Bitcoin could use up as much energy as Austria by the end of 2018, and the staggering cost of electricity could keep miners from making profits on the digital currency.
Bitcoin investors could stop seeing rewards from their investments, that is, if the cryptocurrency’s energy requirements do not stop rising at exponential rates. It’s a problem not just for the environment. Bitcoin miners could find themselves neck-deep in expensive energy and hardware costs that the digital currency stops delivering profits to investors.
Bitcoin Mining Power Consumption
Financial economist and blockchain specialist Alex de Vries predicts bitcoin could use up as much as 7.67 gigawatts of electricity at year-end. This will make the digital currency’s electrical consumption almost at par with Austria, which uses up 8.2 gigawatts every year. That is about 0.5 percent of the entire planet’s energy consumption.
At present, bitcoin uses 2.55 gigawatts of electricity, comparable to the amount used up by Ireland. A single transaction requires the same amount of electricity used up by a household in the Netherlands for a month. As bitcoin miners put in money for more powerful mining machines and cooling technologies, De Vries believes bitcoin could eventually use up as much as 5 percent of the world’s electricity.
“That would be quite bad,” he says. “To me, half a percent is already quite shocking. It’s an extreme difference compared to the regular financial system.”
Bitcoin depends on a network of computers that put shared time-stamps on an ongoing chain of transactions, creating new “blocks” every 10 minutes. Each computer competes for the ability to add a block to a chain, and the computer that wins gets 12.5 new bitcoins, which is currently worth a little bit more than $94,000. The network performs quintillions of mathematical transactions every second, all of which is fueled by electricity.
Is Bitcoin Mining Worth It?
“You are generating numbers the whole time and the machines you’re using for that use electricity,” De Vries says. “But if you want to get a bigger slice of the pie, you need to increase your computing power. So there’s a big incentive for people to increase how much they’re spending on electricity and on machines.”
De Vries used production information from Bitmain, the world’s largest maker of mining machines, to arrive at his estimates. Still, he admits that manufacturers are extremely secretive, and researchers have to work with what they have.
He also points out that unscrupulous miners may continue mining bitcoin while avoiding its rising energy costs. For instance, he says one miner used a university’s supercomputers to mine $8,000 to $10,000 worth of bitcoin, costing the university $150,000 in electricity costs. In Russia, a bitcoin mine was shut down after refusing to pay for “several million kilowatt-hours of electricity.”
Bitcoin Research And State Policy
De Vries believes his research is useful not just in determining the bitcoin’s sustainability but also in shaping policy around the use of cryptocurrency. Some states have already begun pushing legislation restricting the use of bitcoin in economic transactions.
As of 2017, six states have banned the buying and selling of bitcoin and other alternative currencies without a license. These include New York, New Mexico, Washington, Connecticut, Hawaii, and Georgia. Most of them have included cryptocurrency into their money transmission laws, thus requiring everyone who wishes to transact in bitcoin to apply for a money transmitter’s license.
De Vries also recognizes the limitations of his method and encourages other players to conduct their own research and participate in the cryptocurrency discussion.
He also recognizes the limitations of his method and encourages other players to conduct their own research and participate in the cryptocurrency discussion.
De Vries' commentary is published in the Joule journal.
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