On 14 April this year, the price of a single Bitcoin reached a then all-time-high of around US$64,870.
A significant driver behind this sudden drop was news that China had begun a sweeping crackdown on the cryptocurrency industry, due to concerns about financial risk and excessive energy consumption.
Recent data suggests that energy consumed by Bitcoin has increased in the US, Canada and Kazakhstan, and with it, pressure to address the currency’s soaring electricity appetite.
Bitcoin is a decentralised digital currency, meaning that each time money is sent or received, the transaction is kept on a public record, rather than with a bank.
To verify transactions, miners connect computers to the network and use them to solve incredibly complex, randomly generated mathematical puzzles.
The more processing power you can muster, the more often you will be first to solve the puzzle and earn the Bitcoin.
“That’s the price we pay to secure transactions,” says Anton Dek, cryptoasset and blockchain lead at the Cambridge Centre for Alternative Finance, and one of the creators of the index.
“We haven’t seen any double spending or any attacks on the network, partially because this attack would be too expensive.
In 2017, economics blog Digiconomist estimated that the network of specialised mining computers used 29 TWh annually, equal to 0.13% of total global electricity consumption.
One of the main reasons for this growth is the price of Bitcoin, says Dek.
Bitcoin is a “global climate problem”, says Jon Truby, associate professor of law at Qatar University and author of a 2018 study looking at ways to reduce the currency’s environmental footprint.
According to the Cambridge University Index, Chinese miners accounted for more than 71% of the network’s total processing power, or “hash rate”, from September 2019 to April 2020.
Hydropower supplies most of the electricity in the mountainous provinces of Yunnan and Sichuan, where miners would migrate for several months each year during the wet season to take advantage of the excess electricity.
Regional governments were quick to act, revoking licences of companies involved in cryptocurrency mining, cutting off power to mining facilities and in some cases giving firms just seven days to shut down their operations.
In Canada, oil and gas company Black Rock Petroleum has agreed to host up to 1 million Bitcoin-mining machines relocated from China, with the first 200,000 units sourcing power directly from a natural gas well.
The new global hub of Bitcoin mining, however, is expected to be the US state of Texas.
Overall, however, the Texas energy grid is made up of just over one-fifth renewable energy, and has proven fragile in extreme weather conditions.
Instead of competing against each other, participants who have first made a deposit in Bitcoin are selected at random to verify transactions.
Several smaller cryptocurrencies already use this method.
“We have no plans to shift away from Proof of Work,” says Wall.
“It may be too late for existing digital currencies like Bitcoin to change their methods of confirming transactions,” agrees Truby, of Qatar University.
In June, the president of El Salvador Nayib Bukele made headlines when he announced the country would start mining Bitcoin powered by “100% clean, 100% renewable, 0 emissions energy” from a volcano.
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