Musk alludes to the environmental impact of electronic currency. His claims appear to contradict the belief that, being completely digital, bitcoin is an ecological currency. Unlike paper money, it is not necessary to cut trees to create it, nor to extract metals. Nor does it require making transactions at the bank’s offices.
How does bitcoin work?
Bitcóin is a decentralized currency, since it is not governed by authorities, such as governments or central banks, nor by intermediaries for the issuance or settlement of currencies, nor by the validation of transactions. The result is that it can provide low payment rates. That is its main attraction.
In a simplified way, we can define bitcoin as an electronic virtual currency that has no physical representation such as coins or bills. For the cryptocurrency to exist, we have the bitcoin ecosystem, made up of a network of users who communicate with each other using a protocol over the internet.
A code-based software application allows users to store and transfer bitcoins to buy and sell goods, or exchange them for other currencies. At the same time, the issuance of bitcoins takes place on the Internet in a process called “mining”, whose name distantly reminds us of the processes to obtain the raw material of coins in ancient times.
Due to the huge revaluation of cryptocurrencies, several parallel economic, financial and even ethical debates have emerged. But, as we’ve introduced in this article, one of the biggest concerns is whether Bitcoin is consuming too much power. In fact, it was the Reuters agency who singled out Elon Musk for defending clean energy and at the same time using bitcoins.
Bitcoin mining
Bitcoin mining is based on an intensive validation process, which demands extensive computing resources. Encryption and cryptographic functions, which ensure security, privacy and anonymity, require intensive computational tasks.
Bitcoin transactions between users are carried out through the network and are registered thanks to blockchain technology. A copy (complete or partial) of this movement history is stored in each node of the network.
Leaving aside (which is not trivial) the computational cost of transferring transactions, mining requires specific hardware that consumes large amounts of electrical power.
Depending on the methodology and calculation assumptions of various authors, the estimates of total power consumption vary, as shown in the figure that follows this paragraph.
As you can see, the total power consumption estimated in the study by Adam Back, one of the fathers of bitcoin, seems quite conservative. It stands at 4.3 GW. Since these estimates include energy losses in mining, the actual consumption of bitcoin could be higher. Digiconomist, for example, estimated 7.9 GW in early 2020.
When those calculations are translated into tangible reality, ecological analysis makes crypto advocates suffer. According to figures from the Center for Alternative Energy at the University of Cambridge, Bitcóin consumes more energy in one year than Argentina or the Netherlands. If bitcoin were a country, it would be among the top 30 energy consuming countries in the world.
Energy efficiency of mining machines
Bitcoin mining hardware has gone through four generations. Initially, the miners used general-purpose servers, where the actual calculations were performed by the CPU (central processing units). This first generation was not very powerful computationally and even less so energetically.
The second generation occurred in late 2010, when miners started using GPUs (graphics processing units). GPUs are designed to perform calculations with greater parallelism (based on graphics technologies), which can be used efficiently for bitcoin mining.
The third generation arrived in mid-2011, when miners switched to FPGAs (Field Programmable Logic Gate Arrays) and customized computation, increasing computing power and efficiency.
The fourth generation appeared in early 2013 with the introduction of Application Specific Dedicated Integrated Circuits (ASICs), which are optimized to perform cryptographic calculations as efficiently as possible.
However, what worries energetically is not the machines, but the use that is made of them.
Bitcoin and climate change
It is evident that almost any use of the internet today (sending an email, scrolling through social networks, sending money through your bank …) contributes to the carbon emissions of CO₂ into the atmosphere. However, bitcoin exacerbates it.
The University of Cambridge Alternative Energy Center uses the so-called Bitcoin Electricity Consumption Index (BECI) to calculate your energy consumption. At the time of writing, the BECI is at 150 TWh. The maximum and minimum estimates vary widely and are currently 516 TWh and 47 TWh, respectively.
According to a September 2020 report from the Cambridge Center for Alternative Finance, nearly 40% of crypto mining energy is renewable. It is a good percentage compared to other power users, although that does not seem enough when calculating the real carbon footprint of bitcoin.
If we use the average estimate from the Cambridge Center study, more than 90 TWh of Bitcoin is based on non-renewable energy. Therefore, according to the EPA, electricity consumption from non-renewable energy is roughly equivalent to the consumption of 10 million homes during the year.
Bitcoin’s annual carbon emissions are currently equivalent to 7 billion smartphones on charge, one per inhabitant of the planet. Furthermore, all of the world’s data centers account for about 200 TWh, according to the International Energy Agency (IEA). It’s really hard to think that bitcoin mining can add ¾ of that value to the computation.
Proponents of bitcoin hide behind traditional banking energy spending, which covers not only its technologies and bank and card transactions, but also the transport of money, offices, etc.
The CEO of the company Securitize suggests that the traditional banking system, including ATMs, demands approximately 100 TWh per year. Even so, it would be a third behind bitcoin consumption. Another paradox is that the traditional banking system is closing offices, laying off workers and at the same time investing in electronic banking.
All that glitters is not gold (and neither is bitcoin)
If bitcoin were to approach a level of mainstream adoption, the demand for energy for transactions would likely skyrocket as all projections indicate. The idea that bitcoin’s energy use will grow as its price rises is not a mere assumption, as the data supports that as well.
Since bitcoin’s energy consumption grows as its price increases, it could be assumed that the problem would disappear if the price of bitcoin fell, because the financial incentive to “mine” bitcoin would be reduced.
However, all energy estimates and underlying assumptions are subject to uncertainty. In particular, the generation of computers, their source of electrical power and the operation of mining devices pose a significant challenge as the Bitcoin mining industry operates in secrecy.
For example, miners may shut down and give preference to certain devices temporarily, in response to fluctuations in electricity prices and the money market. That is, when the cost of electricity exceeds the income from mining, as seen during the COVID-19 pandemic, they fall into similar practices of traditional money market management … but that’s another story.
Belén Bermejo González, PhD in Computer Engineering. Specialized in energy consumption and the performance of virtualized servers, Universitat de les Illes Balears and Carlos Juiz García, University Professor, Universitat de les Illes Balears
This article was originally published on The Conversation. Read the original.
