Via The New Daily:
The Bitcoin frenzy currently gripping the world is taking an unexpected toll on the planet – in the form of a carbon footprint almost as big as New Zealand’s.
And with the cryptocurrency’s astronomical growth showing no sign of slowing, this carbon footprint is likely to grow – prompting some commentators to warn of an “environmental disaster” in the making.
The culprit is Bitcoin ‘mining’, the little-understood process that both secures the existing Bitcoin system, and creates new Bitcoins.
This process, according to Digiconomist, is incredibly energy intensive, and is fed largely by China’s highly polluting, carbon-intensive coal-fired power stations.
These revelations come as the Australian Securities Exchange revealed it would be using the same technology used by Bitcoin – Blockchain – to run its system, the first stock exchange in the world to do so.
Writing in The Conversation on Monday, Professor John Quiggin said the rise of Blockchain itself should not be prevented, as there were other ways to use it that were not as energy intensive.
But he said that Bitcoin itself should be abandoned, describing it as a “collective delusion” with “massively destructive environmental consequences”.
Bitcoin’s rise continues
On Monday, the value of a single Bitcoin reached $A22,343, more than 20 times its value a year ago.
The unprecedented surge – offering massive returns on small investments – has proved irresistible to everyday investors, pushing more and more to buy the currency, and forcing its value into what many warn is bubble territory.
But a more sophisticated, select group – Bitcoin miners – is also seemingly increasing, likewise attracted by the rocketing value of a digital currency that many called the gold of the 21st century.
How Bitcoin mining works
Bitcoin mining involves using a computer to solve a mathematical problem posed to it by the Bitcoin system.
When the computer solves this problem, it validates previous Bitcoin transactions, increasing the security of the Bitcoin system. In return for performing this service, the miner – as likely as not some teenager working from his or her bedroom in Shanghai – is rewarded in Bitcoins.
The video below attempts to explain the whole thing in simple terms (with questionable success).
As the video explains, Bitcoin mining requires a truly phenomenal amount of electricity – currently 32 terawatts a year, according to Digiconomist.
To put that in context, Australia uses 224 terawatts of electricity a year, while New Zealand uses 40, according to figures published by the US Central Intelligence Agency.
If Bitcoin were a country, it would be the 60th-biggest consumer of electricity in the world, ahead of 160 other countries. In other words, Bitcoin is becoming a significant contributor to climate change.
And the likelihood is it will get worse, for two reasons.
First, there is only a finite number of Bitcoins that can ever be mined. Currently around 17,000 have been mined. The limit is 21,000.
The closer we get to the 21,000 figure, the harder it is to mine Bitcoins. As a result the computer power required to mine Bitcoins increases, with the electricity used going up as a result.
(All this, by the way, puts a huge strain on miners’ computers.)
And second, as the value and profile of Bitcoin increases, the number of aspiring miners will also likely increase, further pushing up electricity usage.
Supporters of Bitcoin would like to see it become a global currency to rival the US dollar. But Professor Quiggins warned against this.
“Shifting the whole global financial system to Bitcoin would require at least a 200-fold increase, which in turn would entail increasing the world’s electricity use by around 500 per cent,” he said.
“With the current threat of climate change looming large globally – this constitutes an unthinkably large amount of energy consumption.”
Buy Bitcoin. And from John Quiggin:
The recent upsurge in the price of Bitcoin seems to have finally awakened the world to the massively destructive environmental consequences of this bubble.
These consequences were pointed out as long ago as 2013 by Australian sustainability analyst and entrepreneur Guy Lane, executive director of the Long Future Foundation. In recent months, the Bitcoin bubble has got massively bigger and the associated waste of energy is now much more widely recognised.
In essence, the creation of a new Bitcoin requires the performance of a complex calculation that has no value except to show that it has been done. The crucial feature, as is common in cryptography, is that the calculation in question is very hard to perform but easy to verify once it’s done.
At present, the most widely used estimate of the energy required to “mine” Bitcoins is comparable to the electricity usage of New Zealand, but this is probably an underestimate. If allowed to continue unchecked in our current energy-constrained, climate-threatened world, Bitcoin mining will become an environmental disaster.
The rising energy demands of Bitcoin
In the early days of Bitcoin, the necessary computations could be performed on ordinary personal computers.
But now, “miners” use purpose-built machines optimised for the particular algorithms used by Bitcoin. With these machines, the primary cost of the system is the electricity used to run it. That means, of course, that the only way to be profitable as a Bitcoin miner is to have access to the cheapest possible electricity.
Most of the time that means electricity generated by burning cheap coal in old plants, where the capital costs have long been written off. Bitcoin mining today is concentrated in China, which still relies heavily on coal.
Even in a large grid, with multiple sources of electricity, Bitcoin mining effectively adds to the demand for coal-fired power. Bitcoin computers run continuously, so they constitute a “baseload” demand, which matches the supply characteristics of coal.
More generally, even in a process of transition to renewables, any increase in electricity demand at the margin may be regarded as slowing the pace at which the dirtiest coal-fired plants can be shut down. So Bitcoin mining is effectively slowing our progress towards a clean energy transition – right at the very moment we need to be accelerating.
How much energy is Bitcoin using?
A widely used estimate by Digiconomist suggests that the Bitcoin network currently uses around 30 terawatt-hours (TWh) a year, or 0.1% of total world consumption – more than the individual energy use of more than 150 countries.
By contrast, in his 2013 analysis, Guy Lane estimated that a Bitcoin price of US$10,000 would see that energy use figure climb to 80 TWh. If the current high price is sustained for any length of time, Lane’s estimate will be closer to the mark, and perhaps even conservative.
The cost of electricity is around 5c per kilowatt-hour for industrial-scale users. Miners with higher costs have mostly gone out of business.
As a first approximation, Bitcoin miners will spend resources (nearly all electricity) equal to the price of a new Bitcoin. However, to be conservative, let’s assume that only 75% of the cost of Bitcoin mining arises from electricity.
Assuming an electricity price of 5c per kWh and a Bitcoin price of US$10,000, this means that each Bitcoin consumes about 150 megawatt-hours of electricity. Under current rules, the settings for Bitcoin allow the mining of 1,800 Bitcoins a day, implying daily use of 24,000MWh or an annual rate of nearly 100TWh – about 0.3% of all global electricity use.
Roughly speaking, each MWh of coal-fired electricity generation is associated with a tonne of carbon dioxide emissions, so a terawatt-hour corresponds to a million tonnes of CO₂.
So much energy, so few users
An obvious comparison is with the existing financial system.
Digiconomics estimated that Visa is massively more efficient in processing transactions. A supporter of Bitcoin, Carlos Domingo, hit back with a calculation suggesting that the entire global financial system uses about 100TWh per year, or three times as much as the Diginconomics estimate for Bitcoin.
As a defence, this is far from impressive. First, as we’ve seen, if the current high price is sustained, total annual energy use from Bitcoin mining is also likely to rise to 100TWh.
More importantly, the global financial system serves the entire world. By contrast, the number of active Bitcoin investors has been estimated at 3 million. Almost all of these people are pure speculators, holding Bitcoin as an asset while using the standard financial system for all of their private and business transactions.
Another group is believed to use Bitcoin for illicit purposes such as drug dealing or money laundering, before converting these funds into their own national currency. The number of people who routinely use Bitcoin as a currency for legitimate transactions might be in the low thousands or perhaps even fewer.
Shifting the whole global financial system to Bitcoin would require at least a 200-fold increase, which in turn would entail increasing the the world’s electricity use by around 500%. With the current threat of climate change looming large globally – this constitutes an unthinkably large amount of energy consumption.
Better alternatives to Bitcoin
The disastrous nature of Bitcoin’s energy consumption should not lead us to abandon the associated idea of blockchain technology altogether.
There are alternatives to the “proof of work” method of validating changes to the blockchain, such as “proof of importance”, which is analogous to Google’s page ranking systems. Projects such as Gridcoinare based on calculations that are actually useful to science. But these ideas are in their infancy.
For the moment, the problem is Bitcoin and how to deal with it. There is no obvious way to fix the inherent problems in its design. The sooner this collective delusion comes to an end, the better.
Buy Bitcoin.
