The process of mining Bitcoin is a massive energy drain — and potential environmental disaster. Shifting the financial system to Bitcoin would increase the world’s electricity use by 500 per cent. Bitcoin: What’s the worst that would happen if the mining bitcoin illegal ‘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. 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. 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. In the early days of Bitcoin, the necessary computations could be performed on ordinary personal computers.
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. 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. Will the Bitcoin bubble burst? The boss of JPMorgan Chase told an investor conference if any of his staff were caught trading Bitcoin he would “fire them in a second” and the cryptocurrency was 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.