In November 2017, the power consumed by the entire Bitcoin network was estimated to be higher than that of the entire Republic of Ireland.
Since then, the energy intake of the network and its demands have only grown. Bitcoin is now on track to use just over 42TWh of electricity a year, putting the network’s consumption above both New Zealand and Hungary, and the equivalent CO2 emissions of 20 megatonnes and roughly 1 million transatlantic flights.
So what is bitcoin?
Bitcoin is the first and biggest ‘crypto currency’, a decentralised tradable digital asset.
Bitcoin can only be used as medium of exchange and, in practice, has been far more important for the dark economy than it has for most legitimate uses; the lack of any central authority makes Bitcoin remarkably resilient to censorship, corruption and regulation.
When you look at the facts, they bring into question the sustainability and need, for Bitcoin.
How does Bitcoin use energy?
The more electricity you burn, the faster your computer, and the higher your chance of winning the competition. The prize? 12.5 Bitcoin, worth over $100,000, plus all the transaction fees paid in the past ten minutes, which is estimated at $2,500.
This winner-takes-all game guarantees a prize to be paid to one miner every ten minutes. Burning more electricity increases your chances of winning, but also decreases everyone else’s, therefore enhancing their motivation to burn more electricity in turn.
Credit Suisse has estimated that 80% of the expenses of Bitcoin miners are spent on electricity. At current prices for electricity and Bitcoin, the bank calculates a maximum profitable power draw of Bitcoin at around 100TWh. Any higher and the miner will lose money.
If Bitcoin were to become the global currency, like its supporters hope it will, its price would increase. If the price increases, so too does the amount of electricity miners can afford to burn.
Credit Suisse estimates that a Bitcoin price of $50,000 would increase the electricity consumption tenfold. And with a Bitcoin price of $1.1 million, it would be profitable to use almost all the electricity currently generated in the world for mining.
Can we reduce Bitcoin’s energy use?
The world would certainly be a much greener place if the Bitcoin network didn’t consume so much electricity. One way for this to happen would be for the price of Bitcoin to decline. When the mining industry’s revenue falls, its energy consumption should fall by the same proportion. If it didn’t fall, mining would become an unprofitable activity.
A second option would be to shrink the network’s 12.5 Bitcoin-per-block reward sooner than the schedule 2020 reduction. However, Bitcoin mining companies are likely to oppose such a move.
A final option would be to change the Bitcoin mining process altogether. The mining algorithm is based on computing a massive number of cryptographic hash functions, however other cryptocurrencies are exploring alternatives.
Switching to an alternative mining algorithm could prove to be less power hungry, but could also wipe out mining companies’ multi-million dollar investments in custom mining hardware. Such a step is not impossible, yet seems unlikely to happen any time soon.
What are the alternatives?
To put the energy consumption of Bitcoin into perspective, it can be compared to a payment system such as VISA. According to VISA, 111.2 billion transactions were processed in 2017, while consuming a total amount of 674,922 gigajoules of energy globally for all its operations.
To compare the two, one Bitcoin transaction uses approximately 750kWh of energy, while 100,000 VISA transactions use around 180kWh, a shocking difference, which brings into question the sustainability, and need, for Bitcoin.
Is Bitcoin worth it?
Regardless of how much energy the Bitcoin network devours now, those figures are helpful as a baseline, as its consumption will only increase.
The system works by rewarding miners for computation, so they keep on computing. However the fact is that, sooner or later, Bitcoin will have to adapt.
Katie King, MBA is founder of social media experts Zoodikers @zoodikers and @AIinFM; Director of Transformation @DigitalLeadersA; and a keynote speaker on AI and social media @TEDx
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