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| Fig. 1: Bitcoin logo. (Source: Wikimedia Commons)) |
Currently, the entire bitcoin mining network is on par with Ireland for electricity consumption. [1] The only thing more shocking than this claim made by O'Dwyer and Malone is the fact that it is now grossly dated. This paper was authored in 2014 and claims that around this time the price of Bitcoin had hit a maximum of $1000 whereas this past week, November 2017, Bitcoin hit $10,000 - ten times its value at the time this article was written. One can only imagine what energy consumption of mining bitcoin looks like today given that there is a linear relationship between its price and the energy consumed to produce it.
Some background, Bitcoin is considered a digitized and decentralized currency which functions without an intermediary. Transactions between individuals holding bitcoin can therefore occur using online forums such as digitized wallets. Individuals hoping to engage with this asset typically hold it in the form of a trusted wallet they access using a key or a pin. A popular example of such a wallet is The Bitcoin.com wallet, whose logo (see Fig 1) gained popularity as the craze for the currency worsened.
While the blockchain technology has been around for a while, and bitcoin has actively been in use since 2008-2009, its energy consumption related concerns have never before garnered this much attention. [2] In order to recognize the seriousness of this problem, it is key to fundamentally understand the the nature of mining, or producing bitcoin. A bitcoin is based on a peer-to-peer network on the internet whose members maintain a ledger of bitcoin transactions conducted on and accepted by the network. [1] In simple terms, a new Bitcoin is created when it is mined; and a miner's job is to add new blocks to the chain of prior blocks (where all the blocks together make up the blockchain). The mining process requires massive computational power, and in return for this effort the miner is paid in bitcoin. As is intuitive, the more bitcoin is mined, the more attractive the currency becomes to individuals and the more incentivized they are to invest in the necessary infrastructure. Bitcoin's exponentially rising value makes it further attractive to mine since the payment is in bitcoin which has become unprecedentedly valuable. If this weren't worrying enough, as Bitcoin gained popularity, there was an arms race as miners attempted to increase their computational power to mine faster than their ever increasing competitors. [1]
While it is impossible to compute exactly how much electricity or energy bitcoin mining consumes, articles state a variety of analogies for the minimum they hypothesize it requires. Digieconomist Alex de Vries has estimated earlier this year that it would be profitable for Bitcoin miners to use up over 24 terawatt-hours of electricity annually if they compete to solve increasingly difficult cryptographic puzzles to mine more Bitcoins, as much as about the 186 million population of Nigeria uses up annually. Nevertheless, not having exact numbers on biotins energy consumption ceases to be relevant since the premise remains that the amount is outrageously, incomprehensibly large. Given that countries control their own levels of energy consumption, ironically, bitcoin should be liable to the same centralized procedures. Given the technology is decentralized, how this should be instituted has not yet been hypothesized, nonetheless some promising alternatives have started to emerge. One of these is government involvement in the mining process of bitcoin. A more realistic one is BitcoinClean, a Bitcoin Cash that makes that promotes the idea of using renewable energy for mining. A further positive note to conclude on is that Bitcoin technology has an inherent cap on the maximum bitcoin supply at 21 million in circulation, post which the technology has no scope for any new Bitcoin to be mined.
© Vasundhara Singh. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] A. S. Hayes, "Cryptocurrency Value Formation: An Empirical Study Leading to a Cost of Production Model for Valuing Bitcoin," Telemat. Informat. 34, 1308 (2017).
[2] A. J. O'Dwyer and D. Malone, "Bitcoin Mining and Its Energy Footprint," Hamilton Institute, National University of Ireland Maynooth, 26 Jan 14.
