Bitcoin: the astronomical energy costs of the new generation « Gold Rush »
Speculative bubble or technological prowess? Everyone’s talking about it since the cryptocurrency has crossed the historical threshold of $10,000, but do we really know what’s behind?
Focus on Bitcoin : the queen of cryptocurrencies
Invented in 2009 by Satoshi Nakamoto, in response to the subprime crisis, the idea was to create a solution of direct payment between individuals on the Internet, a digital currency not controlled by banks and which requires no intermediary. There’s now hundreds of different cryptocurrencies in the world among which Bitcoin remains the best known(2).
Philosophically opposed to the current financial system, Bitcoin is based on two technological pillars: blockchain and mining. The blockchain concept aims to create a huge Database in which are stored and secured all the transactions made by the communities of people who uses it (3). New sets of transactions (blocks) are added to Bitcoin’s blockchain roughly every 10 minutes by so-called miners who continually operate to manage and secure the bitcoin network. This operation of mining, built on a algorithm, is where proof-of-work comes in : the next block added to the Bitcoin blockchain comes from the first miner that calculates a valid one. Currently, 12,5 new Bitcoins are issued as a compensation every time a new block is produced, so every 10 minutes the race is starting over for miners.
An energy-hungry currency with a disastrous carbon footprint
This security system, which makes Bitcoin algorithm totally unforgeable, which makes the banking intermediary totally obsolete and the transactions anonymous is very popular with investors and pension funds, but also with DarkWeb users. Some new kind of fundraising are emerging for innovative projects : the Initial Coin Offerings (ICO). But this explosion of interests for cryptocurrencies is taking place without any consideration for environnement, and especially the enormous amount of electricity needed to run the system.
In order to perform such calculations, miners need enormous computing skills, far from the invention of Turing, which only extremely powerful and energy-intensive machines can do. This lead many of them to move where electricity costs are low, mainly China where electric production is mostly fueled by coal-fired power plants, or Island (4). Electricity consumption is definitely the dark side of the Bitcoin System. For instance, the Digiconomist estimated in a relevant study the Bitcoin’s current annual electricity consumption at nearly 35 TWh, which equals the electricity consumption of Bulgaria for a whole year. As far as that goes, a single transaction consumes 244 kWh and let a carbon footprint of 199 kg of CO2 (5).
But these huge energy consumptions are not destined to diminish, especially when we know that the more the course of Bitcoin increases – to reach $40.000 by the end of 2018 according to some experts – the more miners are willing to invest in biggest computing capacities and then to consume more and more electricity. What must be kept in mind, is that the more processing power a mining operation controls, the higher its chances of winning a share of those millions at stake. Since then, will Bitcoin be considered in some time as a real and serious cause of global warming?