Cryptocurrencies have surged in popularity and dominated news headlines in the first quarter of 2021, with Bitcoin – the best known of them – reaching new highs of US$58,000 (about AUD75,000) per coin in February – But what about its carbon footprint?
This disembodied, ephemeral, electronic “coin” is known to have a huge physical impact on the planet, with reports in February suggesting the frenzy to “mine” Bitcoin produces the same carbon footprint as the country of Argentina.
Now, new analysis by Dutch researcher Alex de Vries, founder of Digiconomist, suggests Bitcoin’s energy consumption may come close to matching the collective consumption of all global data centres combined, and may have far reaching implications for the environment, global politics and international security.
The conclusions have been published in the journal Joule.
What is Bitcoin, and how is it “mined”?
- A Bitcoin is a type of digital currency (cryptocurrency) that can be sent between users online and exchanged for national currencies, or products and services.
- Bitcoin is decentralised – meaning it is not governed or administrated by anyone – so it is often used in illegal transactions, but is also extremely attractive to investors looking to get rich quick (despite its volatility).
- In simplistic terms, Bitcoin mining is a way of producing bitcoins.
- Bitcoin mining is done by extremely advanced computers that compete with other computers to solve equations that contribute to the Bitcoin blockchain.
- The successful computer (ie the computer that gets the answer to the equation first) can add the latest transaction being made to the blockchain and is rewarded with a certain number of Bitcoins for its hard work (currently 6.25 coins). It also takes home any transaction fees associated with the transactions it adds to the blockchain.
- Confused yet? So are we…
The reason the Bitcoin boom is consuming so much energy is down to the computing power needed to continuously “mine”. Mining computers are estimated to make more than 150 quintillion attempts every second to solve the equation, and they are guzzling energy by the truckload to do so.
In his analysis, de Vries estimates that the total network of Bitcoin miners may consume up to 184 TWh per year. This energy consumption almost rivals the amount of energy used by all data centres around the world combined – and matches the entire carbon footprint of Greater London.
“That’s a pretty mind-blowing number,” says de Vries. “Those data centres serve the most of global civilisation, and then there’s Bitcoin, which serves almost no one but still manages to consume about an equal amount of electricity.”
The wastage and environmental footprint of Bitcoin goes beyond the energy consumption of mining computers. Bitcoin mining equipment has a short shelf-life, so there will likely be significant electronic waste – and incentives to reinvest in more hardware – in future.
The purchase of these devices is also worsening the global microchip shortage. This risks creating numerous unintended consequences, such as a shortage in personal electronics (or price rises for them) that could affect people working from home during COVID-19, or imperiling the supply of electric vehicles, damaging the effort to combat climate change.
The investment and use of Bitcoin mining hardware may also pose threats to international security, with de Vries noting that Iran now makes up 8% of the total computing power in the Bitcoin network, allowing it to circumvent international sanctions and potentially develop the economic clout needed to invest in nuclear capabilities.
De Vries’ predictions are just that – predictions. The actual toll of bitcoin mining could end up significantly more or less than his estimates, though he notes that since you can’t return mining hardware, investment in those devices to some extent “locks-in” energy consumption.
“The price of Bitcoin can crash by 25%, 30%, and you may still end up at the same energy consumption point because of the lock-in effect,” he says.
He posits the ways governments can potentially head-off some of the more damaging consequences of Bitcoin mining, including taxing Bitcoin mining device manufacturers, or limiting their access to microchips.
In fact, some governments have already taken the initiative: in June 2018 the Energy Board of Quebec, Canada, alongside power company Hydro-Quebec, imposed a moratorium on new cryptocurrency mining operations, on the grounds that they threatened the stability of the local electric grid.
But the risk remains that in the face of such sanctions, mining operations will simply relocate to more hospitable shores, and continue unrestrained.