2017 was the year of the crypto-currencies. Bitcoin — the most famous crypto of them all — saw its value increase exponentially from about 800 dollars at the beginning of the year to reach close to 20,000 dollars by mid-December. However, this massive growth comes at a cost. Prominent voices are rising to denounce its stratospheric ecological cost. Transactions in bitcoin, greedy in fossil fuels, would consume as much electricity as the whole country of Hungary.
In a year, the virtual gold rush pushed the price of bitcoin from $800 to $ nearly $20,000 before falling back to about $14,000. At the same time, this fully virtual and decentralized currency has seen its energy costs rise to less glorious heights. According to different studies, Bitcoin consumes as much electricity as the whole country of Hungary, or 40 TWh per year.
By 2020, Bitcoin Could Use as Much Electricity as All Countries in the World Combined.
The calculations are the fruit of a young French analyst Alex de Vries, founder of Digiconomist. According to his index, bitcoin is currently equivalent to 8.6% of French energy consumption. It has already exceeded 136 countries including Iceland, Denmark or Qatar. At this rate, the cryptocurrency could use by 2020 as much electricity as the entire planet. Currently, each bitcoin transaction could power 25 French homes a day.
The massive energy consumption adds to the already intense debate on Bitcoin’s real value for society. Nearly 100,000 websites accept it but its use as a currency is minimal. In France, for example, only a few shops and sites accept it as a means of payment. And even if it becomes more popularly used, a payment in bitcoin is nearly 4,000 times more energy-consuming than a credit card according to (yet optimistic) calculations by Motherboard.
An Energy Bill Inherent in the Operating Principle
To explain Bitcoin’s astronimical cost, we must go back to the origin of the cryptocurrency. Invented in 2008, bitcoin is based on a revolutionary principle: do without banks. To replace this trusted third party in the exchange, bitcoin relies on the blockchain. This technology is similar to a large digital account book, in which transactions are recorded in full transparency. To validate each bitcoin exchange, a user, called a “minor”, must solve a fairly complex problem and his solution must be approved by other minors. This protocol is called “proof of work”.
For his work, the minor is paid up to 12.5 bitcoins… or a small fortune: $ 175,000 at the current price of the currency. Only the minor who solved the challenge first gets to be paid.
Every 10 minutes, a transaction block is subject to this protocol and to be added to the blockchain. In recent times, competition between minors has increased to win the big jackpot: The miners are looking to have more and more powerful tools, such as the ‘ASIC’, an electronic circuits specialized in mining bitcoin, but the faster the ASICs ‘mine’, the more energy they consume.
At the beginning of bitcoin, a simple computer was enough to mine. Now, most gains are made by “mining farms” running 24/7, a real business that requires to settle where electricity is cheap.
China alone accounts for 58 percent of these energy-intensive data centers, according to a study by the University of Cambridge, which describes “an arms race among miners to use the cheapest and least expensive energy sources. the most efficient equipment, so that the facilities remain profitable. ”
China remains the world’s largest consumer of coal, accounting for about 60 percent of its energy mix. Bitcoin transactions burn, according to estimates, 11 million tons of coal per year.
But the tides seem to be turning, at least in China. In early January, the Chinese Central Bank said it was ready to give a green light to local governments to limit mining activities on their territory.
To reduce bitcoin’s energy bill, other initiatives are flourishing, as in Austria, where a company promises hydroelectric mining farms. Some developers are also committed to put in place the protocol of the “proof of stake”, less greedy in energy than the “proof of work”. The turn could take place in 2018 for another cryptocurrency, Ethereum. But that means rethinking the whole system: for now, trust is based on proof of work, and work means a lot of electricity.