The Bitcoin network imposes significant external costs on society, including high
CO2 emissions and electronic waste, which rival those of entire nations. Some studies
argue that these externalities are justifiable, claiming that cryptocurrency mining
thrives sustainable energy production by monetizing surplus energy. We examine this
tradeoff from an economic standpoint, addressing three key questions: Does the use of
surplus energy mitigate Bitcoin's externalities? Are policy interventions such as carbon
credits effective? And does cryptocurrency mining ultimately benefit or harm society?
Our model shows that while surplus energy can lower the network's CO2 emissions,
it simultaneously incentivizes increased mining activity, leading to greater electronic
waste which may offset environmental gains. Moreover, we find that carbon credits,
when implemented multilaterally, can effectively reduce total externalities. We conclude
with a discussion of the broader societal implications, emphasizing the dual role
of Bitcoin mining in fostering the short-term but hindering the long-term transition to
a sustainable energy infrastructure.