Bitcoin has risen from a fringe technology popular among cryptographers to the world's ninth most valuable asset by market capitalization in just over a decade.
The meteoric rise of Bitcoin has made millionaires, redefined money, and generated a multibillion-dollar economy based on its groundbreaking decentralised technology. However, it has also resulted in some unwelcome side effects.
The computational power necessary to support bitcoin's underlying network now consumes roughly as much energy as Argentina, prompting concerns about the cryptocurrency's environmental impact.
Analysis by the University of Cambridge suggests, the bitcoin network consumes more than 121 terawatt-hours (TWh) per year, placing it in the top 30 global electricity consumers if it were a country.
The increase in energy demand has been fueled by the recent price of bitcoin, which has risen from below $5,000 (£3,600) in March to close to $50,000 today.
Concerns about bitcoin's energy requirements have existed since the cryptocurrency's inception, with crypto pioneer Hal Finney tweeting on 27 January 2009 about potential future CO2 emissions – just two weeks after receiving the first ever bitcoin transaction from Satoshi Nakamoto, the cryptocurrency's pseudonymous creator.
The amount of energy consumed by bitcoin's network did not become widely known until 2017, when a large price rally dramatically increased its energy requirements to the equivalent of a small country. In the years since, the market has cooled, and so have energy consumption, but the most recent all-time high, reached this week, is more than double that of three and a half years ago. And this time, the energy demands are significantly higher.
"Bitcoin's energy usage has more than doubled since its last high in 2017, and it's only going to grow worse because energy inefficiency is encoded into bitcoin's DNA," says Charles Hoskinson, CEO of IOHK, a leading cryptography business.
"Bitcoin's carbon impact will deteriorate significantly as its price grows, creating more competition for the money and, as a result, consuming more energy."
Bitcoin's environmental impact is exacerbated by the fact that the bulk of miners are headquartered in China, where coal accounts for almost two-thirds of total electricity generation.
Solving difficult yet arbitrary mathematical equations, which currently demands massive amounts of computer processing power, is required for the mining process to generate new units of the cryptocurrency.
As a result, bitcoin miners flock to areas with the lowest electricity, implying that the primary issue is not with bitcoin, but with a lack of inexpensive renewable energy supply.
Countries ranked by electricity consumption (TWh)
Fortunately, solutions are being developed, with some environmentally friendly mining plants currently in operation on a large scale.
Cryptocurrency miners in Iceland and Norway, where practically all energy output is renewable, are using cheap hydro-electric and geothermal energy to power their devices. Low temperatures in the countries also help to cut costs by naturally cooling computer servers.
The third Global Cryptoasset Benchmarking Study, conducted by the University of Cambridge last year, found that in their operations, 76% of cryptocurrency miners use electricity from renewable sources. This was an increase from 60% in the same benchmarking research in 2018.
This trend is likely to continue, r enewable energy sources are becoming increasingly more cost-effective than fossil fuels, according to projections from the International Renewable Energy Agency, which reported last year.
"The infrastructure that supports the bitcoin protocol in its current state cannot be sustained," says Don Wyper, COO of DigitalMint. "However, the beauty of the protocol is that the incentive structure will force miners to adopt the cheapest form of electricity, which in the near future will be renewable energy."
"I believe the recent University of Cambridge study is flawed, because bitcoin acts as a 'digital gold,' and so should be compared to the energy usage of other store-of-value assets... Annually, the gold mining industry uses 475 million GigaJoules of power.
"And, if bitcoin is to become the digital currency that was envisioned, we'll have to include in all the electricity used in currency production, destruction, transmission, securitization, and loss, among other things." Climate change is, in my opinion, one of the most critical challenges facing our planet today, yet those who claim that bitcoin will lead to even more environmental harm don't realise that bitcoin is actually benefiting our environment.”
Alternative cryptocurrencies have also attempted to address bitcoin's existing environmental difficulties by modifying the underlying technology to use less energy.
Cardano, for example, is 4 million times more energy efficient than bitcoin, according to Hoskinson, because of its 'Proof-of-Stake' blockchain, which validates transactions based on how many coins a network participant holds rather than the amount of computational processing power they have.
"Cardano is being constructed to scale to meet the needs of global enterprises and consumers, at higher volumes and quicker speeds than existing global financial infrastructure - despite the global network consuming no more energy than a large family house," according to Hoskinson.
If bitcoin does not soon switch to renewable energy sources, Hoskinson is one of several experts who believe that investors and users will turn to other cryptocurrencies that are less harmful to the environment.
"I feel that the fear of missing out is considerably more powerful than the fear of climate change (FOMO) t hat is what is driving this new wave of institutional and retail bitcoin investment." Scott Morgan, a blockchain consultant, tells.
"Bitcoin has the potential to do tremendous good in the world. It is an advantage in terms of technology. Other cryptocurrencies, on the other hand, utilise less energy."
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