BITCOIN has been alarming people for years because of the amount of electricity needed to mint new virtual coinage. Alex de Vries, a bitcoin specialist at PwC, estimates that the current global power consumption for the servers that run bitcoin’s software is a minimum of 2.55 gigawatts (GW), which amounts to energy consumption of 22 terawatt-hours (TWh) per year—almost the same as Ireland. Google, by comparison, used 5.7 TWh worldwide in 2015. What’s more, the bitcoin “miners” consume about five times more power than they did last year, and orders of magnitude more than just a few years ago—and there are no signs of a slowdown. Why does bitcoin require so much energy to make something that exists only electronically?
Bitcoin and most other cryptocurrencies are founded on the notion of an immutable ledger, called the blockchain, which comprises transfers of value from one party to another. Cryptocurrency “miners” seek results to a kind of algorithmic puzzle that fits a very specific set of requirements. Every ten minutes on average, a server finds an acceptable solution, and the miner gets a reward from the bitcoin system. Currently they get 12.5 bitcoins (worth around $85,000) and about $1,000 in transaction fees. The miner’s combination of solution and transactions is also added to the blockchain. The new block does not become a de facto part of the ledger until a few more blocks are added, because valid solutions are sometimes found simultaneously, and it is not always clear straightaway which will become the longest, winning fork in the chain. To ensure that coins cannot be minted too quickly, as the overall network’s computational power increases, the bitcoin protocol continually makes it harder to find a putative solution. Every 2016 blocks (roughly every two weeks), the system is recalibrated. Miners are obliged therefore to keep upgrading in order to earn rewards as fast as competitors. And more computing power requires more electricity.
Although chipmakers continually improve the efficiency of computation relative to power, bitcoin’s automatic reset means that as long as there is money to be made, miners will consume more power. Mr de Vries believes he has a good picture of the point at which bitcoin mining stops being profitable for those involved, by factoring in the cost of data centres, electricity and servers that need constant upgrading. If the cryptocurrency were to stay at its recent price of $8,000, power usage of the bitcoin network would peak at 7.67 gigawatts (67 terrawatt hours of energy on an annual basis, or one-fifth of Britain’s energy use).
Other factors may limit bitcoin’s growth before that figure is hit. The cryptocurrency’s exchange price is hugely volatile, perhaps because of its illiquid nature. It can buy few items or services, and its exchanges are constrained by their cash reserves. Also, many exchanges have failed to register, as required, with America’s Securities and Exchange Commission (SEC), so could be forced to stop operating, further reducing liquidity. Moreover, the days of cheap electricity may not last. Many bitcoin miners currently operate in places, such as rural China and America, where underutilised hydroelectric power means electricity prices can be 20% of those elsewhere in the country. But in the western United States, some utility companies have responded by freezing service to new cryptocurrency installations or charging them higher rates; and Chinese authorities have started destroying smaller hydroelectric projects (some illegal), and are connecting others to the national grid, making their unused power more valuable. Finally, the miners’ race, known as “proof of work”, could be superseded by “proof of stake”. So a cryptocurrency’s investors have to hold a stake in the currency for a minimum period. The value of their stake gives them a sort of voting right in how the next block is formed, as well as a return on investment for that stake. They also have to contribute computing assets, but the overall computational power required is far lower than the bitcoin approach and grows slowly over time. Worries about bitcoin’s power usage might become obsolete.