Bitcoin has recently been in the news for two big reasons. One, it’s becoming a lot more valuable–one coin is worth $17,000 at the time of writing–and some investors are becoming rich as a result. And two, because it seems that bitcoin is a huge energy hog. One widely cited estimate says “mining” the cryptocurrency consumes more power than the whole of Ireland. Another predicts that it could use as much electricity as the whole of the U.S. by the summer of 2019.
That’s right: the whole of the United States. And just to run a currency that arguably isn’t very useful and certainly is not tangible. You can’t pocket and spend bitcoin in the same way as dollars and cents, even if it is currently a great investment. Most bitcoin is currently transacted as a tradable asset, not spent in stores or on websites in exchange for goods or services.
The questions are these, then: Does bitcoin really use that much energy? Do it and other cryptocurrencies need to use that much energy in the future? And, is the use of that energy actually worth it in a wider social sense? Can bitcoin justify its power surge in the age of climate change and dwindling mainstream energy resources?Bitcoin isn’t issued by governments or banks. It’s created by a decentralized network of “miners” who mint about 3,500 new units a day. The miners play a crucial role validating transactions between participants in the network. They allow the network to operate without a coordinating authority like a central bank. This decentralization is inefficient, however. The miners compete for the right to validate transactions to the bitcoin’s universal ledger–a blockchain–by racing to solve complex mathematical puzzles. That takes a lot of computer processing and is akin to a vast lottery. Mining systems go through millions of combinations of letters and numbers to find the winning ticket and claim their reward.
As the price of bitcoin has risen, so have the incentives to mine bitcoin. The network’s hash rate–a measure of computation activity–has grown in line with the market-rate price of bitcoin. Moreover, miners have an incentive to use the cheapest electricity possible. It is their highest cost of business: Every extra cent they spend to power their machines eats into potential profits. Half of the world’s mining pools–huge banks of specialized computers in warehouses–are said to be in China, according to one study. And China uses a lot of coal to make electricity, raising bitcoin’s overall carbon footprint.
Because of the bitcoin network’s inbuilt secrecy, however, we don’t really know how many people are mining and the efficiency of the equipment they are using. The Ireland-sized estimate comes from a site called Digiconomist that assumes miners spend 60% of the profits from mining on electricity. But another, from the crypto-entrepreneur Marc Bevand, reckons the bitcoin network’s actual energy usage is roughly five times less than that. That’s because he thinks miners use equipment that is more efficient than Digiconomist supposes. Bevand estimates the actual power use is equivalent to one holiday season worth of decorative lighting. Which is surely a lot–but not as much as a mid-sized European country.
What Can We Do?
One solution is to use cleaner forms of power, especially power that is otherwise wasted.
In the Austrian alps, HydroMiner is renting or buying hydropower stations and filling them with mining machines. Michael Marcovici, an investor in the startup, says just 320 square feet of bitcoin mining equipment can easily burn through 500 kilowatts of constant power, the equivalent of 142 central air conditioners going continuously. But the startup’s energy and emissions impact is negligible, he argues. The power from the hydro plant doesn’t normally go to the grid and on to homes and businesses, so it’s a question using up something that would otherwise go unused.
Burning trash to generate the electricity for mining is another idea. Standard American Mining, another miner, has teamed up with tire-to-electricity specialists PRTI and created the world’s first waste-to-energy crypto mine. This means it’s taking power generated from burning up old tires and using it to mine bitcoin. “The defensible advantage is in vertically integrating mines with nontraditional, near-zero cost energy sources,” says managing partner Anthony Pompliano, the fund behind Standard American Mining, in a blog post. “It will become the Standard Oil of the computing industry.” (We don’t know how much energy is needed to burn the tires or what the emissions from the plant might look like.)
Solar-powered mining may also make environmental sense, particularly in the middle of the afternoon when utilities often generate more power than can be accommodated on the grid. Nasty Mining, a club for crypto-mining enthusiasts, recently teamed up with SunPower, a solar manufacturer, which donated 29 panels for mining purposes.
Meanwhile, cryptocurrencies could even encourage homeowners to get solar panels if they want to mine their own currency. SolarCoin is a cryptocurrency designed to encourage people to buy solar panels, paying out one coin for every 1 megawatt hour of electricity homeowners generate from their rooftops. One coin is currently worth about 50 cents in conventional money.
“With the right marketing, cryptocurrencies could encourage ordinary people to invest in solar energy in order to quickly recoup their costs and generate future profits with mining,” says the pseudonymous OgNasty, CEO of Nasty Mining,” over email. “You could even argue it has the potential to reduce household gas usage, as heating would be something done using mining equipment. If this cryptocurrency mining rush turns out to be a fad, many homes having a surplus of green energy would be a nice side effect.”
The bitcoin network is far from the only crypto game in town. And other platforms are much less energy intensive. The ethereum platform, an alternative to bitcoin, has roughly double the transaction rate, yet it uses only about a third of the energy, according to Digiconomist. Moreover, the Ethereum Foundation, which provides the technical underpinning to the network, is developing a new way of validating transactions that promises to be yet more efficient still.
Called Proof of Stake (PoS), the new protocol would replace the current protocol used on both bitcoin and ethereum, known as Proof of Work. PoS doesn’t reward miners in coins for solving cryptographic puzzles. Instead, owners of currency are selected from a pool of validators (or “forgers”) and rewarded with transaction fees for helping to maintain the integrity of the network.
More experimentally, Bram Cohen, the inventor of BitTorrent, is developing the Chia Network, an ecological alternative to bitcoin based on another protocol called Proof of Space. This allows miners to participate as validators using only their everyday computers. They make available spare storage on their PCs, receiving rewards in line with the volume of space they provide. The aim is to return crypto-mining to its more egalitarian beginnings, when anyone with a computer could participate whatever their budget and computing power.
“The waste of electricity with bitcoin is really gross,” says Cohen, in an interview (he estimates that bitcoin uses at least $10 million worth of electricity a day). “And the centralization of mining is a problem for bitcoin’s day-to-day politics.”
Cohen says the new network will be less energy intensive than bitcoin because it won’t offer an advantage to miners with additional processing power. Chia hopes to launch toward the back-end of 2018, if Cohen’s (“ambitious” ) to-do-list gets crossed off. He is currently hiring programmers to get to work.
Is Bitcoin Worth the Energy?
Whether or not bitcoin is replaced by other cryptocurrency networks or protocols, it has a built-in structure to reduce its energy use over time. Under rules set by Satoshi Nakamoto, its anonymous inventor, the rewards for mining bitcoins will decrease in the future, acting as a disincentive for miners to invest in bigger and more energy-hungry equipment. In 2020, verifying one block of transactions to the blockchain will be worth only 6.25 coins (plus fees) compared to 12.5 coins (plus fees) now.
However, the bigger question might be whether bitcoin is worth the energy usage at all. It depends on your perspective. If bitcoin is merely an asset bubble–a game played by traders and bored computer programmers–it would seem like a colossal waste of resources.
After all, there are few reasons for bitcoin to exist. Arguably, paying for stuff using a credit card, or cash, or mobile phone is already fairly easy. Bitcoin has a slow processing rate compared to conventional payment networks like Visa. We don’t need a new currency if the goal is ease-of-use. Bitcoin only begins to make sense for more political reasons–because you dislike central banks, banks in general, or you want to operate in secrecy beyond the view of governments and other snoopers.
The more positive argument for expending energy on bitcoin is that it’s the first step in a journey. Bitcoin is a grand experiment in a new, decentralized form of computing that could have implications for all kinds of business processes, from finance to music. It is also a fount of new startups and jobs. “Labeling bitcoin mining as a ‘waste’ is a failure to look at the big picture. It is ignoring that these jobs alone that are a direct, measurable, and positive impact that bitcoin already made on the economy,” Bevand, the entrepreneur, writes.
It comes down to whether you think bitcoin is more than a currency–that is, the first stage in a revolution that will ultimately decentralize most commercial activity, handing power back to individuals instead of expensive intermediaries like banks and lawyers.
“People who think cryptocurrencies are extremely important for society tend to have less of a problem with the energy usage,” says Marcovici, at Hydrominer, in Austria. “People who are not so much fans of them are the ones who are driving the discussion about energy. It’s a philosophical question.”