Bitcoin’s value is skyrocketing. So is bitcoin energy consumption.
At the end of 2016, Fortune declared bitcoin the top currency of the year. As the calendar turned to 2017, the value of the cryptocurrency neared $1,000. If 2016 was a good year for bitcoin and its owners, 2017 has been outstanding. The currency’s value soared in the last month, doubling in price and turning early investors into instant millionaires. This remarkable climb has made bitcoin the subject of heavy news coverage and water cooler chat. But bitcoin has earned attention for another, more worrying reason. Bitcoin devours energy.
All transactions require energy. Each swipe of a credit card demands a trickle of electricity. Visa, for example, built an 8-acre data center to handle its 150 million daily transactions. Bitcoin exchanges are different. One bitcoin transaction consumes 4,000 times more electricity than a credit card purchase. Even worse, as its network grows, so does the bitcoin energy efficiency problem.
The bitcoin energy efficiency dilemma is innate. Unlike traditional currency like the dollar or the pound, bitcoin has no physical form. A completely digital presence presents unique challenges, the biggest being fraud. To prevent users from spending bitcoin they don’t own, the creators devised an anonymous, decentralized, and segmented transaction log. This ledger is known as a block chain. Rather than explain this complex system, I will refer you to this well-written description from Quartz for further reading. The most important detail, for our purposes at least, is that maintaining that block chain has turned bitcoin into an energy hog.
Bitcoin’s reliance on individuals to verify transactions and maintain the block chain makes the network energy intensive. Every time a new block is added to the chain, something that happens every ten minutes, that block must be confirmed via a complex algorithm. To incentivize people to solve the algorithms, the network awards some bitcoin to the first person to crack the code. This process is known as mining. The individuals solving the algorithms are the miners. There is no ore, no metal. Miners are devoting immense computing power to run algorithmic code as quickly as possible. With bitcoin now valued near $17,000, the payout for mining – for being the first to locate the key to the algorithm – is huge. To maximize their opportunity to solve the algorithm, miners invest in faster computing power that uses more energy.
These rapidly accelerating computer systems, the heart of the bitcoin network, consume electricity at an alarming rate. The energy consumed by one bitcoin transaction could power 9 U.S. homes for an entire day. The 31 terawatt-hours (yes, terawatt-hours!) swallowed annually by the bitcoin network outpaces the energy usage of more than 50 countries. At its currently rate of growth, bitcoin will require more electricity than the whole United States by 2019 and the entire rest of the world by 2020.
The stakes of bitcoin’s electricity demand are, quite literally, atmospheric. As miners draw more power, more power will have to be added to the grid. Although clean energy sources are growing at an accelerated rate, their expansion is dwarfed by the growth of bitcoin. That means more and more of bitcoin mining will be powered by dirty coal and gas plants, warming the planet and hastening the changing climate. If unchecked, bitcoin has the potential to undermine all climate mitigation efforts to date. There is one important caveat, however. The bitcoin energy problem is directly tied to its value. The more expensive bitcoin gets, the more incentive miners have. But if the price of the cryptocurrency falls, mining should taper off. With a smaller price tag, bitcoin will offer less motivation for miners to expand their processing power. All scenarios – continued rapid growth, precipitous decline, something in between – remain plausible.
Bitcoin critics claim that the cryptocurrency’s price rise is unsustainable. According to one analysis, it measures as the largest financial bubble, poised to pop. However, bitcoin’s unsustainability extends beyond its current market. Drawing as much energy as the rest of the world is not a viable future for bitcoin. Something has to give. The massive change could come from bitcoin’s price, bitcoin’s mining process, or the lack of regulation on cryptocurrency. All would be preferable to the alternative – the massive change to our earth’s climate.