In little over a decade, bitcoin has risen from a fringe technology popular with cryptographers, to the world’s ninth most valuable asset by market cap.
The cryptocurrency’s dramatic ascent has created millionaires, reimagined money, and launched a multi-billion dollar industry inspired by its revolutionary decentralised technology. But it has also brought with it some unwanted side effects.
The computing power required to support bitcoin’s underlying network now requires nearly as much energy as the entire country of Argentina, leading to criticism about its environmental footprint.
Analysis by the University of Cambridge suggests the bitcoin network uses more than 121 terawatt-hours (TWh) annually, which would rank it in the top 30 electricity consumers worldwide if it were a country.
The energy demands have been fuelled by the surging price of bitcoin in recent months, which has seen it rise from below $5,000 (£3,600) last March to close to $50,000 today.
Concerns about bitcoin’s energy demands have been around since the very beginning, with crypto pioneer Hal Finney tweeting about potential future CO2 emissions on 27 January 2009 – just two weeks after receiving the first ever bitcoin transaction from the cryptocurrency’s pseudonymous creator Satoshi Nakamoto.
The amount of energy bitcoin’s network consumes did not rise to serious prominence until 2017, when a major price rally drastically pushed up its energy needs to the level of a small country. As the market cooled off in the years following, so did the energy demands, but the latest all-time high hit this week is more than double that of three and a half years ago. And this time its energy requirements are even greater.
“Bitcoin’s energy consumption has more than quadrupled since the beginning of its last peak in 2017 and it is set to get worse because energy inefficiency is built into bitcoin’s DNA,” Charles Hoskinson, CEO of leading cryptography firm IOHK, tells The Independent.
“Bitcoin’s carbon footprint will get exponentially worse because the more its price rises, the more competition there is for the currency and thus the more energy it consumes.”
Bitcoin’s environmental impact is exacerbated by the fact that a majority of miners are based in China, where over two thirds of power is from coal.
The mining process required to generate new units of the cryptocurrency involves solving complex but arbitrary mathematical equations, which currently requires vast amounts of computer processing power.
Bitcoin miners therefore gravitate to where electricity is cheapest, meaning the fundamental issue is not with bitcoin but with a lack of cheap renewable energy production.
Fortunately, there are solutions being put in place, with some eco-friendly mining facilities already operating at a massive scale.
In Iceland and Norway, where nearly 100 per cent of all energy production is renewable, cryptocurrency miners are taking advantage of cheap hydro-electric and geothermal energy to power their machines. The low temperatures in the countries also help reduce costs by cooling the computer servers naturally.
Last year, the University of Cambridge’s third Global Cryptoasset Benchmarking Study found that 76 per cent of cryptocurrency miners use electricity from renewable sources in their operations. This figure was up from 60 per cent from the same benchmarking study in 2018.