Photo: Shifting the financial system to Bitcoin would increase the world’s electricity use by 500 per cent. Related Bitcoin mining settings: Bitcoin: What’s the worst that would happen if the crypto ‘bubble’ bursts?
The recent upsurge in the price of Bitcoin seems to have finally awakened the world to the massively destructive environmental consequences of this bubble. These consequences were pointed out as long ago as 2013 by Australian sustainability analyst and entrepreneur Guy Lane, executive director of the Long Future Foundation. In recent months, the Bitcoin bubble has got massively bigger and the associated waste of energy is now much more widely recognised. In essence, the creation of a new Bitcoin requires the performance of a complex calculation that has no value except to show that it has been done. The crucial feature, as is common in cryptography, is that the calculation in question is very hard to perform but easy to verify once it’s done. At present, the most widely used estimate of the energy required to “mine” Bitcoins is comparable to the electricity usage of New Zealand, but this is probably an underestimate. If allowed to continue unchecked in our current energy-constrained, climate-threatened world, Bitcoin mining will become an environmental disaster.
But now, “miners” use purpose-built machines optimised for the particular algorithms used by Bitcoin. With these machines, the primary cost of the system is the electricity used to run it. That means, of course, that the only way to be profitable as a Bitcoin miner is to have access to the cheapest possible electricity. Most of the time that means electricity generated by burning cheap coal in old plants, where the capital costs have long been written off. Bitcoin mining today is concentrated in China, which still relies heavily on coal.
Even in a large grid, with multiple sources of electricity, Bitcoin mining effectively adds to the demand for coal-fired power. Bitcoin computers run continuously, so they constitute a “baseload” demand, which matches the supply characteristics of coal. More generally, even in a process of transition to renewables, any increase in electricity demand at the margin may be regarded as slowing the pace at which the dirtiest coal-fired plants can be shut down. So Bitcoin mining is effectively slowing our progress towards a clean energy transition — right at the very moment we need to be accelerating.
How much energy is Bitcoin using? 1 per cent of total world consumption — more than the individual energy use of more than 150 countries. The boss of JPMorgan Chase said if his staff were caught trading bitcoin he would “fire them in a second” and it’s a “fraud”. If the current high price is sustained for any length of time, Lane’s estimate will be closer to the mark, and perhaps even conservative. The cost of electricity is around five cents per kilowatt hour for industrial-scale users. Miners with higher costs have mostly gone out of business.
However, to be conservative, let’s assume that only 75 per cent of the cost of Bitcoin mining arises from electricity. US10,000, this means that each Bitcoin consumes about 150 megawatt-hours of electricity. Under current rules, the settings for Bitcoin allow the mining of 1,800 Bitcoins a day, implying daily use of 24,000MWh or an annual rate of nearly 100TWh — about 0. 3 per cent of all global electricity use. Roughly speaking, each MWh of coal-fired electricity generation is associated with a tonne of carbon dioxide emissions, so a terawatt-hour corresponds to a million tonnes of CO2.
Digiconomics estimated that Visa is massively more efficient in processing transactions. As a defence, this is far from impressive. First, as we’ve seen, if the current high price is sustained, total annual energy use from Bitcoin mining is also likely to rise to 100TWh. Analysts are sceptical of Bitcoin’s meteoric rise. Here’s why some are predicting a crash, and what that would mean. More importantly, the global financial system serves the entire world. By contrast, the number of active Bitcoin investors has been estimated at 3 million.