How cryptocurrency uses more electricity per transaction than any other method - Money

Bitcoin passed the $60,000 mark for the first time on Saturday, again raising questions over the vast energy resources required to mine the cryptocurrency.

On March 2, Bitcoin’s estimated energy consumption also reached its highest ever rate, hitting a staggering 130.90 terawatt hours (TWh) annualised.

The following week on March 9, billionaire Microsoft co-founder Bill Gates highlighted the negative impact mining Bitcoin has on the environment.

‘Bitcoin uses more electricity per transaction than any other method known to mankind,’ Gates said, speaking to the The New York Times. ‘It’s not a great climate thing’, he added.

The cryptocurrency is ‘mined’ by high-powered computers that continuously solve computational maths puzzles, the complexity of which means the processors require huge amounts of energy. While the machines use electricity, fossil fuel is a major category in electricity generation.

In a post on Medium, computational artist Memo Atken explained that ‘endless arrays of computers are sitting around in giant data-centre like mining farms around the world, doing nothing but generating random numbers all day every day, in the hopes of rewarding their owners.’

Pictured: A view shows the data centre of BitRiver company providing services for cryptocurrency mining in the city of Bratsk in Irkutsk Region, Russia March 2, 2021. The cryptocurrency is ‘mined’ by high-powered computers that solve computational maths puzzles, the complexity of which require huge amounts of energy

Pictured: A graph showing data from the Cambridge Bitcoin Electricity Consumption Index (CBECI) that shows the energy consumed by Bitcoin. Consumption increased to its highest ever levels towards the end of last year, with the rates continuing to rise into 2021. The CBECI calculates Bitcoin’s total energy consumption is currently between 40 and 445 annualised terawatt hours (TWh), with a central estimate (yellow line) of about 130 TWh

As Bitcoin’s value has increased, so has its demand, with more people setting up Bitcoin miners in the hope that they will strike gold with the digital currency, potentially making thousands of pounds.

However, studies have shown that the annual carbon emissions from the electricity generated to mine and process the cryptocurrency is equal to the amount emitted by whole countries, including New Zealand and Argentina, with the upper-bound estimate being higher than that of even the UK.

Bitcoin mining’s energy consumption also eclipses that of the world’s major tech companies that provide entertainment services, including the streaming giant Netflix as well as Apple, Facebook, Microsoft and Google combined – all of which also require huge amounts of energy to run their services.

By comparison, Google – the largest energy consumer of the tech giants – used 10 TWh in 2019. On March 13, Bitcoin was using 130.9 TWh (annualised). The UK’s electricity consumption is slightly more than 300 TWh a year.

Pictured: A graph showing the amount of energy in terawatt hours (TWh) consumed by tech giants, electric vehicles and Bitcoin mining (lower, central and upper bounds)

Alex de Vries, founder of the Digiconomist blog, pointed out that Bitcoin’s power consumption is closely linked to price, with both increasing in the first months of 2021.

‘The record-breaking surge in Bitcoin price at the start of 2021 could result in the network consuming as much energy as all data centres globally, with an associated carbon footprint matching London’s’, he wrote.

Data from the Cambridge Bitcoin Electricity Consumption Index (CBECI) shows that the energy consumed by Bitcoin increased to its highest ever levels towards the end of last year, with the rates continuing to rise into 2021.

The CBECI calculates Bitcoin’s total energy consumption is currently between 40 and 445 annualised terawatt hours (TWh), with a central estimate of about 130 TWh. At the start of 2021, the central estimate was at 109 TWh.

Matching the energy consumption trend, the value of Bitcoin reached a record rate in December 2020 when it surpassed the previous record of over $18,000 in 2017.

Since then, its value has continued to increase, at no point dipping below the 2017 rate, and on March 13 reached over $61,000, days after Bitcoin’s energy consumption reached a record high.

Pictured: A graph showing the value of Bitcoin throughout its lifespan. Bitcoin passed the $60,000 mark for the first time on Saturday, with analysts saying the giant US stimulus package helped boost the world’s most popular virtual currency on its record-breaking run

WHAT IS BITCOIN AND HOW DOES IT WORK?

What are Bitcoins?

Bitcoin is a cryptocurrency – an online type of money which is created using computer code.

It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.

Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged.

They are stored in what are called virtual wallets known as blockchains which keep track of your money.

One of the selling points is that it can be used to buy things anonymously.

However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns.

How are they created?

Bitcoins are created through a process known as ‘mining’ which involves computers solving difficult maths problems with a 64-digit solution.

Every time a new maths problem is solved a fresh Bitcoin is produced.

Some people create powerful computers for the sole purpose of creating Bitcoins, which can require a huge amount of energy to run.

But the number which can be produced are limited – meaning the currency should maintain a certain level of value.

Why are they popular?

Some people value Bitcoin because it is a form of currency which cuts out banking middlemen and the Government – a form of peer to peer currency exchange.

And all transactions are recorded publicly so it is very hard to counterfeit.

Its value surged in 2017 – beating the ‘tulip mania’ of the 17th Century and the dot com boom of the early 2000s to be the biggest bubble in history.

But the bubble appeared to have burst, and questions arose over what market there is for it long-term.

However, it has since boomed again, and in March 2021, surpassed the $60,000 mark for the fist time.

Bill Gates is not the only high profile figure to criticise the cryptocurrencies massive carbon footprint.

U.S. Treasury Secretary Janet Yellen, President Joe Biden’s top economic adviser, descried Bitcoin as ‘an extremely inefficient way to conduct transactions. The amount of energy consumed in processing those transactions is staggering.’

The CBECI explains that it ‘provides a range of possibilities consisting of a lower bound (floor) and an upper bound (ceiling) estimate. Within the boundaries of this range, a best-guess estimate is calculated to provide a more realistic figure’ for Bitcoin’s energy consumption.

The lower and upper bounds are based on the idea that miners use the most efficient (lower) and least efficient (upper) equipment available, while the best-case figure is based on the assumption miners use a range of equipment.

Even the lower bound Bitcoin energy consumption figure is greater than the energy consumed by Netflix, Apple, Facebook, Microsoft and Google combined, while the best-guess consumption figure is greater than that of all electrical vehicles combined.

Despite companies being pressured by customers and investors to reduce their carbon footprints, some are announcing that they will accept Bitcoin as payment.

Last month Elon Musk’s electric carmaker Tesla invested $1.5 billion in the virtual unit, while Twitter chief Jack Dorsey and rap mogul Jay-Z said they are creating a fund aimed at making Bitcoin ‘the internet’s currency’.

Others jumping on the bandwagon include Wall Street player BNY Mellon, investment fund giant BlackRock and credit card titan Mastercard.

Bitcoin has tripled in value over the last three months – it was worth $20,000 in December – bolstered by increasing backing from corporate heavyweights.

Markets.com analyst Neil Wilson said that in recent days ‘Bitcoin went up as investors looked to the imminent arrival of stimulus cheques’.

Individuals in the US earning up to $75,000 will receive a cheque for $1,400 from this weekend, after President Joe Biden signed his $1.9 trillion Covid-19 rescue plan into law this week.

Bitcoin has been on a meteoric rise since March last year, when it stood at $5,000, spurred by online payments giant PayPal saying it would allow account holders to use cryptocurrency.

Bitcoin, which was launched back in 2009, hit the headlines in 2017 after soaring from less than $1,000 in January to almost $20,000 in December of the same year.

The virtual bubble then burst in subsequent days, with bitcoin’s value fluctuating wildly before sinking below $5,000 by October 2018.

However the last year’s rise has been more steady, with investors and Wall Street finance giants wooed by dizzying growth, the opportunity for profit and asset diversification, and a safe store of value to guard against inflation.

Bitcoins are traded via a decentralised registry system known as a blockchain, and found by so-called Bitcoin ‘miners’, who enable new Bitcoins to be created, but also to independently verify and record every transaction made with the currency.

More accurately, Bitcoins are the reward miners get for maintaining the transaction record accurately.

The mining works like a lottery that runs every ten minutes, with processing centres around the world racing to compile and submit this record of transactions in a way that is accepted by the system.

They also guess a random number, with the first to submit and record the correct number the winner of the prize, with this becoming the next block in the blockchain.