TechnologyBitcoin: why does cryptocurrency consume insane energy?

Bitcoin: why does cryptocurrency consume insane energy?

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Kolkata, India: Elon Musk, the CEO of Tesla, has long been a booster of cryptocurrency, but this week he shook their world by questioning the future of digital assets and specifically criticizing carbon emissions from bitcoin mining.

“Energy usage trend over past few months is insane,” Musk tweeted on Thursday, sharing a chart from the Cambridge Bitcoin Electricity Consumption Index (CBECI), his latest missive in a salvo that’s caused bitcoin’s price to drop.

Obtaining bitcoin is an energy-intensive process, and the graph depicted the history of its power consumption, which rose steadily from 2016 to 2020 on an annualized basis, reaching an all-time high of 149 terawatt-hours (TWh).

According to George Kamiya, an expert at the International Energy Agency, this compares to Google’s total energy use of 12.2 TWh and the approximately 200 TWh consumed by all data centers in the world save those that mine bitcoin (IEA).

“If Bitcoin was a country, it would use around the same amount of electricity a year to mine as Switzerland does in total,” Deutsche Bank analysts said in a note.

Indeed, according to the CBECI, things may get worse: if miners used the most energy-intensive equipment, their consumption might reach 500 TWh.

Musk announced on Wednesday that Tesla would no longer accept bitcoin as a form of payment for its electric cars, citing its high energy usage, particularly among coal miners.

The news sent bitcoin’s value down 15% to a two-and-a-half-month low, reversing a decision made in late March when Tesla stated it would accept bitcoin as payment after unveiling a $1.5 billion investment in the digital currency.

Generous remuneration 

The prospect of a large payout has driven the growth of massive data centers dedicated to bitcoin, which reached a market worth of $1 trillion earlier this year before plummeting.

The money is earned by network participants known as “miners,” who use brute force processing power to solve purposefully difficult equations under the so-called “proof of work” system.

One of the founding ideas of the most well-known cryptocurrency, developed in 2008 by an unknown person or group seeking decentralized digital money, was “proof of work.”

The method is set up so that every 10 minutes, the network awards some bitcoin to individuals who have solved the puzzle correctly.

However, as the price of bitcoin has risen, so has an interest in obtaining it, as has electricity use.

According to research published last month in the scientific journal Nature, emissions from mining in China, which accounts for over 80% of global cryptocurrency commerce, could jeopardize the country’s climate ambitions.

Some of that country’s mining is powered by lignite, a particularly toxic type of coal.

According to Bloomberg, China will not be able to cover its Bitcoin industry’s needs with renewable energy until 2060.

‘Awakening call’

Moving away from the processor-intensive “proof of work” approach, similar to the improvements being proposed for the Ethereum cryptocurrency, would be one method to reduce energy use.

Bitcoin, on the other hand, is unlikely to make such a change, which may make the network less secure and decentralized.

“Tesla’s move might serve as a wake-up call to businesses and consumers using Bitcoin, who hadn’t hitherto considered its carbon footprint,” said Laith Khalaf, a financial analyst at AJ Bell.

“This highlights that the long-term adoption of cryptocurrencies by businesses, consumers and investors is still highly uncertain.”

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