Bitcoin mining could have serious environmental and economic ramifications that could spill over to other industries and even affect global security, argues a new comment that focuses on the soaring price of blockchain-based cryptocurrency.
Bitcoin uses approximately 1% of the world’s energy to mine currency
The article, written by financial economist Alex de Vries and published in Joule, looked at the relationship between the price of Bitcoin – which is currently over $ 55,000 – and the resulting hidden cost of the currency.
For de Vries, the most immediate and salient point regarding Bitcoin’s stratospheric surge is its environmental impact. “What we can expect is that the network will ultimately use the same amount of electricity worldwide as all data centers. The associated carbon footprint will be as large as in London, “explains de Vries Technology Networks.
Encrypting Bitcoin requires users to “mine” the currency by using computational resources to solve complex mathematical equations. Bitcoins are distributed in a regulated and random manner, which means for miners that the only way to increase their chances of getting digital gold is to use more and more computing resources to mine it.
While in theory any processing unit with an internet connection can be used for mining, in practice professional bitcoin miners use highly specialized, energy-saving equipment.
These machines fuel the Bitcoin economy, which runs around 120 million transactions per year. That is a tiny fraction of the more than 500 billion transactions that the global financial system has made, stresses de Vries. Still, he estimates that Bitcoin spends roughly one percent of the world’s energy mining currency, a staggering number that will only rise if the price of Bitcoin is fueled by increased interest.
De Vries’ analysis was able to tie the price of Bitcoin to energy consumption by analyzing how much miners pay for their electricity – an estimated ~ 60% of the total cost of their operations.
As for de Vries in particular, it is the “confinement” of a large part of the energy consumption. His analysis finds that many Bitcoin mining equipment vendors sold out their machines and orders have been backlog for several months. Even if bitcoin prices crash like the end of 2017, miners will be forced to use their machines as their purchases are non-refundable sunk costs that they will have to recoup by mining themselves at lower prices, suggests de Vries. This guarantees an enormous energy requirement even from a depreciated Bitcoin.
Electronic waste, chip shortages and international security
De Vries’ analysis goes beyond Bitcoin’s direct environmental impact, which remains highly competitive theme. He also stresses that secondary effects will come from the short lifespan of current mining equipment: “This results in a large pile of electronic scrap from specialized equipment that cannot be reused.”
The rigs also contribute to the global shortage of computer chips, says de Vries. “These bitcoin miners want the same chips that we need for our phones or for self-driving electric vehicles.” The bottleneck here is so severe that only one million units of the most powerful mining equipment have to be produced. Bitmains Antminer S19 Pro, About half of the global production of 7 nm chips would be required for a whole month.
Finally, de Vries points out that the anonymous, decentralized nature of Bitcoin would allow countries like Iran – which is now home to eight percent of global bitcoin manufacturing – to avoid economic sanctions by using sanctioned oil intended for export , will be used again to drive Bitcoin mining instead. Since these sanctions were originally imposed to prevent the proliferation of nuclear weapons, de Vries credibly points out that the Bitcoin spillover now also raises international security concerns.
How can we deal with the growing impact of Bitcoin? Could Miners Switch to Renewable Sources? de Vries accepts that this is a possible way forward, but points out that fossil fuels remain the main source of electricity for the currency. De Vries says policymakers may have to take drastic steps to regulate this decentralized currency: “You can do a lot about these issues. Mining facilities are usually centralized. They’re pretty easy to aim for. “
Could we see Bitcoin miners being subject to a moratorium on operations or even equipment confiscation? What is certain is that Bitcoin’s staggering energy consumption will increase if Bitcoin’s current trajectory continues. de Vries admits that Bitcoin has already surpassed the highest estimate calculated in his paper written in January 2021. At the current price of Bitcoin, he estimates that mining operations could use up to 241 TWh of energy. That is more than Australia’s total annual energy consumption.
Reference:
Vries, A. de. (2021). Bitcoin boom: what rising prices mean for the network’s energy consumption. Joule, 0 (0). https://doi.org/10.1016/j.joule.2021.02.006
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