Bitcoin is perhaps the most valued currency in the world. The exchange rate as of Monday (27th Nov’17) stood at over USD 9,500 for one BTC. But, not many people are aware of mining bitcoin also costs a ridiculous amount of electricity to the world.
The global electricity consumption used for bitcoin ‘mining’ has reached a level that there are over 150 countries which consume less electricity in a year. In other words, if bitcoin was a country, at current value, it would stand at 62nd position in the world in terms of consuming electricity in a year.As of November 22, the ‘miners’ have consumed 29.51 TWh (1 TWh= 100 crore units) of electricity, according to the Bitcoin Energy Consumption Index by Digiconomist. And, if the consumption keeps growing at the same rate, by the end of the year, it would stand at 38.36 TWh of electricity, placing it at 58th position, just below Hungary, in terms of total electricity consumption. In fact, the total energy consumption is more than that of Ireland which uses 23.79 TWh of electricity and North Korea at 11.24 TWh.
Similarly, mining ether or etherum — the next most valued cryptocurrency, has consumed 10.41 TWh of electricity as on Wednesday. That is almost the equal amount of electricity Paraguay consumes in a year.
At the current level, the electric energy which goes towards mining bitcoin would be enough for three crore (30 million) Indians.
What kind of work are miners performing?
New sets of transactions (blocks) are added to Bitcoin’s blockchain roughly every 10 minutes by so-called miners. While working on the blockchain these miners aren’t required to trust each other. The only thing miners have to trust is the code that runs Bitcoin. The code includes several rules to validate new transactions. For example, a transaction can only be valid if the sender actually owns the sent amount. Every miner individually confirms whether transactions adhere to these rules, eliminating the need to trust other miners.
The trick is to get all miners to agree on the same history of transactions. Every miner in the network is constantly tasked with preparing the next batch of transactions for the blockchain. Only one of these blocks will be randomly selected to become the latest block on the chain. Random selection in a distributed network isn’t easy, so this is where proof-of-work comes in. In proof-of-work, the next block comes from the first miner that produces a valid one. This is easier said than done, as the Bitcoin protocol makes it very difficult for miners to do so. In fact, the difficulty is regularly adjusted by the protocol to ensure that all miners in the network will only produce one valid bock every 10 minutes on average. Once one of the miners finally manages to produce a valid block, it will inform the rest of the network. Other miners will accept this block once they confirm it adheres to all rules, and then discard whatever block they had been working on themselves. The lucky miner gets rewarded with a fixed amount of coins, along with the transaction fees belonging to the processed transactions in the new block. The cycle then starts again.
The process of producing a valid block is largely based on trial and error, where miners are making numerous attempts every second trying to find the right value for a block component called the “nonce“, and hoping the resulting completed block will match the requirements (as there is no way to predict the outcome). For this reason, mining is sometimes compared to a lottery where you can pick your own numbers. The number of attempts (hashes) per second is given by your mining equipment’s hashrate. This will typically be expressed in Gigahash per second (1 billion hashes per second).
The continuous block mining cycle incentivizes people all over the world to mine Bitcoin. As mining can provide a solid stream of revenue, people are very willing to run power-hungry machines to get a piece of it. Over the years this has caused the total energy consumption of the Bitcoin network to grow to epic proportions, as the price of the currency reached new highs. The entire Bitcoin network now consumes more energy than a number of countries, based on a report published by the International Energy Agency. If Bitcoin was a country, it would rank as shown below.
Apart from the previous comparison, it also possible to compare Bitcoin’s energy consumption to some of the world’s biggest energy consuming nations. The result is shown hereafter.
Comparing Bitcoin’s energy consumption to other payment systems
To put the energy consumed by the Bitcoin network into perspective we can compare it to another payment system like VISA for example. Even though the available information on VISA’s energy consumption is limited, we can establish that the data centers that process VISA’s transactions consume energy equal to that of 50,000 U.S. households. We also know VISA processed 82.3 billion transactions in 2016. With the help of these numbers, it is possible to compare both networks and show that Bitcoin is extremely more energy intensive per transaction than VISA.
Of course, these numbers are far from perfect (e.g. energy consumption of VISA offices isn’t included), but the differences are so extreme that they will remain shocking regardless. One could argue that this is simply the price of a transaction that doesn’t require a trusted third party, but this price doesn’t have to be so high as will be discussed hereafter.
The growth in consumption and projection
In the last one month, as per the estimate, the consumption has grown by 30 percent which is indicative of surging interest in the currency. Comparatively, in the same time frame, the value of bitcoin has soared over 40 percent.
At present, the consumption is 0.13 percent of the global electricity consumption. Assuming that the countries don’t add any new power generation capacity and the growth in the consumption due to mining remains the same, bitcoin mining would consume as much electricity as India consumes every year (1,126.5 TWh) by January 2019. And, by January 2020 (at a monthly 30 percent growth) it will surpass the total consumption of the world as of now (22,383 TWh).
The graph shows a theoretical projection of electricity consumption due to bitcoin mining in terms of global electricity consumption assuming the growth rate remains at the current level. (Global electricity consumption data sourced from CIA World Fact Book)
The above stats are just a food for thought. Obviously, the numbers are theoretical and practically the growth most likely won’t sustain that of the current level. Even if the growth remains high, the world is not going to stop adding power generation capacity. Eventually, the supply would grow to match the demand.
Effect on environment
According to the Intergovernmental Panel on Climate Change, for every unit of electricity produced in the world, on an average, 500 grams of carbon dioxide is exerted. A back of the envelope calculation shows that total CO2 emission due to bitcoin mining, at present, is 14.75 million tons.
Country that consumes most electricity for bitcoin mining
A study conducted by Cambridge Centre for Alternative Finance (University of Cambridge) and Visa showed that nearly three-quarters of all major mining pools are based in just two countries, China and the US. 58 percent of mining pools are based in China, followed by the US with 16 percent. Interestingly, these two countries emit the largest amount of CO2 gas in the environment.
Though, these mining pool location numbers need to be taken with a pinch of salt as individual miners and organisations can easily switch their location. For example, a miner in India can switch its location to the UK. Thus the computing power would be from India but it would show in the account of the UK.
Nevertheless, the consumption, wherever it emanates from, poses a new challenge in the fight against climate change.