Why it is difficult to eliminate the bitcoin energy problem

Bitcoin Energy

Can you love bitcoin and the environment at the same time? The miners, whose high-performance computers work day and night to process transactions, mark the future of the most traded cryptocurrency in the world. 

Their energy consumption is skyrocketing, something that is increasingly alarming environmental activists, governments and other big consumers. 

China has banned bitcoin mining, while billionaire Elon Musk will not accept the currency as payment to buy Tesla cars until miners use at least 50 percent renewable energy. With many still ‘hooked’ on electricity from fossil fuels, it’s going to be a tall order. 

How much energy is involved? 

The estimated annual energy consumption of bitcoin skyrocketed from a rate of 6.6 terawatt-hours (TW/h) in early 2017 to 138 TW/h in early 2022, an amount higher than that of a country like Norway, according to data. of the Cambridge Center for Alternative Finance. Regarding its carbon footprint, Digiconomist puts the annual emissions of bitcoin mining at 114 million tons of carbon dioxide, comparable to those of Belgium. 

Why do you need so much energy?

The largest miners have operations with tens of thousands of computers in warehouses that resemble data centers. The calculations they perform are used to verify transactions within the blockchain network, and their completion unlocks new bitcoins. 

The complexity of the calculations increases as the number of miners grows. The power needed hit a record in early 2022, forcing miners to invest in even more powerful computers and larger server farms to stay competitive. Proponents of the cryptocurrency say that it still only uses a small proportion of the world’s electricity consumption, less than is needed to power the world’s Christmas lights.

Are miners trying to reduce their carbon footprint? 

Yes. Some use surplus natural gas that would otherwise be “burned” to generate power. Others have put solar panels on top of their servers or struck deals for low-carbon nuclear power.

Many have been installed in places like upstate New York, Canada, Iceland, and Norway, where there is a large amount of emission-free hydro or wind power. That’s motivated as much by self-interest as by climate concerns, which means that renewable energy tends to be cheaper than other sources. 

Are emissions being reduced? 

It is difficult to count. China’s ban in June last year deprived miners of the country’s abundant hydropower and sent them in search of any cheaper and more reliable power. 

Some were installed near renewable sources in the United States. Others appeared in places like Kazakhstan, where fossil fuels still dominate the energy market. 

However, a study published by the investigative journal Joule in February suggested that bitcoin’s environmental impact has worsened since China’s move, with the share of renewable energy used to power the network falling by more than 40 percent in 2020 to approximately 25 percent in August 2021. 

What are governments doing? 

In some parts of the world that enjoy a surplus of renewable energy, miners are still welcome. Texas, for example, is trying to attract a larger number to act on demand to match wind production.

In other regions, they are seen as a threat. The Chinese ban was a response to an energy deficit that forced electricity supply to be rationed and industrial production to be cut. Kazakhstan, a major bitcoin producer, has imposed limits on the industry after facing its own energy shortage. 

Sweden’s financial regulator has called for a Europe-wide ban on crypto mining, arguing that it “threatens the urgent climate transition.” Some governments would prefer to channel renewable energy to other, more traditional industries that are trying to decarbonize, such as transport and manufacturing. 

Has the concern affected the crypto markets? 

Yes. In February 2021, Tesla said that it had invested $1.5 billion in bitcoin and would begin accepting cryptocurrency as a form of payment. The dual move was a catalyst for the digital currency rally. But in May of that year, Musk announced a surprising change of heart, suspending acceptance of the token citing environmental concerns. The decision sparked a bitcoin sell-off that spread to many other digital currencies. 

What does all this mean for the future? 

Bitcoin’s detractors say the so-called “proof-of-work” used to verify transactions in its digital ledger, blockchain technology, was never designed to support what is now a trillion-dollar asset. 

Backers of rival cryptocurrencies have seized on bitcoin’s environmental impact as an argument for switching to lower-powered alternatives. 

Many newer cryptocurrencies, such as Solana and Cardano, use variations of so-called proof-of-stake, an alternative process that consumes less electricity. Bitcoin rival Ethereum is expected to switch from “proof-of-work” to “proof-of-stake” in mid-2022, cutting its estimated energy consumption by up to 99 percent. 

Bitcoin remains the world’s dominant cryptocurrency, and yet its energy challenge is set to grow along with its popularity: a rising price lowers the break-even point for miners, giving them an incentive to keep using older computers and less money. efficient.