Paul Orford looks at a very important and completely overlooked danger, that being Bitcoin’s monstrous usage of electricity. One scientific study shows that by 2020, Bitcoin mining will consume the entire world’s electricity, as Paul disseminates scientific and economic analyses. Here is a charismatic and very candid insight into not only the financial pitfalls, but the energy disaster that beckons.
Paul Orford is a widely renowned FX industry executive, and is founder and Editor in Chief of GameChangers magazine, which details the professional lives of those who innovate and move the electronic trading business forward across all sectors globally.
With recent explosion of interest in Crypto currencies, I am told of the untold riches that await me if I only open the email that is spammed to me on a daily basis, or the articles supporting this view of various hair brained ICO’s exhibited on various ‘news’ sites.
This maniacal narrative of the millions that your net worth can be increased at the swipe of a credit card, appears to be as commonplace this time of year as Santa hats and regrets of what happened at the Christmas party!
However, one thing that seems to have escaped even the most cursory notice of many news vendors, is the catastrophic environmental disaster that could arise if the current mining interest continues.
In case you are not aware of how a crypto currency is created, or to use the local parlance ‘mined’, it takes a huge amount of energy to generate. These electromagnetic alchemists are burning through huge amounts of energy with a staggering amount of computational activity to generate just one unit.
This begs the question, what impact will this have on all of us if interest continues to follow at this exponential rate?
According to the Bitcoin Energy Consumption Index (yes this is a thing.) which is maintained by Digiconomist, every individual Bitcoin transaction eats up 275 kilowatts of electricity, with the latest estimate of its total annual energy consumption being in the region of 29.05 terawatts.
This may not seem like a great deal to the uninitiated, and for someone like myself prior to reading the data, the difference between both the stats are incredible. Currently 29 terawatts is equal to 0.13% of the entire world’s annual energy consumption. To put this into context, this outstrips 159 countries in their total annual consumption. Moreover, if Bitcoin were a country it would rank 61st on the planet in terms on electricity consumption.
Michael Reed, head of Blockchain technology at Intel concurs with these fears. “The concern that people continue to debate is, where does this end?”. Many argue that it is held in check by the rapid development in energy efficient mining hardware. However, could a perfect storm be on the horizon, with efficiency gains slowing and the rise in bitcoin value rising fast leading to its potential transaction growth being immense.
If you think you can become a miner from the dusty old lap top that is in your back bedroom, those days are long gone. To make it a viable business you would need the relevant hardware known as Application Specific Integrated Circuit, with modern miners using tens of thousands of these in huge warehouses increasing the ability to garner more coins.
Because of these huge operations and large overheads incurred, the largest mining organizations are centralizing in parts of the planet with the cheapest electricity, such as China. Due to its immense growth in this region, many commentators have argued that it is a contributory factor to climate change.
A recent study conducted by Cambridge University found that 58% of Bitcoin production comes from cheap areas of the world with cheap electricity, like China, going as far as to describe it as describing “an arms race amongst miners to use the cheapest energy sources and the most efficient equipment to keep operators profitable.”
Cheap power is interpreted as dirty power, and in China miners take advantage of low-cost coal and hydroelectric generators to galvanize this.
Alex de Vries (Digiconomist) undertook a detailed analysis of one mine in China who had a carbon footprint which he described as “simply shocking,” From his measurements, he argues that it was emitting the same amount of carbon dioxide as a Boeing 747.
An opposing position is held by the digital currency entrepreneur Marc Bevand. He remains highly skeptical in the data produced by de Vries. He argues that the footprint whilst still a large amount (15 terrawatts), which is around half of the estimate produced by de Vries. Regardless which viewpoint you agree with, this is still a huge figure proposed by both competing arguments.
Despite all this, with Bitcoin ‘only’ consuming 0.13% of the planets electricity output. If it continues at this rate, the Bitcoin Energy Consumption Index notes there increase of just under 30% over the past several months.
If we are to use this figure for the trend of current output required to sustain the miner’s growth, the future energy consumption required is staggering. By July 2019 it will be greater than the US electricity consumption (3,913 TWh), and by February 2020 it will consume all the worlds electricity (21,776 TWh)
So to all the potential Bitcoin billionaires that are coming in the next few years, take heed of the evidence. You may have a huge net worth on paper, however if it requires the power of 3 suns to maintain its upward trajectory, and we are all living by candlelight from this energy sucking behemoth, then maybe we need to take a closer look at this challenge.
Perhaps the best solution that I can propose is that of hydro energy. This huge untapped water source will be generated from the tears of all the investors who believed that the ICO they just purchased under the premise of revolutionizing the Bolivian shoe industry, is not the path to them making them millions. These people can be our H2O heroes!
Based upon some of the schemes that I have seen, and with the lethal concoction of both speed and greed in which people are purchasing them, this should generate more energy than the Hoover and Three Gorges dams combined!
Regardless of whether we agree on if Crypto is a bubble or not, I think we can all agree that its devouring of our energy source must be addressed with haste.