The energy toll of cryptocurrencies is overstated, and here’s why…
You might be wondering what an article on cryptocurrencies is doing on a site dedicated to providing news about the energy sector. Just about every person and their grandma has heard about Bitcoin by now, and the influx of altcoins (in addition to the surging popularity and widespread adoption of cryptocurrency in general) has piqued the attention of many people who are concerned about the massive amounts of power that is dedicated to ‘mining’ the digital currency.
For those that you don’t know, Bitcoin—and many other cryptocurrencies, for that matter—require computers to solve incredibly complex mathematical equations in order to successfully mine a block of the currency. Initially, it was viable to mine bitcoin from your regular home PC or laptop, but the last few years have required miners to buy or rent dedicated mining computers that are optimized for mining bitcoin. One of the major reasons that non-specialized computers lost their viability was that they were consuming more energy than they were receiving in bitcoin.
Despite the fact that cryptocurrencies have given millions of people living in developing countries the opportunity to transact with minimal overhead (as bank fees would often be cost-prohibitive to small businesses located in some developing nations, where countries like Somalia only got their first ATM in 2014), there has been a growing concern about the energy toll that the mining of digital currency takes on our world’s already-strained energy supply.
You might think that a peer-to-peer currency such as bitcoin would share the energy load efficiently; however, unfortunately, this isn’t the whole story. While units of cryptocurrency can be traded with negligible effect on your power bill, the mining of cryptocurrency is another story. While I appreciate that many of the readers on here have a good sense of what a kilowatt hour is, some of you may not. As such, I think the best way to truly get an idea of the energy cost pertaining to cryptocurrency—specifically as it pertains to Bitcoin—is to look at the energy usage as compared to other mediums of exchange. This is where things get interesting.
According to figures obtained from Digiconomist’s Bitcoin Energy Consumption Index, it takes about 50,000 US households for Visa to process 350 million transactions, while it takes Bitcoin the equivalent of 2.8 million US households to run 350,000 transactions when things are going well. In other words, Visa’s handling of transactions is 58 times faster than Bitcoin’s. This sounds bad—and, admittedly, it’s far from ideal—but it’s also far superior to more common forms of currency production.
Bitcoin takes 0.8KWh to 4.4KWh per year to run, while minting coins and paper bills in America alone uses about three times as much energy—and Bitcoin is accepted worldwide (barring the half a dozen relatively insignificant countries that have currently banned trading the currency). Although, to be fair, the playing field is somewhat levelled when you realise that the total cash and coin supply of US dollars is about $1.2 trillion, which is about five times Bitcoin’s market cap (which is currently sitting at around $257 billion). Nevertheless, Bitcoin, as a currency, is immutable and cannot be destroyed or worn out like paper money and coins; moreover, Bitcoin cannot be counterfeited like paper money can be. Then there is the recycling of gold (AKA gold smelting), a practice which goes back centuries. Even using the most modern techniques of goldsmithing, the recycling of gold uses, on average, 138KWh per year.
Bitcoin alone consumes a staggering 37 terawatts per year (which is about the same amount of energy that the country of Qatar consumes in a year), and that number will surely continue to grow as the market cap does; this equates to more than 18,000 kilotons of CO2 each year. Therefore, regardless of whether cryptocurrency (and the blockchain technology that underpins it) is the future of digital currency (and currency as a whole), developers who maintain and invent new cryptocurrencies should carefully consider the effect that it can have on the power grid.