Bitcoin is unlike gold. Well, you knew that. What you may not have known is that Bitcoin is not green, either - as in environmentally friendly. The extent to which it is an environmental threat surprised me. Indeed, it may turn out to be an unexpected speed-bump in the cryptocurrency’s meteoric rise. If you’re one of the folks looking to put a nail in Bitcoin’s coffin, this might be one - and it comes from an unlikely source. An interesting article in arstechnica delves deeper into the subject of how Bitcoin’s insane electric appetite may impede its growth prospects.
According to Digiconomist, a website that tracks the subject, the Bitcoin network is consuming power at an annual rate that replicates about as much power usage as Denmark. The site estimates that a single Bitcoin transaction gobbles up enough to power homes for nine days. Apparently, the slow process of checking and rechecking transactions to authenticate their validity is energy-intensive. The entire Bitcoin network now consumes more energy than a number of countries, according to the International Energy Agency.
To give this voracious energy hunger some perspective, let’s compare it to another payment system. All worldwide VISA card transactions - more than 80 billion annual transactions in 2016 - consumed electricity equal to only 50,000 US households. Nor is that the worst of it. Bitcoin’s carbon footprint is also shockingly large because most of the energy it requires is produced by coal-fired plants in China.
Present owners of Bitcoin may pooh-pooh such information, but it does raise questions about the cryptocurrency's sustainability. Eric Holthaus, a writer for Grist, estimates that, at current growth rates, the Bitcoin network will "use as much electricity as the entire world does today" by early 2020. This is clearly problematic and an impediment to Bitcoin's growth. Adding to the dilemma is that these projections are likely to be even worse if cryptocurrencies hold or add to their store of value.
This will encourage more mining and, thus, even more electricity consumption. In this highly competitive environment, it's possible that miners' electricity costs will end up roughly on par with their revenues. That's clearly an unsustainable proposition for any manufacturing entity.
The ars article on which this piece is based attempts to even out its dire premise by pointing out that there are various “awards” or bonuses that miners can accrue, which may make it possible for more transactions that don’t necessarily increase electricity consumption nor lead to an environmental Armageddon. Despite that, the “growing use of the network could push up Bitcoin's price, which in turn would increase energy use.”
Prophets of doom for Bitcoin argue that eventually governments will step in and regulate cryptocurrencies. This would end the party: prices will fall, the bubble will burst. These pessimists will point out that the environmental fiasco attendant to mining Bitcoin and the like will only hasten government intervention. But the author disagrees, positing that governments may be powerless here, as they would simply chase mining operations to other jurisdictions and are incapable of coordinating a global effort.
Of course, if the price of Bitcoin declines, that would provide an immediate solution - unpalatable for many as that might be.
Usually, when a potential crisis like this arises, industries find a way to adapt. History is rife with such instances. When whale oil became scarce and grew in price, the discovery of oil and its refining led to substitutes for it. I’m sure you can readily think of other examples. Personally, I think that the blockchain technology behind cryptocurrencies may provide a clue, if not the answer.
If established industries like the banks and investment sectors see the financial rewards that could be reaped by adopting and adapting the technology to grow their bottom lines, they'll probably find a way to make it more economically feasible. If that happens, cryptocurrencies may benefit without having to increase mining and thus energy consumption.
But that’s for tomorrow. For today, Bitcoin mining is an environmental stain on the planet at a time when the world is begging for a reduction in the amount of carbon being released into the atmosphere.
Opinions are the writer's own.