Why is China Banning Bitcoin Mining? and the Environmental Impacts of Bitcoin
The price of bitcoin is not the only one that has been growing lately, the amount of electricity it consumes is also growing..
Cryptocurrency has been troubling experts for many years due to the enormous level of energy required by so-called miners to release new digital coins into circulation..
According to Digiconomist, «Bitcoin Energy Consumption Index» (Bitcoin Energy Consumption Index) – an online tool created by a data analyst Alex de vries (Alex de Vries) Bitcoin has a carbon footprint comparable to that of New Zealand, producing 36.95 megatons of CO2 per year. According to estimates of the information and analytical resource, it consumes the same amount of energy as Chile – about 77.78 TWh.
The Cambridge Bitcoin Electricity Consumption Index, a separate tool by researchers from the university of the same name, shows a much higher figure – 110.53 TWh – more than the entire annual energy consumption in the Netherlands..
«This is an incomprehensible amount of electricity», – said Charles hoskinson (Charles Hoskinson), cryptocurrency entrepreneur, co-founder of Ethereum, the blockchain network behind ether, the world’s second most valuable digital coin.
Bitcoin Energy Needs «extremely large», – told CNBC Michelle rauchs (Michel Rauchs) from the Research Department of the Cambridge Center for Alternative Finance. According to Cambridge researchers, it accounts for about 0.5% of total world electricity consumption..
«While we agree that these numbers are ludicrous right now, it’s still half what is consumed by inactive household appliances in the United States.», – said Rauchs. However, the amount of energy wasted on dormant home devices such as phone chargers and microwaves in the US could power the Bitcoin network for two years..
Bitcoin is not controlled by any separate specialized structure like, for example, a central bank, but by a disparate network of computers. So called «miners» use specially designed computers that compete in solving complex mathematical problems to ensure the transaction is completed.
The blockchain – a digital ledger of all Bitcoin transactions – is designed to ensure that users cannot «spend twice» funds – the same digital token can be spent no more than once. Each block added to the chain contains a hard cryptographic link to the previous block. Bitcoin Proponents Say This Makes It Extremely Safe.
But bitcoin miners do not conduct this operation for free. The key driver behind the Bitcoin model known as «proof of work» (proof of work) is the promise that you will receive a bitcoin reward if you manage to solve a complex hashing algorithm.
«The problem is, design can never get better.», – says Hoskinson, who now runs IOHK, the blockchain firm that has developed another digital token called Cardano.
«The more successful bitcoin becomes, the higher the price; the higher the price, the more competition for bitcoin; and thus you use more energy».
Cardano and some other digital coins rely on a consensus mechanism «proof of stake», when members buy tokens that allow them to join the network. Hoskinson says the Cardano cryptocurrency network uses only 6 GWh of energy, which is a tiny fraction of bitcoin’s energy consumption. Similar stake confirmation tokens include polkadot and algorand, he said..
Bitcoin is likely to consume more and more electricity over time, just because of its mechanism, Rauchs said. "proof of work".
«It doesn’t really matter if there are new, more efficient machines on the market.», – said Rauchs. «You will just use more and more machines, but your total energy consumption will not decrease.».
The key bitcoin mining difficulty metric hit an all-time high last month. With the rise in the price of bitcoin, miners’ income has also increased, which encourages more participants to mine cryptocurrency..
However, Bitcoin proponents argue that controversy over its environmental impact is meaningless..
«Energy use is not bad in itself.», – told CNBC Meltem demirors (Meltem Demirors), Chief Strategy Officer, digital asset management company CoinShares. «Sending and storing emails takes energy. However, we do not consider email to be harmful because it consumes energy.».
«What we have here are people trying to determine if energy use is good or bad, not that bitcoin is incredibly transparent in its energy use, while other industries are much more opaque.».
Demirors asked why, for example, the banking sector is not getting more scrutiny in terms of energy use. She said bitcoin miners «interested in using renewable energy sources», because their production becomes cheaper at the same time.
But most of the bitcoin mining businesses are located in China, which is still heavily dependent on coal energy. Although China’s Sichuan province is known to attract miners due to its cheap electricity and abundant hydropower resources, the level of generating capacity fluctuates depending on the season..
Then the question arises as to how bitcoin is used. Many investors today consider bitcoin a form «digital gold», rather than an efficient payment system. Digiconomist estimates the energy footprint of a single Bitcoin transaction is equivalent to 100,000 Visa payments.
According to Coin Metrics, the value of the cryptocurrency has more than quadrupled last year, and this year it has grown by another 30%, currently its value is about $ 40,000..
Andrew Hutton (Andrew Hatton), head of IT at Greenpeace U.K., said the bigger problem is that «we are largely providing 21st century technology with 19th century energy sources».
«Bitcoin’s growing energy consumption is largely due to the massive amount of data processing required to create and sustain this cybercurrency.», – Hatton told CNBC. «But their rapidly growing thirst for electricity is just an early symptom of an impending much more serious problem.».
«As online services become more cumbersome and complex, the demand for computing power is bound to increase in the next few years, and this will require more energy.», – he added. «The problem is that only a fifth of the electricity used in the world’s data centers comes from renewable sources, and that’s not enough.».