With international focus on sustainability sharpening, the energy consumption of the world’s first ever popular virtual currency, bitcoin, is being put under the microscope.
As a decentralised form of currency, bitcoin is not tied to any central bank or administrator, meaning transactions must be verified by a network of nodes, or machines, distributed across a public ledger – otherwise known as a blockchain.
Naturally, PoW involves a considerable amount of mathematical calculations, computational power, and therefore energy.
Against a backdrop of the sharpening focus on sustainability, and initiatives such as the Net-Zero emissions agreement, this has led some to criticise bitcoin, and call for tighter regulations around the virtual currency, in order to mitigate its environmental impact.
In an interview with Finextra, Michel Rauchs, research affiliate, CCAF – responsible for helping to develop the CBECI – noted: “In 2009, you could mine bitcoin on a central processing unit using your desktop.
The potential environmental impact of this upward trend is deeply concerning.
This approach can be misleading, as it fails to consider bitcoin’s ‘halving model’, whereby every four years – or every 210,000 blocks mined – the reward given to miners for validating a transaction is reduced by 50%.
As such, all available 21 million bitcoins will eventually be mined.
What is more, bitcoin mining seems to have been getting increasingly energy efficient – and at a faster pace when compared to any other method of value transfer in the world, notes Carter.
However, the most notable efficiency improvements may be behind us, argued Rauchs: “In the first two to three years after the first ASICs came out, there were big equipment efficiency improvements – often by two or three orders of magnitude.
The GDP of Ukraine, for example, is around $150 billion.
We must also acknowledge the lack of a true benchmark for bitcoin, in any comparison to a country’s energy consumption, noted Rauchs.
So, while comparisons to the energy consumption of nation states, for instance, are in a sense arbitrary, they are a necessary evil, in order to put this debate into perspective.
If we are worried about the environmental impact of bitcoin, which is the crux of this debate, it would be remiss to not examine bitcoin’s energy mix, as opposed to just its energy consumption.
“According to what we observe”, said Rauchs, “although bitcoin’s energy consumption has been increasing, the actual carbon emissions may have not increased proportionately.
This is particularly convenient in Sichuan and Unan, added Rauchs, where hydropower plants have only been built in the last decade, and the necessary battery storage capacity and transmission lines needed to distribute the green energy to distant demand centres, is lacking.
Interestingly, the CBECI demonstrates that there is, in fact, already enough renewable energy to power the entire bitcoin network.
Instead of rewarding the first miner that solves a cryptographic hash puzzle with new coins, the PoS model maintains the integrity of the blockchain by selecting one person to mine according to how many coins they hold, and penalises them if an infringement against the laws of the system takes place.
There are promising movements to this end.
Not only does PoS incentivise miners to hoard tokens, it comes with a greater chance of a 51% attack – particularly for smaller altcoins.
In a FinextraTV episode, Monica Long, general manager of RippleX, said “the energy use of this method, versus mining, is 120k times more energy efficient.
Clearly, the environmental impact of bitcoin and altcoins is being addressed through decarbonisation and increasing renewables usage.
“It is completely open source, meaning any blockchain can use it to evaluate its carbon footprint, and either identify greener energy sources, or adopt offsetting tactics.
Since Finextra’s interview with Long, further steps have been taken, on an industry-level, to mitigate the environmental impact of cryptocurrencies-at-large.
The invaluable role of organisations such as the CCAF is to cut through the noise, and present the raw data with which stakeholders can respond to.
The negative press bitcoin is receiving in this area is causing some institutional investors to reconsider their capital allocation plans, and remove bitcoin from their balance sheets.
Ultimately, bitcoin is not going anywhere – the virtual goldrush is far from over.