Bitcoin is a cryptocurrency launched back in 2009 and is the first decentralized digital currency, as the system works without a central repository or single administrator. Underpinned by a system called blockchains, it is designed not to be controlled by any party and to ensure transactions are not falsified or records of ownership changed, participants of the bitcoin network must sign off on transactions in “blocks”.
The process of bitcoin ‘mining’ involves people verifying blocks and computers completing complex cryptographic problems, and to incentivize people to do this, they are rewarded with bitcoins. To ensure that a limited supply of bitcoins are mined (a maximum of 21 million), the cryptographic problems involved in the mining get progressively harder, meaning it takes longer to earn them. Miners are resorting to more and more powerful computers to complete these tasks and earn bitcoin and as a result, mining (and on the flipside, bitcoin transactions) are using up greater and greater amounts of electricity. In fact, according to Dutch Bank ING, a single bitcoin trade consumes as much electricity to power a house for a whole month.
A lot of bitcoin mining is done in China, which still uses large amounts of non-renewable, CO2 emitting fossil fuels for energy, making the mining process an inherently unsustainable, ecologically deteriorating process. Research done by energy tariff comparison service shows that the amount of energy expended mining bitcoin globally has already exceeded the amount used on average by Ireland and most African nations and is more than the annual usage of almost 160 countries, as depicted below.
(Source: PowerCompare.co.uk, Orange areas showing areas with lesser electricity consumption than bitcoin)
In fact, some of the bewildering facts according to PowerCompare.co.uk are as follows-
- In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%
- If it keeps increasing at this rate, Bitcoin mining will consume all the world’s electricity by February 2020.
Number of Americans who could be powered by bitcoin mining: 2.4 million
(Source: PowerCompare.co.uk, Global Bitcoin Mining consumption compared to each country’s electricity consumption)
Even though for India, the bitcoin mining consumption relative to the country’s electricity usage is 2.9 %, if Bitcoin miners were a country they’d rank 61st in the world in terms of electricity consumption and that’s the equivalent of 0.13% of total global electricity consumption.
According to IEE, “Mining power is high and getting higher, thanks to a computational arms race. Recall that the required number of zeros at the beginning of a hash is tweaked biweekly to adjust the difficulty of creating a block—and more zeros mean more difficulty. The Bitcoin algorithm adds these zeros in order to keep the rate at which blocks are added constant, at one new block every 10 minutes. The idea is to compensate for the mining hardware becoming more and more powerful. When the hashing is harder, it takes more computations to create a block and thus more effort to earn new bitcoins, which are then added to circulation”, and “Processing a bitcoin transaction consumes more than 5,000 times as much energy as using a Visa credit card.”
In 2015, each bitcoin transaction represented roughly enough electricity to power 1.57 American households for a day— approximately 5,000 times more energy-intensive than a credit card transaction, but now in 2017, a new index has recently modelled potential energy costs per transaction as high as 94 kWh, or enough electricity to power 3.17 households for a day. To put it another way, that’s almost enough energy to fully charge the battery of a Tesla Model S P100D, the world’s quickest production car, and drive it over 300 miles.
According to Sebastian Deetman’s article in Motherboard, “Even in the optimistic scenario, just mining one bitcoin in 2020 would require a shocking 5,500 kWh, or about half the annual electricity consumption of an American household. And even if we assume that by that time only half of that electricity is generated by fossil fuels, still over 4,000 kg of carbon dioxide would be emitted per bitcoin mined. It makes you wonder whether bitcoin could still be called a virtual currency when the physical effects could become so tangible.”
Given the rate of increase in the popularity of bitcoins, and the rapid rise in electricity usage for mining bitcoins, a sustained growth in the popularity of this cryptocurrency might lead to an unsustainable future, unless more viable, sustainable methods of mining are developed, including a complete shift to renewable energy for mining bitcoins by law. However as the legal scenario when it comes to cryptocurrency is still extremely undefined and ambiguous, a legislative requirement or compliance like that might take some time. Till then, it’s important that ‘miners’ are aware of the high electricity consumption of bitcoins, which is possibly damaging to the idea of environmental sustainability.