Bitcoin has been in the news lately - sadly, it’s not quite for the reasons you might think. Ever since Tesla announced that they would no longer accept the asset because of its energy consumption, many have been dismayed at how badly the asset’s price has fallen.
All the while, most investors have blamed Elon Musk and Tesla for this drop. However, it is also worth understanding what could be going on and why Bitcoin’s energy consumption is causing such a stir again.
For what it’s worth, there have been many arguments about Bitcoin and its energy consumption. Some believe that the asset’s mining and transaction base is truly unsustainable, while others claim that the figures might not necessarily be as bad as they seem. So, it is important to understand what the nuances of mining really are and what the numbers say on the whole.
How Mining Works and Why It Sucks Up So Much Energy
A study by Dutch researcher Alex de Vries showed that Bitcoin leaves a carbon footprint of about 38.10 metric tonnes (Mt) annually. Another study, tagged ‘CO2 Emissions from Fuel Combustion (Highlights) 2017’, showed that the annual carbon footprint of Mumbai stands at 32 Mt - that of Bangalore is at about 21.60 Mt.
Microsoft founder Bill Gates has also criticized Bitcoin, saying in an interview with The New York Times that the asset uses more electricity per transaction than any other transaction or payment channel known to mankind.
To be created, Bitcoin relies on a method known as mining. Here, high-capacity, advanced computers would have to run for long hours and solve complex mathematical equations. The more the number of coins in the market, the longer the time required to mine a new one. Thus, more electricity is used in the process.
There is also the fact that mining itself has become more profitable. More people are looking to mine the asset instead of going through trading channels, and this means that the network has become more congested. Thus, you will need more leverage to succeed at Bitcoin mining. Most miners simply use their computers to gain that leverage. The more the computers - and the more the computing power - the more energy consumed by the general Bitcoin mining process.
As of 2017, the Bitcoin network consumed about 30 terawatt-hours of electricity annually. However, as de Vries estimates, the network now uses between 78 terawatt-hours and 101 terawatt-hours - about the same amount of power as the entire of Norway. This means that each Bitcoin transaction consumes about 300kg of carbon dioxide to go through - about the same as 75,000 credit card transactions.
Bitcoin’s Carbon Footprint
For what it’s worth, the primary issue with Bitcoin mining isn’t the fact that consumption is intense. It’s actually the fact that most mining facilities are in regions with a high dependence on coal-based electricity.
Earlier, it was challenging to track Bitcoin’s carbon impact since it wasn’t possible to track down each miner. However, Garrick Hileman and Michel Rauchs engaged in a study back in 2017 that identified mining facilities and calculated about 232 megawatts in electricity consumption annually.
Based on deVries’ estimates, about 60 percent of Bitcoin mining costs actually go to covering electricity costs. Bitcoin stood at $42,000 in January. At that rate, miners would earn about $15 billion every year.
In his study, de Vries explained that the total Bitcoin network could consume as much as 184 terawatt-hours of electricity annually. The researcher’s paper also cited an assumption of about 480 to 500g of carbon dioxide produced for every kilowatt-hour of electricity consumed. This means a total energy consumption level of 184 terawatt-hours of electricity would lead to a carbon footprint of 90.2 million metric tons - roughly the same carbon footprint of the whole of London.
Mining’s Other Impacts
A lot of the time, crypto mining’s effects tend to spill over. Miners use high-capacity computers, many of which tend not to last so long. So, manufacturers of mining machines will need enough chips to produce their machines. Sadly, the coronavirus has made it more challenging for these chips to be produced and sold.
To produce a million mining rigs, Bitmain, the industry leader, will need to use up a month’s total capacity of one of only two available chip fabrications to produce such high-power silicon. Considering that a lot of other fields require these products, there is a significant shortage coming.
There is also the fact that countries like Iran have been using cryptocurrency mining to bypass economic sanctions for a while now. Thanks to cheap electricity, several miners have settled in Iran, leading to an increased market share for the country. Thus, Iran uses mining revenue to boost its coffers and also evade economic sanctions from the international community.