Last updated May 24, 2018 at 12:35 pm
Economist suggests the cryptocurrency uses almost as much energy as Ireland
Bitcoin could be using half a per cent of the world’s total electric energy by the end of this year, according to analysis by a financial economist cum blockchain specialist.
Alex de Vries puts the minimum current usage of the Bitcoin network at 2.55 gigawatts annually, which means it uses almost as much electricity as Ireland. A single transaction uses as much electricity as an average household in the Netherlands uses in a month.
In a commentary published in the journal Joule, de Vries, who works at the Experience Center of PwC in the Netherlands and is the founder of blog Digiconomist, writes that he has used a new methodology to pinpoint where Bitcoin’s electric energy consumption is headed and how soon it might get there.
“To me, half a per cent is already quite shocking. It’s an extreme difference compared to the regular financial system, and this increasing electricity demand is definitely not going to help us reach our climate goals,” he said. If the price of Bitcoin continues to increase the way some experts have predicted, de Vries believes the network could someday consume 5 per cent of the world’s electricity. “That would be quite bad.”
Bitcoin is dependent on computers that time-stamp transactions into an ongoing chain to prevent duplicate spending of coins. Computers in the network perform calculations continuously, competing for the chance, once every 10 minutes, to be appointed to create the next block of transactions in the chain.
The user of the computer that wins is awarded 12.5 new coins – a process known as “mining” Bitcoin. But all the time, even those who don’t win are expending computing power.
“You are generating numbers the whole time and the machines you’re using for that use electricity. 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.”
Economic principles suggest that the entire Bitcoin network will eventually reach an equilibrium where the costs of the hardware and electricity used to mine equal the value of the Bitcoin being mined. And that information can approximate the total amount of electricity that the network will use at said equilibrium.
Other researchers have used the fundamentals of this method before, but de Vries goes farther. He uses production information about Bitmain, the biggest manufacturer of Bitcoin mining machines, to estimate both how much of a miner’s costs are associated with hardware rather than electricity and when this equilibrium might be reached.
And while he does have confidence in his estimates, the problem with this method is that these manufacturers are extremely secretive. “Sometimes the best information we’ve got is really shaky eyewitness accounts. That’s the stuff we have to work with,” he says.
Still, he believes that getting a good estimate is important in determining the sustainability of cryptocurrencies moving forward and in helping shape policy.