On Sept. 7, El Salvador became the world’s first country to establish Bitcoin as legal tender, meaning the cryptocurrency has joined the U.S. dollar as an officially recognized means of payment for goods and services. President Nayib Bukele pushed hard for the move, arguing it creates a new way to attract investment and broaden citizen participation in the financial system. He also asserted Bitcoin use will better preserve the value of remittances sent to the country from the large number of Salvadorans living abroad.

But Bitcoin adoption has drawn strong criticism on financial and environmental grounds. Among the financial criticisms is the view that Bukele has effectively exposed the country’s economy to the volatility of the cryptocurrency market without conducting proper public consultation. For their part, environmentalists object that Bitcoin adoption will spur inefficient energy use, both generally and specifically in El Salvador.

The 16-article law adopting Bitcoin took effect 90 days after the unicameral Legislative Assembly, in which Bukele’s Nuevas Ideas Party holds a two-thirds majority, approved it on June 9 with little discussion. Soon after, Bukele announced that El Salvador would not only purchase and trade goods using Bitcoin, but would also engage in Bitcoin mining.

Those who “mine” Bitcoin help verify global transactions by taking part in a process that requires intensive computational problem-solving, which, in turn, contributes to the cryptocurrency system’s security. Successful miners receive Bitcoin as a reward, but they expend prodigious amounts of electricity along the way—both to conduct the algorithmic puzzle-solving and to cool the ever-vaster arrays of computer “rigs” needed for the work.

Worldwide, energy use associated with Bitcoin mining totals some 121.36 terawatt-hours annually (TWh)—more than that of the entire country of Argentina, according to a study this year by Cambridge University.

The Salvadoran government, promising Bitcoin mining will be powered by “secure and clean” geothermal energy, hopes to fund the plan by selling “volcano bonds” to prospective investors. Bukele has claimed a geothermal-energy source for the mining with a capacity of 95 megawatts has been found, but as yet no government agency has confirmed the find.

Grid size an issue
Environmentalists worry that El Salvador’s electric grid is too small to accommodate Bitcoin mining and, as a result, communities that lack electric power will continue to have to do without. They also point to possible land-use-change impacts in rural areas where Bitcoin “farms” would be built near future geothermal plants.

The Green Rebellion Political Movement (ReverdES), an advocacy group of Salvadoran youth, called on the Environment Ministry in July to produce an environmental impact study of the country’s Bitcoin mining plans. Thus far, no such plan has been issued.

Bitcoin clearly has become a matter of political debate. Large public demonstrations held against Bukele in San Salvador on Sept. 15, the country’s Independence Day, featured criticism not only of the populist president’s moves to weaken the courts and concentrate power, but also of his Bitcoin initiative.

Carlos Martínez-Cruz, an electrical engineering professor at the University of El Salvador, says setting up Bitcoin farms will mean assembling a myriad of computer “rigs” powered by customized microchips called application-specific integrated circuits (ASICs).

Each chip, he says, costs over $10,000 and consumes 3,259 watts a day—roughly the same amount, he adds, that five clothing irons running continuously would consume. ASIC-based rigs also generate considerable heat, which means still more energy is needed for cooling systems, he notes.

Martínez-Cruz also worries that earmarking geothermal energy for Bitcoin mining will effectively reduce the power supply available for other activities, driving up electricity bills and slowing the transition from fossil-fuel energy. He estimates that one Bitcoin farm running 10,000 late-model processing units would require electric-power capacity of 32.5 megawatts. That’s roughly 16% of the combined installed capacity of El Salvador’s two current geothermal plants, which collectively account for over a quarter of the country’s power generation, according to El Salvador’s National Energy Council (CNE).

Geothermal claims questioned
Some experts are skeptical that the government will rely on new geothermal sources to power Bitcoin mining.

Aníbal Nájera, a University of El Salvador professor with expertise in renewable energy, notes that a geothermal plant can take 10 to 15 years to develop, given the exploration, studies and approvals needed. Two new geothermal plants with a combined capacity of 80 megawatts are in the feasibility-study phase, but experts say that even if they are approved, they will take years to complete and bring online.

Nájera believes the government is playing up the potential for geothermal-powered Bitcoin mining as a sales ploy. He says the electricity will likely come instead from a 378-megawatt power plant scheduled to begin operating next year in Puerto de Acajutla, 82 kilometers (51 miles) west of San Salvador, using imported natural gas.

“This plant will exceed the entire current installed capacity of geothermal [power] in the country,” Nájera says.

Elio Ohep, editor and publisher of Petroleumworld, a web portal that covers Latin America’s energy sector, agrees that the government likely views electricity generated from natural gas as an option. If it does tap this source for Bitcoin mining, he says, this will likely drive up energy costs for the country, pointing out that more natural gas would likely have to be imported from the United States.

Experts and advocacy groups concerned about Bitcoin overburdening El Salvador’s electric-power supply are pushing for a pause so the issue can be studied more deliberately than has been the case, but thus far the government has ignored their calls.