Cryptocurrencies have become one of the most captivating, yet perplexing, investments in the world. they skyrocket in value. they crash will change the world, their fans claim, by displacing traditional currencies like the dollar, rupee or ruble. They are named after dog memes.
And in the process of simply existing, cryptocurrencies like bitcoin, one of the most popular, use staggering amounts of electricity.
Reading: Bitcoin mining electricity cost
We’ll explain how that works in a minute. But first, consider this: The process of creating Bitcoin for spending or trading consumes around 91 terawatt-hours of electricity a year, more than is used by Finland, a nation of roughly 5.5 million.
that use, which is almost half a percent of all the electricity consumed in the world, has multiplied by ten in the last five years.
For a long time, money has been thought of as something you can hold in your hand, for example, a dollar bill.
Coins like these seem like such a simple and brilliant idea. a government prints some paper and guarantees its value. then we trade it amongst ourselves for cars, candy bars and tube socks. we can give it to whoever we want, or even destroy it.
On the internet, things can get more complicated.
Traditional types of money, such as those created by the United States or other governments, are not completely free to use the way you want. Banks, credit card networks and other intermediaries can exercise control over who can use their financial networks and what they can be used for, often for good reason, to prevent money laundering and other nefarious activities. but that could also mean that if you transfer a large amount of money to someone, their bank will report it to the government even if the transfer is completely regular.
So, a group of freethinkers, or anarchists, depending on who you ask, began to wonder: what if there was a way to remove controls like these?
In 2008, an unknown person or persons using the name satoshi nakamoto published a proposal to create a cash-like electronic payment system that would do exactly that: cut out the middleman. that is the origin of bitcoin.
Bitcoin users would not have to trust a third party (a bank, a government or whatever), Nakamoto said, because transactions would be managed by a decentralized network of bitcoin users. in other words, no single person or entity could control it. all bitcoin transactions would be openly recorded in a public ledger that anyone could examine, and new bitcoins would be created as rewards to participants for helping to manage this vast and sprawling computerized ledger. but the final supply of bitcoins would be limited. the idea was that rising demand would eventually give bitcoins value.
This concept took a while to catch on.
But today a single bitcoin is worth about $50,000, though that could vary wildly by the time you read this, and no one can stop you from sending it to whomever you want. (Of course, if someone is caught buying illegal drugs or orchestrating ransomware attacks, two of the many unsavory uses for which cryptocurrency has proven attractive, they would still be subject to the law of the land.)
However, it just so happens that managing a digital currency of that value without a central authority requires a great deal of computing power.
Let’s say you want to buy something and pay with bitcoin. The first part is quick and easy: You would open an account with a bitcoin exchange like Coinbase, which allows you to buy bitcoins with dollars.
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You now have a “digital wallet” with some bitcoin in it. to spend it, you simply send bitcoins to the digital wallet of the person you’re buying something from. as easy as that.
but that transaction, or really any bitcoin exchange, must first be validated by the bitcoin network. In the simplest terms, this is the process by which the seller can be sure that the bitcoins he receives are real.
This gets to the heart of the entire bitcoin accounting system: the maintenance of bitcoin’s vast public ledger. and this is where much of the electrical energy is consumed.
Around the world, companies and individuals known as bitcoin miners compete to validate transactions and enter them into the public ledger of all bitcoin transactions. they basically play a guessing game, using powerful, energy-hungry computers to try to beat others. because if they are successful, they are rewarded with newly created bitcoins, which are of course worth a lot of money.
This competition for the newly created bitcoin is called “mining”.
You can think of it as a lottery or a game of dice. this article provides a good analogy: imagine you are in a casino and all the players have a dice with 500 faces. (more accurately, it would have billions of sides, but that’s hard to draw). the winner is the first person to roll a number under 10.
The more computing power you have, the more guesses you can make quickly. So unlike the casino, where you only have one die to roll at human speed, you can have many computers making many, many guesses every second.
The bitcoin network is designed to make the guessing game increasingly difficult as more miners participate, further increasing the importance of fast, power-hungry computers. specifically, it is designed so that it always takes an average of 10 minutes for someone to win a round. In the craps game analogy, if more people join the game and start winning faster, the game recalibrates to make it harder. for example: now you must roll a number below 4, or you must roll exactly 1.
that’s why bitcoin miners now have warehouses full of powerful computers, running at full speed to guess big numbers and using huge amounts of energy in the process.
The winner of the guessing game validates a standard “block” of bitcoin transactions and is rewarded for doing so with 6.25 newly minted bitcoins, each worth approximately $50,000. so he can see why people might flock to mining.
Why such a complicated and expensive guessing game? that’s because simply recording the transactions to the ledger would be trivially easy. therefore, the challenge is to ensure that only “trusted” computers do so.
A bad actor could wreak havoc on the system, stopping legitimate transfers or scamming people with fake bitcoin transactions. But the way bitcoin is designed means that a bad actor would need to win most of the guessing games to have majority power in the network, which would require a lot of money and a lot of electricity.
In nakamoto’s system, it would make more economic sense for a hacker to spend the resources mining bitcoins and collecting the rewards, rather than attacking the system itself.
This is how bitcoin mining turns electricity into security. it’s also why the system wastes energy by design.
In the early days of bitcoin, when it was less popular and worth little, anyone with a computer could easily mine at home. not so much anymore
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Here’s a timeline showing how things have changed. you can see how much electricity would have been used to mine a bitcoin at home (in terms of the average home electricity bill), assuming the most energy efficient devices available were used.
Today you need highly specialized machines, a lot of money, a lot of space, and enough cooling power to prevent constantly running hardware from overheating. that’s why mining now happens in giant data centers that are owned by companies or groups of people.
In fact, operations have become so consolidated that now just seven mining pools own nearly 80 percent of all computing power on the network. (The goal behind “pooled” computing power like this is to distribute revenue more evenly so participants get $10 a day instead of $50,000 every 10 years, for example.)
Mining occurs all over the world, often where cheap energy is abundant. For years, much of the bitcoin mining has been in China, although recently, the country has begun to crack down. Researchers at the University of Cambridge who have been tracking Bitcoin mining recently said that China’s share of global Bitcoin mining had fallen to 46 percent in April from 75 percent at the end of 2019. same period.
bitcoin mining means more than just emissions. the hardware also accumulates. everyone wants the newest and fastest machinery, which leads to high turnover and a new e-waste problem. Alex de Vries, a Paris-based economist, estimates that every year and a half or so, the computational power of mining hardware doubles, rendering older machines obsolete. by his calculations, as of early 2021, bitcoin alone was generating more e-waste than many midsize countries.
“bitcoin miners are completely ignoring this problem, because they don’t have a solution,” said mr. de vries, who runs digiconomist, a site that tracks the sustainability of cryptocurrencies. “These machines are just thrown away.”
What if bitcoin could be mined using more renewable energy sources, such as wind, solar, or hydropower?
It is difficult to calculate exactly how much bitcoin mining is based on renewable energy due to the very nature of bitcoin: a decentralized currency whose miners are largely anonymous.
Globally, estimates of bitcoin’s use of renewable energy range from 40% to almost 75%. But in general, experts say, using renewable energy to power bitcoin mining means it won’t be available to power a home, factory or electric car.
A handful of miners are beginning to experiment with harnessing excess natural gas from oil and gas drilling sites, but examples like that are still few and hard to quantify. furthermore, that practice could eventually spur more drilling. miners also claim to harness surplus hydropower generated during the rainy season in places like southwestern china. but if those miners operate during the dry season, they would use mostly fossil fuels.
“As far as we can tell, most baseload fossil fuels are still used, but that varies seasonally, as well as from country to country,” said Benjamin A. Jones, an assistant professor of economics at the University of New Mexico, whose research involves the environmental impact of crypto mining. “That’s why you get these very different estimates,” he said.
Could the way bitcoin works be rewritten to use less energy? Some other minor cryptocurrencies have promoted an alternative accounting system, where transaction processing is not gained through computational work but by proving ownership of enough coins. this would be more efficient. but it hasn’t been tested at scale, and isn’t likely to take root with bitcoin because, among other reasons, bitcoin stakeholders have a powerful financial incentive not to switch, since they’ve invested heavily in mining.
some governments are as suspicious of bitcoin as environmentalists. if they were to limit mining, that could theoretically reduce energy stress. but remember, this is a network designed to exist without intermediaries. Places like China are already creating restrictions around mining, but miners are reportedly moving to coal-rich Kazakhstan and the cheap but troublesome Texas power grid.
For the foreseeable future, bitcoin’s power consumption is likely to remain volatile as long as its price does.
While bitcoin mining may not involve pickaxes and hooves, it is not a purely digital abstraction either: it is connected to the physical world of fossil fuels, power grids and emissions, and to the climate crisis we find ourselves in. today. what was envisioned as a forward-thinking digital currency has already had real-world ramifications, and they are growing.
