just when I think my disappointment with mainstream media has reached its peak, I find that there are always new heights to scale. The media handling of de Vries’ comment has been egregious.

Almost all the publications that picked up this article repeated the claims verbatim, without questioning the source of the data or the author’s track record (de Vries has a history of making predictions which end up being off by eye-watering orders of magnitude).

Some media sources blatantly misstated fact – the BBC, for instance, conflated “payment” with “transaction” in their headline. Futurism led with “The Average Bitcoin Transaction Wastes a Full Swimming Pool of Water, Scientists Say” – note the use of the words “waste” and “scientists.” The Independent chose the unhelpfully vague “Bitcoin consumes as much water as all the baths in Britain, study claims.” Pretty much all reporting confused “study” with “comment” – the former tends to be peer reviewed, the latter hardly ever. This is either lazy or intentionally misleading.

Mercifully, a handful of eloquent individuals with a hard-won understanding of Bitcoin mining and climate issues have sprung into action, detailing the errors. If you don’t already, I strongly recommend following Daniel Batten and Magdalena (Mags) Gronowska on X – two analysts with plenty of industry experience who have done the relevant research without bias and have understood the potential.

Like I said above, it’s up to all of us now to fight back on this. It shouldn’t be hard, in that facts are on our side. It will require a lot of effort, though. As we have unfortunately seen over the past few years, the disinformation machine is increasingly powerful, in crypto and many other areas. It’s a worthy struggle, though, not just for Bitcoin but also for science and a pushback against what increasingly looks like a post-truth media environment.

Source