Bitcoin uses as much energy as Sweden and is on course to use even more – Business Insider

As bitcoin surges to unprecedented value, the sprawling matrix of computers around the world that run its software is now consuming as much energy a year as Sweden, the latest calculations suggest.

The higher the price, the more electricity this network uses. Iran was recently rocked by power outages that were partly blamed on bitcoin. Bill Gates recently warned bitcoin was "not a great climate thing." U.S. Treasury Secretary Janet Yellan has called its energy use "staggering."

Conceived to defy central banks in the fallout of the financial crisis, bitcoin started life so counter-cultural that no one really knows who created it.

It has soared from around $10,000 through most of last year to around $58,000 now, thanks to investors who fear traditional currencies are set to lose value, an influx of traders who speculate on the future price, and Elon Musk who tweets that you can use it to buy Teslas. It is now seriously talked of as a potential new global reserve currency.

But as Wall Street banks roll out bitcoin services, they may find its environmental costs hard to balance with shareholders and customers who are increasingly conscious. Experts tell Insider that bitcoin faces a Catch-22.

Like the cryptocurrency itself, bitcoin's community is decentralized, defiant, and nebulous. No one can simply tell it to heed growing calls to reduce its carbon footprint.

Alex de Vries, a Dutch economist who created the Bitcoin Energy Consumption Index, estimates the electricity used has doubled since 2017 to between 78 terawatt hours (TWh) and 101 TWh a year. More than half of bitcoin miners in China, where most use coal.

Bitcoin has no physical form. "Mining" refers to its network of computers finding new tokens by having them solve complex calculations.

Hardware at the SberBit cryptocurrency mining equipment facility in Moscow, Russia, in 2017. Vyacheslav ProkofyevTASS via Getty Images

New tokens these calculations uncover are a reward to the miners for using their computing power and electricity to secure the network against hacks and record transactions on bitcoin's decentralized ledger, known as the blockchain.

As the price climbs, those running the vast networks of computers dedicated to solving these calculations can sell them and direct more computing power toward the network, creating a cyclical effect as they compete with other miners to find new bitcoin first.

SEE ALSO: Bitcoin mining can be a 'bridge' to a renewable energy future by supporting green projects, a leading North American miner says

De Vries thinks bitcoin's energy use will continue to climb as the prices rises and miners buy more hardware.

He forecasts the network could soon consume a staggering 200 TWh, as much energy as all data centers globally and equivalent roughly to London.

He said potential investors may be put off by bitcoin's eye-watering energy use, adding, "I think this will be a major problem for bitcoin."

But for bitcoin advocates, the fact it allows people to make transactions semi-anonymously and without third-party approval, outweigh the environmental costs.

Nic Carter, a bitcoin investor and partner at crypto-focused venture capital firm Castle Island Ventures, told Insider its energy use was "not a new debate."

"The costs of the dollar system are harder to comprehend but they are extremely real," he added.

The more bitcoin surges, the worse the problem becomes. Alain Pitton/NurPhoto via Getty Images

He said that if investors conscious of environmental impact refused to buy bitcoin "because it consumes energy like every other utility on the planet they are just doing themselves and their investors a disservice."

Twitter chief executive Jack Dorsey said late last year that cryptocurrencies "will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally ... Published estimates indicate bitcoin already consumes a significant amount of clean energy."

Bitcoin miners, incentivized to use renewable energy by government subsidies, have sought sustainable ways of fueling their computers.

One German company set up a mining facility under the fjords of Norway, using hydroelectricity to power its machines and the freezing water to cool them.

But estimates of how much bitcoin's overall energy use is green vary hugely.

In a 2019 study, cryptocurrency asset management firm CoinShares' analysis concluded the bitcoin network gets up to 74% of its electricity from renewables. But in a survey by Cambridge University's Judge Business School the same year, only 39% of miners said that their power came from renewables.

Renewables aren't the only way to use less energy.

Ethereum, the second largest cryptocurrency after bitcoin, has a total value of $200 billion compared to bitcoin's $1 trillion market capitalization and soared over the last year. Its energy demands spiked to 30 TWh per year, up from 7 TWh 12 months ago, according to de Vries' calculations.

It sought to cut its energy use by moving to a "proof-of-stake" algorithm, where, instead of miners who create new tokens as a reward for securing the blockchain, "stalkers" hold existing tokens and can commit or stake them to the network, generating new tokens and helping to validate transactions.

But De Vries said fixing bitcoin's energy dilemma this way would be impossible without fundamental changes to bitcoin.

Its miners and developers could vote for such a change but fundamental alterations to bitcoin's core software are broadly unpopular.

One proposal to make bitcoin better suited to small payments in 2017 caused such a schism that a group of miners decided to "fork" the blockchain and create a rival cryptocurrency called bitcoin cash.

Frances Coppola, an author on banking, finance, and economics, told Insider bitcoin needed to evolve if it is to solve the problem.

"I don't think the bitcoin industry is doing itself any favors by refusing even to accept that bitcoin's energy use is a problem, let alone do anything about it," she added.

De Vries added that, if traders, miners and advocates cannot address its environmental impact, government action "seems like an inevitable outcome."

Bitcoin may be set up to be distanced from authorities but, as hundreds of thousands dream of following its early investors into the ranks of the world's richest, it is attracting the type of attention governments cannot ignore.

India has proposed fining anyone who trades or owns bitcoin, As U.S. Treasury Secretary Yellan condemned its energy use, she also warned investors it was "extremely inefficient" and "often for illicit finance."

But De Vries added that, whatever happened, bitcoin would likely survive in some form.

He said it would "continue to exist as long as some people think it has value ... It may just not be the same market value as it has today."

Read the original here:
Bitcoin uses as much energy as Sweden and is on course to use even more - Business Insider