It appears that it is not just Bitcoin’s value that has soared to new highs— the staggering amount of electricity needed for cryptocurrency mining has been significantly increasing, and raising concerns about environmental impacts.
According to a recent analysis published by Cambridge University, the energy required to harvest Bitcoin has an annual carbon footprint equivalent to that of entire countries. This is because Bitcoin mining— the process when computers are awarded a Bitcoin once they solve numerous complex algorithms— is a very energy-intensive process.
When Bitcoin was first created in 2009, mining of the cryptocurrency could be conducted on a standard computer. However, given that there is only a finite number of Bitcoins that could be mined— 21 million to be exact— the more Bitcoin that is mined, the more the algorithms required to mine it increase in complexity. As of recent, there are over 18.5 million Bitcoins that have already been mined thus far, meaning that the average computer no longer has the capabilities to mine the digital currency.
Instead, Bitcoin mining now relies on complex and special computer equipment that is able to handle the increasingly extensive processing power. As a consequence of that, the complex computers consume a significant amount of electricity. The University of Cambridge Centre for Alternative Finance (CCAF) calculated the total amount of energy required to mine Bitcoin is anywhere between 40 and 445 annualized terawatt hours (TWh), with an average estimate of approximately 130 TWh.
In comparison, electricity consumption in the UK is just over 300 TWh per year, while Netherlands’ and Chile’s annual electricity usage is below the CCAF’s best estimate for Bitcoin. In fact, one Bitcoin transaction is equivalent to the carbon footprint of 680,000 Visa transactions, or 51,210 hours of YouTube watching. However, one of the main issues of Bitcoin’s extensive electricity consumption is that it likely comes from polluting sources. According to a CCAF survey of the individuals who manage the global Bitcoin network, about one-third of Bitcoin mining uses energy derived from fossil fuels.
This could become problematic for Bitcoin proponent Elon Musk, whos electric car company Tesla recently purchased $1.5 billion of the world’s largest currency. Although the recent decline in Bitcoin’s price likely put a dent in Musk’s fortune, the digital currency also clashes with Tesla’s mission in achieving a zero-emission future.
However, Cambridge notes that it is difficult to accurately determine whether Bitcoin miners are using electricity that is derived from fossil fuels or renewable energy. This is due to the lack of a government body or organization that can officially overlook where exactly Bitcoin is mined, or what type of electricity is being used. Mining rigs can easily relocate to locations that boast the lowest energy costs, making Bitcoin mining particularity difficult to track.
As of recent, China has become the main hub for cryptocurrency mining, given that electricity costs in the country are significantly cheaper compared to other parts of the world. However, China’s Inner Mongolia region has just taken steps to eliminate the energy-hungry practice, announcing that it will shut down all related cryptocurrency mining projects by April 2021. The autonomous region made the move with the aim of reducing energy consumption growth to approximately 1.9% this year, and to cut down on coal-generated energy usage.
Indeed, Bitcoin’s seemingly covert and energy-consuming mining operations have caught the attention of US Treasury Secretary Janet Yellen, who recently referred to the cryptocurrency as “an extremely inefficient way to conduct transactions,” further noting that “the amount of energy consumed in processing those transactions is staggering.”
Despite Yellen’s comments though, Bitcoin prices continue to rally, and are on a trajectory to recoup recent losses. And, as endorsements by major financial institutions and large investment players gain more traction, the cryptocurrency’s environmental impact will likely continue to grow.
Information for this briefing was found via Cambridge University. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.