Cryptocurrency takes up a lot of energy.
Researchers at Cambridge estimate that the Bitcoin network alone consumes about 130 TW-hours
of electricity every year.
That's about half of one percent of all the electricity consumed in the world.
Which... is a lot!
That means the world only does 200 Bitcoin-sized things every year.
But why does it use so much energy?
And is there a better way?
Bitcoin was invented as a way of enabling direct exchange between people — without
relying on governments or banks.
That is, it’s “decentralized.”
In other words, it and other forms of cryptocurrency run on financial ledgers that are stored on
tens of thousands of computers all around the world.
These ledgers are basically lists of who sent what to whom and how many coins each of those
people have after doing so.
Say this block represents a list of recent transactions.
Remember, it isn’t just stored in one place.
It’s stored in a bunch of places, on a bunch of different computers.
As is the rest of the data — the records of all the other transactions that anyone
has ever sent.
String those data together and you have the full database: a chain of data blocks.
A blockchain.
If they’re going to be functional and secure, though, because there are so many copies of
‘em, blockchains need to have what’s called “network consensus”:
A shared view of what’s what.
Now, there are a couple of ways to design the process of proposing transactions to add
the permanent record.
The most common is called “Proof of Work,” and this is where energy use comes in -- it
uses A LOT of electricity.
Because these blocks need to be assembled, right?
In the case of Proof-of-Work, computer operators known as miners race one another to confirm
the legitimacy of a handful of recent Bitcoin transactions,
group these transactions together into a block,
and then solve a kind of cryptographic puzzle that allows them to show that block to the
rest of the network.
If the majority of the network agrees that the block looks legit,
it gets added to the blockchain, and the winning miner is rewarded with a handful of Bitcoin.
As for the losers, their calculations are now worthless.
[sad noise]
And there are an estimated 1,000,000 miners out there.
That’s a lot of losers.
You can see that tons of work is being done in vain here.
And even without the redundancy,
Each miner uses a bunch of electricity to try to solve that cryptographic puzzle and
propose the chain’s next block — and that’s by design.
The thinking goes, if you have to expend (and pay for) a bunch of energy to add transactions
to the record, you’re a lot less likely to add fraudulent transactions to that record.
They’ll just get rejected by the network anyway.
But surely there’s a more efficient way to assemble blockchains.
Instead of a competition-based model, an algorithm could select one computer to do the job each
time.
That step would virtually eliminate a blockchain network’s electricity consumption.
We’re talking cutting out, like, 99.95 percent of this electricity.
Under these protocols, called “Proof of Stake”, the people who mine crypto are now
validators, and they lock up some of their own coins with the promise that they’ll
be charged a penalty if they skip out on their job or introduce fraud into the system.
Some blockchains (like Ethereum) are in the process of transitioning, but Bitcoin developers
have no intention of switching.
And some people think all that energy use is actually a good thing:
The argument looks something like this:
"Electricity consumption isn’t the same as carbon emissions, so really we should be
having a conversation about energy mix: If we generate electricity from renewable sources,
it shouldn’t matter how much electricity Bitcoin uses.
Current estimates suggest that between 40 and 70 percent of the network already runs
on renewable energy."
But here’s the real leap of faith.
Some crypto boosters argue that cryptocurrencies are actually accelerating the transition to
renewables.
"The problem with wind and solar these days isn’t the price -- in most places, it’s
already cheaper.
The problem is its storage and distribution.
You can put Bitcoin mining rigs anywhere you want in the world, though, and you can turn
‘em on and off any time you want.
If power companies could sell excess electricity to crypto miners, mines could basically be
backup generators for the grid."
Seen from this angle, something like Bitcoin almost acts as a clean-energy subsidy.
But not everyone’s convinced.
"There was a recent report of an old coal plant in upstate New York that was brought
back online, converted to natural gas, for the sole purpose of bitcoin mining.
We've also seen recent reports of oil drillers burning excess natural gas, for the sole purpose
of mining crypto.
In these cases, Bitcoin is acting as a fossil fuel subsidy."
So what is Bitcoin actually incentivizing?
What's clear is that Bitcoin increases the demand for electricity.
At this moment in time, the systems are not big enough to actually move the needle on
climate, which isn't to suggest that they won't be in the future.
But I think what that implies is the time to make some really serious decisions is today.
Hey, thanks for tuning in, there are a lot of great resources out there, and we couldn't
fit all of them in this video, but we did put a few in the description.
Tell us what we missed -- in the comments or if you've got any other questions we'd
be pleased to take a look.