Cryptocurrencies — and Bitcoin in particular — have grown massively in popularity over the past few years, entering mainstream consciousness thanks to companies such as Tesla and Paypal accepting the digital currency as a legitimate payment option.
While more and more people are investing in crypto, the power-hungry nature of “mining” these digital currencies has become a popular topic, too.
Bitcoin “mining” (the process of earning Bitcoin through the use of computers) often results in thousands to tens of thousands of computers operating around the clock while being cooled. As you can imagine, that uses up a lot of electricity.
Cambridge researchers say mining Bitcoin currently consumes around 110 Terawatt Hours per year. That's roughly 0.55 percent of global electricity production, and more energy than the annual consumption of countries such as Argentina, Malaysia, and Sweden. As Bill Gates put it in an interview with CNBC: "Bitcoin uses more electricity per transaction than any other method known to mankind."
Considering we're just at the genesis of the mainstream crypto-craze, this energy consumption is likely only going to increase and further exacerbate climate change. It's one reason why critics are calling Tesla's decision to invest heavily in Bitcoin hypocritical, as it undermines the environmental image of the electric-car firm.
At present, one Bitcoin is worth $56,285. The currency’s astronomical appreciation over the past 12 months (currently 560 percent) is a huge incentive to mine more Bitcoin (and thus run more machines to be able to do so). As an alternative, many analysts argue that making a switch to Proof of Stake-based blockchain networks could be the only viable solution.
Unlike traditional Bitcoin mining where computer power is needed to generate currency, Proof of Stake (PoS) attributes mining power to the proportion of coins held by a miner. This way, instead of utilizing energy to mine currency, a PoS miner is limited to mining a percentage of transactions that is reflective of their ownership stake. The energy consumed in such a network is negligible in comparison to Bitcoin mining.
So why don't we do away with mining and adopt PoS systems? Theoretically, the supply of PoS coins remains constant, which is why there's a high risk of inflation and entirely devaluing currencies. This could throw a wrench into what many people believe to be the financial future. Tens of millions of individuals worldwide use cryptocurrencies such as Bitcoin as a tool to escape precisely this, inflation, monetary repression, and capital control. But how much energy should this industry consume if it's harming the climate?
“It is really by design that Bitcoin consumes that much electricity,” Michel Rauchs, a researcher at The Cambridge Centre for Alternative Finance told the BBC. “This is not something that will change in the future unless the Bitcoin price is going to significantly go down."
Bitcoin and the entire blockchain technology on which it is built aren't going to slow down anytime soon, which is why finding an answer to this environmental conundrum will only get more pressing as time goes on and Bitcoin’s value continues to increase.