Report warns of Bitcoin energy use
The energy demands of Bitcoin, and blockchain technologies in general, has been a recurring theme in recent years, but a new academic study in the journal Joule says that Bitcoin will consume 0.5 per cent of the world’s electricity by the end of 2018.
Alex de Vries, an economist at the PwC Experience Centre in the Netherlands, estimates that the minimum current usage of the Bitcoin network is 2.55 gigawatts – almost as much as the consumption of Ireland. He says a single transaction consumes as much power as an average household in the Netherlands uses in a month.
The report, “Bitcoin’s Growing Energy Problem” is the first to appear in a peer-reviewed scientific journal. However, Mr De Vries admits that his figures are based on estimates because it is impossible to get complete data about activity on the network.
Proof of Work and power needs
The reason this power is required is the ‘proof of work’ process that authenticates Bitcoin transactions. Since Bitcoin is a decentralised network with no controlling body to verify spending, it is necessary to have this task performed by the network – a process known as ‘mining‘.
Bitcoin does that by requiring computers on the network to perform calculations in an attempt to be the first to verify a new block of transactions. The winning computer is awarded Bitcoins. However, all the losing computers have been consuming energy at the same time, with no end reward.
Mr de Vries said: “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.”
At some point the incentive will stop paying off, Mr de Vries concludes, and costs of mining will exceed the rewards. Bitcoin needs to ensure that doesn’t happen, otherwise mining will decline which will harm the network. But that has led some to raise concerns about the environmental cost of the technology.
For others, such as Elaine Ou, writing at Bloomberg, the concerns are misplaced. She notes that global production of physical money consumes vast amounts of energy – an estimated 11 terawatt-hours-per-year – and adds that it wasn’t long ago that people were worried about the power needs of data centres.
She writes: “As it turned out, better cooling and power management technology improved efficiency. Bitcoin miners are no less motivated by profit, so it stands to reason that they will seek to become more efficient and employ the cheapest energy available, which generally means hydroelectric plants and other renewable sources.”
It’s also possible that the technology itself will change to find ways to deliver the security a blockchain network needs without consuming so much power. Some cryptocurrencies have looked at ‘proof of stake’ as an alternative, for example.