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Bitcoin and Energy Consumption
Stunning headlines recently reported that “Bitcoin consumes more energy than Switzerland”. You may be wondering how that works and how a virtual object like a bitcoin, that you can’t see or touch, could use any energy at all. Here’s what they’re talking about.
An online tool called the Cambridge Bitcoin Electricity Consumption Index, or CBECI, was recently launched to estimate how much energy is needed to maintain the Bitcoin network in real time. According the the CBECI, the global bitcoin network consumes around 64 terawatt hours (TWh) of energy per year. For comparison, that is more than the entire country of Switzerland, which uses 58 TWh per year, but less than the country of Colombia which uses 68 TWh per year.
At the same time that they are reporting these estimates, the CBECI also emphasizes that “Reliable estimates of Bitcoin’s electricity usage are rare: in most cases, they only provide a one-time snapshot and the numbers often show substantial discrepancies from one model to another.” Because of that, the CBECI shows that, theoretically, the energy consumption could be as low as about 24 TWh or as high as 196.27 TWh per year.
The blockchain is a peer-to-peer network of about 5 million computers located all around the planet. At any given time, they all host copies of the blockchain, which is a distributed, public, encrypted ledger of all bitcoin transactions. The distributed nature of the blockchain means that it is decentralized, and no one person, business, or entity controls it. When millions of computers all have the same data which is constantly updated in real time as transactions get added to the chain, it becomes impossible to falsify a transaction or lose a transaction. While the network includes millions of transactional computers, it is the mining computers that are eating up all the energy.
Some feel that this amount of energy consumption is not sustainable and has a negative environmental impact. Alex deVries, a bitcoin expert at PricewaterhouseCoopers did his own estimate last year of the amount of energy consumed by the bitcoin network. He found that fewer than 100 million financial transactions per year for bitcoin used up more energy than all the world’s banks put together, which process 500 billion transactions per year.
BBC News reported on June 28 that Iran seized 1,000 bitcoin mining machines from two “farming” factories after discovering a spike in electricity consumption. Iran is one of the largest consumers of energy on the planet, and when the Iranian government discovered the surge in electricity used by bitcoin miners, they worried that the energy grid was becoming unstable and causing problems for other users. The Iranian miners were believed to be basing their operations in areas that had subsidized electricity, meaning that it was very low cost. Mostafa Rajabi Mashhadi, a spokesman for the Energy Ministry, said “Bitcoin miners will be identified and their electricity will be cut.”
In contrast, Quebec, Canada is offering discounted electricity to lure bitcoin miners to boost the economy. Whereas China is weighing a total ban on cryptocurrency mining which they see as a waste of resources and damaging to the environment.
In June, the U.K. website CoinShares published an article claiming that their investigation found that the majority of energy used by the bitcoin network is sourced from hydro/wind/solar. They claim that bitcoin miners are primarily located in “regions dominated by cheap hydro-power, such as Scandinavia, The Caucasus, The Pacific Northwest, Eastern Canada, and Southwestern China.” CoinShares estimates that the percentage of renewable power generation in the bitcoin mining energy mix is more than 74%.
Whether the energy consumption is renewable or not, damaging to the environment or not, everyone agrees that the computers in the bitcoin network are huge consumers of electricity. But as long as bitcoin mining is profitable, and the price continues to spike higher, this is an issue that isn’t going away.