What you need to know
Dreaming of Bitcoin hitting US$1 million? Then think twice about the energy implications and the future of your planet.
Taiwan Green Bulletin
It may be a virtual currency, but the colossal amounts of energy that mining Bitcoin demands is very real.
These past few weeks have seen a phenomenal rise in the value of Bitcoin (17-fold or so since the start of the year) only matched by the volume of news articles marveling at or decrying this 21st century ghost money.
Bitcoins are mined by huge warehouse-like data centers working day and night. If you've never seen one, go watch this CNN video featuring a Russian operation which describes them as sounding like hundreds of bee hives.
Such enormous and escalating amounts of electricity consumption are killing the planet, say some – effectively derailing any hope we have of combating climate change and meeting the goals set under the Paris climate accord. One report has it gobbling up about the same amount of electricity a year as Bulgaria – 35 terawatt hours per year at the time of writing.
It is very difficult to get information about where Bitcoin is being mined because it is so decentralized, but it is widely believed that a good proportion of the mines are in China because energy – mostly coal-fired and hydropower – is cheap.
The News Lens spoke with Guy Lane, director of Australia-based The Long Future Foundation, a non-profit looking into sustainable cryptocurrencies and Benjamin Tarpy, a founding partner of Taiwan-based crypto start-up Thereon Mint to find out how mining Bitcoin is potentially killing the planet and whether there is a silver lining.
Before we start, a quick plug: the Long Future Foundation is planning an International Center of Excellence in Sustainable Cryptocurrencies and Blockchain Technology. Please contact the organization if you would like to get involved as a sponsor. (There must be plenty of Bitcoin millionaires out there!)
The News Lens: Why is Bitcoin consuming more and more energy?
Benjamin Tarpy: Bitcoin, like most cryptocurrencies, requires electricity to run the powerful machines that solve incredibly complex math problems to mine blocks that get added to the blockchain, or digital “coins”. Bitcoin, specifically, is based on a Proof of Work (POW) system, which is essentially computers solving extremely complex equations [with] all the machines competing to solve the next block or piece in the puzzle. Whichever one (or group) finds it first gets to add it to the blockchain (ledger) and is awarded the block, or a certain amount of coins or tokens. This is part of what gives the underlying asset value since it requires electricity and specific hardware to obtain it.
Guy Lane: If there was one miner, it would be very easy to mine the coin, [and it would therefore] not require a lot of computational effort. It would not cost a lot of money in [terms of the] power bill. However, if other people start mining, too many coins would be produced [diluting their value]. So the system automatically makes it more difficult to mine according to how many people are mining. As the difficulty increases, more computational effort is required and electricity needed. If the sum total of all the individual actors believes that the coin is worth US$17,000 each, lots of people will be mining it, but it will be very, very difficult, hence the huge energy consumption.
Conclusion: The more the market values Bitcoin, the more miners try to mine it, and because Bitcoin is based on Proof of Work, the harder the problems the system sets to solve to mine a single Bitcoin are, and thus the more electricity is consumed.
TNL: Are all cryptocurrencies equally bad for the environment?
GL: I estimate that now about 99 percent [are bad for the environment]. In mid-2018, when Ethereum [another cryptocurrency like Bitcoin] moves to Proof of Stake (POS) [an alternative system to assign value to a cryptocurrency], maybe 60-70 percent of alternative cryptocurrencies will still be based on POW because they are based on Bitcoin’s code. These numbers are speculative and the basis of our ongoing research.
BT: As far as making Bitcoin and other cryptos that utilize POW more energy efficient…I can tell you now that in a relatively short amount of time (think months) there will be newer machines that do double or more the hashrate [how fast the computers are solving the problems that reward them with coins] for relatively lower power consumption.
Conclusion: Cryptocurrencies based on POW are effectively energy-intensive by definition, so sustainable cryptocurrencies must be based on another type of proof, the most common one being POS; the trend is towards more POS and maybe more energy-efficient POW.
TNL: Can you explain what Proof of Stake is?
BT: Proof of stake involves no actual mining as the total number of coins is already created – so by definition requires no energy. POS rewards nodes or stakeholders with transaction fees for validating transactions, and securing and aiding the network.
TNL: Is there a silver lining? Is it possible for cryptocurrencies and blockchain technology to be sustainable or even positive for the environment?
GL: The Long Future Foundation [has] just started to research sustainable cryptocurrencies. Thus far, we have identified two key parameters: the proof mechanism, and the use case. The proof mechanism relates directly to the energy consumed. POW is potentially very bad. Other proofs are probably benign. "Use case" describes what it is the cryptocurrency seeks to achieve. If it seeks to foster tree planting or renewable energy, then that's sustainable. If it fosters fossil fuel extraction, that's unsustainable. We are not far enough into our research to make a call as to which is the most sustainable cryptocurrency, but if it is non-POW, and it has a positive use case, then it is probably pretty good.
BT: A fundamental problem for current energy production is having a distribution network to get the power from the production area to the areas that require large amounts of electricity for mining. What mining farms do is utilize wasted or unused electricity and in doing so help the surrounding area by converting their excess energy into an alternative store of value through the environmental subsidy – Bitcoin! Cryptos are also driving the production of environmentally-friendly energy sources, and some say, the decentralization of energy production.
Conclusion: Yes it’s possible for a cryptocurrency to be sustainable as long as its not POW, even better if it drives investment into environmentally-friendly sectors.
TNL: So is Bitcoin really killing the planet?
GL: POW works, and has done so since January 2003. Everything else is newer and less proven. Also, the crypto community is not particularly climate woke, so the huge power bills don't seem to register as a climate threat. Over time, POW will become an impediment and everything will be on an energy efficient proof. The question is, how long will that take, and how much CO2 will be added to the atmosphere before it happens?
If Bitcoin gets to US$1 million as [some] believe it will, rather than having emissions fall, they will rise as Bitcoin will consume the equivalent of 15 percent of global electricity.
If we humans are to avoid dangerous climate change we need to keep global temperatures from rising 2 degrees Celsius above the pre-industrial baseline. We are already half way to that danger target. To have a good change of staying below 2 degrees, global greenhouse emissions need to peak by 2020, and fall by half by 2030. This is impossible if Bitcoin continues to become more valuable. In fact, if bitcoin gets to US$1 million as [some] believe it will, rather than having emissions fall, they will rise as Bitcoin will consume the equivalent of 15 percent of global electricity. This will be a climate disaster from which we will be unlikely to recover.
For these reasons, I say that Bitcoin (and all cryptos based on POW) are an existential threat to humanity.
BT: From my understanding of what goes on in the cryptosphere, most massive farms, which make up anywhere from 5-30 percent of all hash power currently running, are doing so with extremely cheap and/or renewable energy. Icelandic geothermal power stations, the hydroelectric damn in Washington state, and countless other locations worldwide are an example of the ways cheap, renewable power is utilized.
Conclusion: While some Bitcoin miners may use recycled or energy that may otherwise be wasted, they are still driving up overall energy use, and for each that does so there may be an equal or outsized number of others who are not. Either way, if Bitcoin's value continues to climb exponentially or cryptocurrencies based on its code and POW remain the most highly valued, it will make an already difficult task – avoiding dangerous climate change – pretty nigh impossible.
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TNL Editor: David Green