TL:DR – Bitcoin mining uses vast arrays of energy-hungry computers many of which are powered with an unsustainable, non-renewable energy supply, generating enormous carbon emissions. It is estimated that Bitcoin is currently wasting 140 terawatt-hours of electricity annually and producing 70 megatonnes of carbon emissions each year.
Bitcoin is a form of digital currency. Each Bitcoin has a digital ledger, a blockchain, that records all transactions and is at the heart of the value in the currency. Bitcoin transactions are typically irreversible and can be made anonymously, providing a level of privacy. It operates on a decentralized, peer-to-peer network independently of governments, banks or any financial authority. It was ostensibly created by Satoshi Nakamoto in 2009, but that pseudonym may represent an unknown individual or a group of people.
The way in which Bitcoin was created means that there is a known and limited supply. The total number of Bitcoins that can ever exist is capped at 21 million, making it a finite digital asset. Scarcity, of course, can be seen as giving Bitcoin value and it has become a popular form of alternative investment. The value of Bitcoin can fluctuate wildly with no physical asset, such as gold or a commodity to underpin it nor government backing. Its value is determined solely by supply and demand in the crypto market.
None of this is free. Bitcoin is a digital entity and must be sustained by a network of computers all using electricity. Indeed, each Bitcoin transaction created when someone sends or receives a Bitcoin has to be verified and this is done by a process called mining. Mining involves nodes (computers) in the Bitcoin network solving a complex mathematical problem to validate the transaction before it can be added to the digital ledger, the blockchain.
Now, the obvious question arises why would a person with a computer or an array of computers use their resources to solve those mathematical problems to validate Bitcoin transactions to add to the digital ledgers? The answer is that the owner of the computer that solves the problem and validates the transaction first is rewarded with Bitcoin! Validating transactions, which usually takes about ten minutes for a powerful computer, is a competition with Bitcoin as its prize.
The mathematical problems that miners must solve require significant computational power and energy to undertake the so-called Proof-of-Work (PoW)*. The solution to the mathematical problem is the “hash” a unique cryptographic code that verifies each transaction and locks the new link in place in the blockchain. A third party hoping to hack and so steal a Bitcoin would need unimaginable computer resources to solve the thousands of hash codes in a single Bitcoin. The PoW system makes Bitcoin validation decentralised and secure.
The electricity consumption in Bitcoin mining is enormous. The primarily attributed to the computational power required to solve the PoW puzzle, the cooling and infrastructure needed to run the mining hardware, and the continuous operation of the mining equipment. The University of Cambridge’s Bitcoin Electricity Consumption Index currently estimates that the annual power usage is almost 140 terawatt-hours. That is roughly half the electricity usage of Finland or about a third of that of Venezuela!
A particularly cynical aspect of Bitcoin mining is the exploitation of cheap electricity in the developing world, which not only affects the environment detrimentally but reduces access and raises prices in those regions. That said, while it was originally China with the most Bitcoin mines, the US has gone into polluting pole position after China shut them down citing environmental reasons!
It seems obvious that Bitcoin mining is not an environmentally benign process. There are other crypto currencies that use other types of PoW puzzles and these too add to the power burden. That said, there is some effort underway to develop an alternative to PoW that would use far less power – Proof of Stake (PoS). Instead of miners solving complex mathematical problems, validators (or “stakers”) are chosen to validate transactions based on their ownership or “stake” of the cryptocurrency.
There seems to be no obvious solution to this growing problem. Good intentions rarely pass muster among the greedy and it is likely that crypto currencies will continue to consume huge amounts of electricity, generate huge carbon emissions, and as equipment fails or becomes obsolete produce even more electrical waste.
I’ve talked about all of this previously, but an NYT piece triggered me.
*The PoW puzzle in Bitcoin is a complex mathematical problem involving finding a hash value that is numerically lower than a specific target value. This requires miners to perform extensive calculations using the SHA-256 algorithm, searching for a hash that starts with a certain number of leading zeros in its hexadecimal representation.
For example, let’s say the target value is represented in hexadecimal as “00000000F123456789ABCDEF123456789ABCDEF123456789ABCDEF123456789ABC”. Miners must try different inputs in combination with the transactions and the hash of the previous block, encrypt them using the SHA-256 hash function, and check if the resulting hash is a lower number than the set target value.
The first miner to find that lower number and so successfully solve the PoW puzzle gets to add a new block of transactions to the blockchain and is rewarded with newly created Bitcoins. This PoW puzzle serves as a security mechanism to prevent double spending, validate transactions, and maintain the integrity of the Bitcoin blockchain.