The Dark Side of Bitcoins
Institutional investors diving into Bitcoin — namely hedge funds — are eager to promote its unpredictable price swings as the sign of a new asset class in the making. They are not wrong, if you had bought $100 in bitcoin back in 2011, your investment would be worth nearly $4 million today.
But what they might not have accounted for is how much of an energy suck the computer network behind bitcoin could one day become. Each bitcoin transaction requires the same amount of energy used to power nine homes in the US for one day. One Bitcoin transaction generate the CO2 equivalent to 706,765 swipes of a Visa credit card. Add in Bitcoin’s primary use as a speculative instrument and the frequent regulatory warnings it draws, and it’s hard to imagine it ever scoring high on ESG.
Bitcoin isn’t controlled by any single authority — like a central bank — but a disparate network of computers. So-called “miners” run purpose-built computers which compete to solve complex math puzzles in order to make a transaction go through.
The blockchain — a digital ledger of all bitcoin transactions — is designed this way to ensure that users aren’t able to “double spend” funds, a flaw in which the same digital token could be spent more than once. Each block that is added onto the chain carries a hard, cryptographic reference to the previous block. Proponents of bitcoin say this makes it extremely secure.
But bitcoin miners do not run this operation for free. A key incentive of bitcoin’s model, known as “proof of work,” is the promise of being rewarded in some bitcoin if you manage to solve the complex hashing algorithm.
The tremendous growth of cryptocurrencies has created an exponential demand for computing power. As bitcoin grows, the math problems computers must solve to make more bitcoin get more and more difficult — a wrinkle designed to control the currency’s supply.
Bitcoin is only likely to consume more and more electricity over time due to its proof of work mechanism.
It doesn’t really matter whether there are new, more efficient machines on the market. You will just use more and more machines but the total electricity consumption won’t go down based off of that.
Miners are constantly installing more and faster computers. Already, the aggregate computing power of the bitcoin network is nearly 100,000 times larger than the world’s 500 fastest supercomputers combined.
“The more successful bitcoin gets, the higher the price goes; the higher the price goes, the more competition for bitcoin; and thus the more energy is expended to mine.”
The total energy use of this web of hardware is huge — an estimated 31 terawatt-hours per year. More than 150 individual countries in the world consume less energy annually. And that power-hungry network is currently increasing its energy use every day by about 450 gigawatt-hours, roughly the same amount of electricity the entire country of Haiti uses in a year.
Bitcoin has a carbon footprint comparable to that of New Zealand, producing 36.95 megatons of CO2 annually. It consumes as much power as Chile — around 77.78 TWh.
Bitcoin mining usually happens where power is cheap, less taxed and supplied by coal-fired plants as well as hydroelectricity. The Cambridge Center for Alternative Finance estimates coal accounts for 38% of miner power.
In Venezuela, where rampant hyperinflation and subsidized electricity has led to a boom in bitcoin mining, rogue operations are now occasionally causing blackouts across the country. The world’s largest bitcoin mines are in China, where they siphon energy from huge hydroelectric dams, some of the cheapest sources of carbon-free energy in the world. One enterprising Tesla owner even attempted to rig up a mining operation in his car, to make use of free electricity at a public charging station.
In just a few months from now, at bitcoin’s current growth rate, the electricity demanded by the cryptocurrency network will start to outstrip what’s available, requiring new energy-generating plants. And with the climate conscious racing to replace fossil fuel-base plants with renewable energy sources, new stress on the grid means more facilities using dirty technologies. The bitcoin network already requires more electricity than the entire United States currently uses and it is expected that, it will use as much electricity as the entire world does today.
Recently power blackouts in Iran that were blamed on Bitcoin. Bitcoin had wasted “enormous resources of energy” on the back of taxpayer-subsidized electricity with the encouragement of exactly the sort of authoritarian governments it claimed to fight against.
The rise of bitcoin is happening at a specific moment in history: Humanity is decades behind schedule on counteracting climate change, and every action in this era should be evaluated on its net impact on the climate. Increasingly, bitcoin is failing the test.