In February 2021, Tesla announced that it would accept payments for its electric vehicles in bitcoins. Three months later, they suspend bitcoin payments as Elon Musk stated in Twitter, “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.”
This article attempts to investigate the extent of truth to this statement.
An integral step of the bitcoin network is validating transactions. Whenever you make a bitcoin transaction, it is placed in a pool of unconfirmed transactions. The transaction is not confirmed until it is validated by a miner. The process of validating transactions involves a cryptographic puzzle. In simple words, the puzzle is to find a special number and there are no equations or formulas to find it other than guessing. The first person to guess the number correctly receives some bitcoins (currently 6.5 BTC). Once the puzzle is “solved” by a miner, your transaction is confirmed (Read this article for detailed explanation of the process).
The people who solve the puzzles are called miners in the sense that they do a lot of work (computationally) to earn bitcoins, just like gold miners dig a lot to extract gold.
These are really complicated puzzles that cannot be solved by guessing numbers humanly. You have to guess as many numbers within a short time to improve your chances of guessing first. Such rate of guessing can only be achieved by powerful processors called GPUs (Graphical Processing Units).
You can buy and setup a GPU at your home and start mining to earn bitcoins. But large companies earn bitcoins by setting up mining farms. A mining farm is a large space with hundreds and thousands of GPUs operating 24-hours at their maximum capability. You know how hot your laptop gets when you play games or run a heavy software. Imagine the heat these GPUs produce operating 24 hours. Thus, mining farms must be equipped with proper Air-Conditioning systems.
Mining farms require enormous amount of electricity to power their GPUs and cooling systems. In many places, this electricity demand is met by burning more fossil fuels resulting in more pollution. The main point of critics is that the bitcoin network demands too much electricity which leads to short-term consequences like blackouts (Iran blackout due to mining) and long-term consequences like climate change.
Bitcoin Network’s Energy Consumption
The bitcoin network accounts 0.5% of the global electricity consumption at a rate of whopping 170 tera-watt-hour per year (Source). To put it into perspective, the bitcoin network consumes more energy than many countries including Netherlands, Argentina, and Philippines. In fact if the bitcoin network was a country, it would rank 33rd on the list of top energy consumers.
Is This A Problem?
Advocates of cryptocurrencies look at this problem from a different perspective. First of all, the network’s energy consumption is a testament to the security of bitcoins. When someone says that the network uses more energy than the whole of Argentina, it means that if Argentina used all its resources to mess with the network, it will not succeed.
Sure – the bitcoin network consumes a lot of energy, but considering the value it provides over traditional banking systems, it’s worth the consumption. What’s not worth is the energy spent in running “always-on inactive devices” at your homes. The amount of energy consumed by such devices in the United States alone could power the entire bitcoin network for 1.7 years (Source). So instead of accusing bitcoin for climate change, critics must strive to raise awareness about the wasteful lifestyle of people in developed countries.
Advocates also believe the energy consumption will fast track the development of renewable energy infrastructures in the world. According to the Global Cryptoasset Benchmark Study, 39% of the network’s energy demand is met by renewable sources. This is a small number but it is expected to grow.
Moreover, critics fail to provide a clear comparison of bitcoin network’s energy consumption to that of the traditional banking systems. A lot of energy is used to operate banks, ATMs, documentations, factories for making the cards and what not. The energy consumption could be close to that of the bitcoin network if not more. But again, the entire world use the banking system compared to only 100 million bitcoin users.
At the end of the day, it depends on the people if they believe in the value of bitcoins. Bitcoin advocates believe it is a better alternative that conventional banks so the energy is spent wisely. The critics either reject the idea of bitcoins or they are not sure if its worth all the pollution. So, do you think the bitcoin network’s electricity consumption is justifiable?