Is Bitcoin Sustainable for Our Environment?
Bitcoin price increased in the range of 2000% in the past year, transforming it into something that could be no longer ignored by finance professionals. 96% of economists interviewed by the Wall Street Journal think that bitcoin is experiencing a speculative bubble but it’s not clear when this bubble will burst. At the current pace of growth, Bitcoin activities will consume as much electricity as the US in 2019. Concerning, right?
We saw plenty of discussions on cryptocurrencies and top finance experts like Jamie Dimon, Co — CEO of JPMorgan Chase, and Christine Lagarde, head of the International Monetary Fund (IMF), expressed totally different views. Dimon said that he would fire any employee trading bitcoin for being stupid: “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous”. He labelled Bitcoin a fraud “worse than tulip bulbs”. Lagarde instead seems to have a different view on it, and made a statement on digital currencies, saying: “Not so long ago, some experts argued that personal computers would never be adopted and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies. […] Think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country — such as the U.S. dollar — some of these economies might see a growing use of virtual currencies. Call it dollarisation 2.0.”
Bitcoin’s impact on the environment
In a recent paper published by ING bank, it’s stated that the electricity requested for a Bitcoin trade could power a house for an entire month. How is it possible that it consumes such a huge amount of energy? ING senior economist Teunis Brosens tries to explain it in this way: “By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power, […] Together, they will dominate the verification (mining) process. To make the verification (mining) costly, the verification algorithm requires a lot of processing power and thus electricity.” Brosens also made a comparison with the electricity required by more traditional forms of payment like credit cards: Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy”.
Alex de Vries of Digiconomist expressed a similar opinion. “I think it’s a massive problem, […] We’re basically consuming thousands of times more energy for something we can already do at the moment — we can already do transactions, we don’t have to use bitcoin if we trust our current system. I don’t see how bitcoin justifies its energy use at the moment, given that most people do have a certain level of confidence in the current system”, he said to Futurism. At the current level of activity, Bitcoin consumes more Terawatts per year than Denmark. Keeping the actual pace, in 2020 it would consume more power than the whole world does today.
On the other hand, there are at least a couple of things that are important to underline:
- It’s not clear how accurate the available figures are. For example, cryptocurrency investor Marc Bevand says that in his opinion the Digiconomist’s index overestimates the energy consumption by 1.5 to 3.6 times. Stan Schroeder of Mashable as well recently raised many doubts about the forecasts currently available.
- Alex de Vries of Digiconomist sustains that the problem is the system currently used to verify Bitcoin transactions, which is called “proof of work”. “Proof of stake” and “proof of burn” are alternative options which could be implemented, that would mean a substantial change for the Bitcoin system, but that in De Vries opinion would also mean a 99.9% reduction in the energy required. “Blockchain technology, in general, is not meant to be efficient, […] It’s not efficient by design, because if I have a transaction, it’s not going to be checked a single time by a centralized system, it’s going to be checked thousands of times by all the distributed nodes in the network”, said De Vries to Futurism.
- According to what reported by Timothy B. Lee on ArsTechnica, the energy used for Bitcoin mining should decline in the long term. The reason is that the Bitcoin network is set to automatically adjust the difficulty of mining to make sure that the time requested to produce a new block remains 10 minutes. Since the reward, in term of bitcoins contained in every block, is constantly falling, and is expected to reach 6.25 bitcoins in 2020, also the miners’ industry revenues are set to fall. This will make indirectly decrease the energy used.
- Moving away from fossil, as a source of energy for cryptocurrency miners, would help to contain the costs for the environment.That’s why an increasing number of solar and hydro-powered miners are emerging. It’s the case, for example, of the Vienna based HydroMiner. A startup that installed cryptocurrency servers into disused hydropower mills in Austria and that is using Alpine currents through piping to keep their servers cool. “We mine only with renewable energy […] There will be more blockchain adoption if the energy problem can be handled this way.”, the company’s CEO, Nadine Damblon, told to Bloomberg.
All in all, it’s still not clear how the market will evolve, and how the cryptocurrency mining system could improve. What it’s clear instead is that in this way, things are not sustainable in the long run for our environment. It’s not useful to be too catastrophic, as there is still space to fix this, but at the same time, this is now something to be taken very seriously.
