Bitcoin’s Soaring Electricity Needs – Data and Solutions

Clear cut forest

Endless Progress, Limited Electricity

History is littered with the bones of civilizations who favored short-term plenty over long-term sustainability. Not much has changed over time, and our current world finds itself struggling to cope with our planet’s naturally imposed limitations on water, land, and commodity. Cryptocurrency, despite being a cutting-edge technology, is still beholden to these fundamental resources, and many are starting to doubt whether its demands are worth the cost.

As of writing, Bitcoin and Bitcoin Cash use about 73 terawatt hours (TWh) per year in electricity. A quantity equal to that of Austria and just less than the Philippines. By January 2019, that number’s estimated to balloon to 125 TWH.

Ethereum (ETH) is also draining huge quantities of juice from the grid. At 20 TWh per year, it exceeds Azerbaijan. Combined with Bitcoin and Bitcoin Cash, the electrical grand total equals that of Pakistan, a country of 192 million people.

Entire countries, albeit small ones, are starting to feel the pinch. Iceland, with its cold climate and copious, cheap supply of hydropower, has seen crypto miners flock to its shores in recent years. Already the amount of electricity the miners are using exceeds that of all residential use, and in due time, will exceed the capacity of the entire grid. Self-described “Largest Cloud Bitcoin Mining Company” Genesis Mining is one of the primary culprits.

The former USSR-controlled country of Georgia has also seen a dominant mining concern set up shop within their borders. Bitfury, based in the US, is using the electricity equivalent of “120,000 Georgian households, or 10 percent of the population.” Like Iceland, Georgia has abundant hydropower and long, cold winters.

Higher prices resulting from overtaxed energy grids are certainly a problem, but far worse in the long term is cryptocurrency’s carbon footprint. Because most mining is fueled by coal power plants in China, not hydropower, the technology spits around 35,000 kilotons (kt) of CO2 into the atmosphere every year, about the same as 5,830,000 cars.

This may be a drop in the bucket emissions-wise, but consider that cryptocurrency is still in its infancy. If and when it reaches global saturation, that number is going to soar to vast and airy climes. And the last thing our already warming planet needs is another handful of kindling.

Before we discuss solutions to the problem, let’s examine why Bitcoin (and other cryptocurrencies) require so much electricity in the first place.

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There’s bitcoin in them thar hills.

Proof of Work

Proof of Work is the consensus algorithm Bitcoin uses to sustain itself. In order to add another block to the blockchain, miners must solve a cryptographic puzzle by guessing at possible numeric solutions. The more guesses a miner’s rig can make, the better chance they have at finding the correct answer. Some have compared this to a lottery, others a race to the finish line. Regardless of the metaphor du jour, it boils down to a simple reality: the more computing power a miner has at their disposal, the better chance they have at solving the puzzle first. And whoever solves the puzzle gets rewarded in new bitcoin and a transaction fee.

However, in order to prevent supercomputers from dominating the blockchain and reaping all the rewards, the cryptographic puzzle becomes more difficult as more miners try to solve it, keeping a block’s creation time forever pegged at 10 minutes per. This creates a situation where the amount of work necessary to beat out the competitors rises ad infinitum. Indeed, after a brief dip in late July 2018, the difficulty index has risen again, hitting a new all-time high.

But Proof of Work is not the only consensus algorithm on the block.

Proof of Stake

The Ethereum Network is slowly phasing out Proof of Work in favor of Casper, its own brand of Proof of Stake. In this consensus algorithm, “validators” are chosen pseudo-randomly to vote on whether to confirm or deny a new block. The amount of cryptocurrency (in this case, Ether) owned by each validator weights the power of their vote. The result is improved decentralization, better security, and most importantly for our purposes, drastically reduced electricity consumption.

With Proof of Stake, there’s no algorithmic game of chance to win through brute force computing power. And since there’s no demand for vast amounts of electricity and hardware, there’s no need to create new coins to reward miners, meaning that the total circulating supply can be kept lower than in a Proof of Work system.

The only catch is that Proof of Stake probably won’t ever apply to Bitcoin, still the most popular and valuable cryptocurrency by far. Because Bitcoin is decentralized, there’s no foundation or authority figure to engineer a change in consensus algorithms as there is with Ethereum. A change of this magnitude would likely require a hard fork, i.e. a splitting of Bitcoin into two currencies, one Proof of Work, the other Proof of Stake.

So what else can be done? In a future article, we’ll discuss other possible solutions such as adding more transactions to each block, using the blockchain to more efficiently create and distribute electricity, and, like it or not, the prospect of government regulation. Stay tuned.


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