Bitcoin, a type of cryptocurrency, has been making headlines during the past year. It was one of the major topics discussed in a gathering of world leaders in business and politics at the World Economic Forum which was concluded on the 26th of January.
The buzz at Davos was mostly concerning the potential use of bitcoins for illicit activities and the need for regulation. However, a major lesser known implication of the growth of bitcoin use is its negative environmental impact.
It is not very evident that a currency that exists digitally can also have a major environmental impact. The key factor is that “mining” or releasing new bitcoins into the network takes up a lot of energy and energy generation produces carbon dioxide emissions.
To put the energy consumption of the entire bitcoin network into perspective, consider this chart by Digiconomist which ranks energy consumption of the network to that of entire countries.
The problem lies in the fact that most of the mining of bitcoins takes place in China, where the electricity is generated using polluting fossil fuels like coal.
But according to Alex de Vries, the author of the Digiconomist article on Bitcoin energy consumption, renewables will not solve the issue.
“The whole system still uses thousands of times more energy than we have before,” he said.
Supporting the energy-intensive cryptocurrency system would then require more and more investment in renewables. Creating a solar panel releases significant amounts of emissions. To keep pace with the demand for more energy will off-set the benefit gained from shifting to renewable supplies.
“We’re still creating a carbon footprint that’s bigger than it has to be,” de Vries explained in an interview with Futurism.
According to Stan Schroeder for Mashable, it is too early to consider bitcoin as unsustainable. Moreover, calculations on the energy use of the bitcoin network are not completely accurate as they are based on certain assumptions and approximations. Most secretive miners are located in China and it is difficult to get figures from them. Schroeder added that the Digiconomist site makes various assumptions for their calculations like, “miners, on average, spend 60% of their revenues on operational costs, and that for every 5 cents spent on those costs 1 kWh of electricity was consumed.”
An option under consideration is too modify the current system of operations and to fix the problem at its root. There is a possibility of changing the Bitcoin system from “proof of work” to “proof of stake” verification system.
Essentially, the “proof of work” system relies on huge amounts of computing power to verify if a transaction is valid. While “proof of stake” allows for virtual mining without the need for extensive computational power. Thus, it lowers investment in terms of electricity or computing power.
Although some statistics on the electricity consumption the bitcoin system can be considered to be overblown or over-estimated, addressing the sustainability concerns of the system will be essential for the long-term use of this type of cryptocurrency.
