The media has been buzzing recently about the danger of the Bitcoin industry's electricity consumption. The cryptocurrency's security is based on complex calculations made by supercomputers, an operation called mining. According to the latest research, Bitcoin uses as much electricity as Ireland, that is about 30 TWh per year.
According to some researchers, Bitcoin uses as much power as Ireland In this article, Selectra recalculates an estimate of the bitcoin industry's consumption based on conservative assumptions. We found out that with an average consumption sitting between 12 and 30 TWh per year, Bitcoin's energy consumption makes the large-scale development of the cryptocurrenty a serious threat to the environment.
Current consumpton estimates
Bitcoin seems to be breaking all records in terms of energy consumption with an approximate 30 TWh on an annual basis in December 2017, according to sources like Digiconomist and journalist Peter Fairley, who commented on "the ridiculous amount of energy it takes to run Bitcoin". To put it into perspective, Bitcoin uses about as much electricity as the city of Houston, Texas.
However, these figures taken from a Digiconomist study -a website dedicated to Bitcoin- seem to be somewhat flawed. The studies were made based on the revenue made by bitcoin miners. In their findings, they have assumed that the operational costs represent 60% of turnover for miners, a particularly high estimate. The question is, how is it possible for the sector to be profitable if 60% of total turnover is absorbed by electricity bills and other costs? In addition to this, their outdated method of measuring consumption, using consumption data from 2014 puts their results into serious question.
Here, we have made our own assumptions and method to shine light on the controversial facts as to whether Bitcoin is environmentally sustainable or not. We make the hypothesis that all Bitcoin miners work on the most recent and energy efficient machine, the Bitmain Antiner S9, with a usage of 1350 watts.
With the worldwide Bitcoin hashrate being 1.48*10^19 and the Antminer S9's hashrate being 1.4*10^13 hash/s, we can calculate the electricity needed by the Bitcoin industry. The idea that the entire industry uses an Antminer S9 is very a bit far-fetched, and puts our calculated consumption at the bare minimum, but we calculated that the Bitcoin industry's electricity consumption is somewhere between 12.9 and 30 TWh on a annual basis at its current level.
|Antminer S9's electricity usage||1375||W|
|Total network hashrate||1,5E+19||hash/s|
|Necessary number of Antminer S9||1071428.571|
|Necessary power in GW||1.473214286||GW|
|Consumption per transaction||99.37615864||kWh/transaction|
What is mining?
To put together large scale transactions, algorithms need to be created. This is what is called mining. Mining is a paid activity, in Bitcoin obviously, which requires specific computers, such as the Antminer S9. In the beginning, mining was done by regular PCs. Today, most of it is done by Bitcoin farms, or mining pools. Nowadays, China are leaders in Bitcoin mining. However, some countries, like Russia, want to set up public policies to compete with China. In general, countries that host mining pools have cheaper energy. Iceland for instance, is well known for its geothermal energy, but in reality, cheap energy is usually generated from fossil fuels.
An energy-intensive alternative to the traditional banking system
It is common to see Bitcoin users praise the new currency for being better than traditional ones. Horizontal, international, paperless - Bitcoin clearly has it benefits. However, a single Bitcoin transaction currently burns through around 100 kWh, an extremely high amount of electricity for an operation that may be made several times a day.
For those who do not trust the current banking system, there are environmentally friendly alternatives. A handful of banks have been created lately that have a cooperative and sustainable business model.
Why does Bitcoin use so much electricity?
In the beginning, mining was simple. It could be done by a standard PC, as long as it was running 24/7. However, as transaction volume has increased, block construction became more and more complex. It is explained by an article published in the scientific publication IEEE. The IDs of new blocks are each time more complex. They require an increasingly high calculation power. The average PC no longer has the capacity to mine in today's industry. To cope with this, miners have turned to dedicated hardware which is consuming more and more electricity.
The hidden costs of the internetWe often believe that our activity online is environmentally neutral. However, data storage, which we all contribute to, is a significant environmental challenge. The more than 10 billion emails that are sent every hour amounts to approximately 4000 tonnes of oil. Don't forget to delete your emails every now and again!
What is Bitcoin?
Bitcoin is a virtual currency that was launched in 2008. While many know its name, its principles are unknown to most of us. How was it created, how does it work?
Bitcoin is a cryptocurrency. It allows transactions, like a traditional currency. However, all transactions made with this currency are public and accessible via the blockchain. It is a peer to peer payment system that was invented in 2008 by Satoshi Nakamoto, a programmer for a group of anonymous programmers. It is currently the most important cryptocurrency, with a total capital, as of December 2017, of close to 300 billion dollars.
It is a currency outside of the central bank's and state's control. It is based on a horizontal principle, without any control organ that could decide either a depreciation or a revaluation. Despite what is sometimes said, there is no boss in Bitcoin. That is what its supporters love: the possibility to exit the banking system while still taking part in the economy.
Blockchain and Bitcoin mining
The currency is used to make transactions stored in what are called "blocks", with a header showing:
- The block size
- The number of recorded transactions
- The timestamp
- A checksum forbidding any change in the block and uniquely identifying the block
- The ID of the previous block
A block can contain a varied number of transactions, usually between 1000 and 2000. Block size is limited to 1Mo. Blocks overlap and make up the blockchain. As all transactions are public, blockchain is said to be unforgeable. The assembling of transactions in blocks integrating the blockchain is called Bitcoin mining.
What is Bitcoin and how is it used?
Bitcoin often has a poor reputation because of the options it offers. Transactions on the Darknet are made with Bitcoins as they are difficult to trace. However, it is not impossible to know that you purchased drugs or weapons online. To open a Bitcoin wallet, you need to prove your identity. Bitcoin is not only used to feed illegal trade. It is a currency accepted by some shops. It is possible to shop, pay rent and travel with Bitcoin. Thousands of websites, such as Expedia and Microsoft now accept Bitcoin. The American Federal Election Commission also accepts donations in Bitcoin.
Is Bitcoin legal ?The use of Bitcoin is allowed in most countries, as long as goods are purchased lawfully. Buying goods such as cocaine, for example, be it in pound sterling or in Bitcoin, is strictly forbidden. In addition, the poor reputation of Bitcoin has led states and corporations, like Thailand, Morocco or Alibaba to ban it.
How to get Bitcoin?
To get Bitcoin you have to first set up a virtual wallet on your computer or mobile phone. This software will generate you a unique identification number. This number can be used by itself or embedded in a QR code to be scanned for each transaction. In some countries like the USA or France, there are even Bitcoin ATMs. Some companies sell USB jewellery that contains your wallet. You then have to purchase Bitcoin. It is possible to do this online or in shops. You can also purchase a Christmas giftcard for a relative that loves the concept. Overall, Bitcoin has a very active community promoting it.
What is Bitcoin worth?
The first question about Bitcoin's worth is "How can Bitcoin be worth anything whilst it operates outside of the banking system?". Any currency is rooted in the trust and belief principle. A 10 pound note is worth 10 pounds because we trust it. Otherwise, it would be a worthless piece of paper printed with the Queen's face on it. Since its creation, Bitcoin has enjoyed a strong speculation on its value. Investors believe in its value. They trust its ability to ease transactions, which in turn gives it value. Being the reference cryptocurrency, it is a kind of golden cryptocurrency.
Apart from the drop in 2014, Bitcoin's worth hasn't stopped increasing since its creation. Worth 1 dollar at its inception, it now takes 16,000 dollars to buy one Bitcoin. Of course, any transaction, even small can be made with Bitcoin. It will just require the use of Bitcoin "cents".
What does the future hold for Bitcoin?
While many bet on Bitcoin against traditional currencies, its future is still uncertain. A monetary UFO, Bitcoin's volatility could make it both the new Gold Rush or the next bubble. It could also be replaced by competing cryptocurrencies, or, of course, forbidden by many countries, as it is still a way to finance organized crime or to fraud tax.
Could Bitcoin crash?
The rise of Bitcoin could also be a bad omen: the burst of the bubble.
"Bitcoin is not a currency, it is a speculation tool."There are more and more users across the world, including in countries with ongoing crises: Argentina, Venezuela, Greece and post-Brexit UK. This is what explains the increase in the exchange rate between bitcoin and traditional currencies. For observers of the financial sector, the option of a crash is not to be neglected. If users decide to sell because of their fear of a Bitcoin crash, it could generate a chain reaction.
Vitor Constantini, vice president of the European Central Bank.
Fraud in the blockchain
Long considered a minor risk, fraud in the blockchain is more and more likely. The more buzz there is around Bitcoin, the more it attracts criminal attention. A password leak, the injection of fake bitcoin into the system; scenarios for fraudulent activity are aplenty and could blow the Bitcoin system apart. The most likely is called the 51% attack. If a mining pool was to use over 51% of overall computing power it could become vunerable to hackers. If this were to happen, who knows what the effects would be. That said, the mining community is aware of this possibility. That's why, when the Ghash.io pool reached 42% in 2014, several miners decided to go to smaller pools.
Bitcoin is king amongst cryptocurrencies. Like the American dollar for traditional currency, it is used as a reference and is the most used cryptocurrency. Hundreds of other cryptocurrencies exist and most also work outside of national of central bank control. Not all work on the same principle, however. Some have a simple code and can be mined by regular computers, like Litecoin. They, in turn, consume less electricity. Others directly take part in financing solar energy production, like Solarcoin, which is accepted as a means of payment by French energy provider Ekwateur. Among these cryptocurrencies, there is also Ethereum, Bitcoin's most serious competitor. This cryptocurrency works on a different principle. It is more a way to finance projects than a real currency. But Ethereum can also work as a standard cryptocurrency. In early December 2017, it buzzed through the crypto-kitties platform, where it's possible to buy a virtual cat for up to 100,000 dollars. Some countries are thinking about lauching national Bitcoin, and not least: China, India and Venezuela.
Countries to have banned Bitcoin
Another threat weighs heavy on Bitcoin: not all national laws are as lenient towards it. Some countries even forbid it, such as:
- Algeria (interdiction in 2018)
Some countries forbid all transactions between national currency and Bitcoin, like China, which makes usage much more complex. However, not all politicians are against Bitcoin. French senators Philippe Marini (Les Républicains) and François Marc (Parti Socialiste) published a pro Bitcoin report in 2014. Similarly, some countries like Russia and Thailand have withdrawn the prohibition of Bitcoin from their legislation.