The energy consumption of the crypto world

Bitcoin well and truly pricked the mainstream consciousness in 2017. Thanks to an incredible 11-fold rise in value this year, everyone is suddenly talking about Bitcoin and cryptocurrencies. It’s easy to see why the phenomenon has grabbed the world’s attention — anything that goes from $1,000 in value to $11,000 in value inside 12 months is clearly big news. It’s a meteoric trajectory, and one that has triggered talk of an impending bubble, the inevitability of regulation, and an uncertain future.

Words

Jonny Tiernan

Key stats:

* 42.67 TWh: The annual energy consumption of Bitcoin and Ethereum combined
* 0.19%: The percentage of the world’s electricity used by Bitcoin and Ethereum
* 8.49: The number of U.S. households that could be powered for a full day with the same energy as single bitcoin transaction

Bitcoin well and truly pricked the mainstream consciousness in 2017. Thanks to an incredible 11-fold rise in value this year, everyone is suddenly talking about Bitcoin and cryptocurrencies. It’s easy to see why the phenomenon has grabbed the world’s attention — anything that goes from $1,000 in value to $11,000 in value inside 12 months is clearly big news. It’s a meteoric trajectory, and one that has triggered talk of an impending bubble, the inevitability of regulation, and an uncertain future.

Some commentators believe that cryptocurrencies are the reserve of drug dealers and criminals, with no real utility to regular people. Others think that they signal a revolution and an opportunity to sidestep the old financial system and shift the power away from traditional banks. Regardless of which side of the fence you are standing on, there is an issue that needs addressed that affects everyone regardless of your opinion — cryptocurrencies are consuming massive amounts of energy.

It has been widely reported that the bitcoin mining network now consumes more electricity than 159 countries of the world. The huge energy consumption is down to the way bitcoin and other cryptocurrencies operate. In order to avoid fraud, there is no centralised authority validating transactions. Instead, they are validated by miners who process blocks of cryptocurrency transactions in return for a reward in the form of coins. Processing the blocks involves solving difficult computational problems which can only be undertaken by powerful computing systems. And of course, the more powerful a computing system, the more energy it will use. Every cryptocurrency transaction works in this way, meaning every transaction requires a lot of electricity.

Even a single transaction uses a huge amount power

Take bitcoin as an example. Digiconomist have put together the Bitcoin Energy Consumption Index, which tracks the energy consumption of the digital currency. According the BECI, each bitcoin transaction consumes 251 KWh of electricity. That is enough energy to power 8.49 U.S. homes for a full day. Given that there are around 300,000 bitcoin transactions every day, this equates to a lot of homes that could be powered.

For the cryptocurrency Ethereum, which is second in popularity after bitcoin, the energy usage is still extremely high. Overall it uses 11.07 TWh of electricity, which is just over a third of that of bitcoin. One third sounds good, but each Ethereum transaction still uses enough juice to power 1.77 U.S. homes. When you combine the energy consumption of bitcoin and Ethereum, it works out at more annually than Hong Kong. Critics of cryptocurrencies point out that equivalent payment systems, such as Visa, operate at a fraction of the consumption rate. But that fact isn’t going to stop people using the new method.

If this is the current energy consumption of cryptocurrencies, what does the future hold? As more and more people rush to get involved in the new market, the amount of miners will only increase, along with the amount of energy consumed. Is it possible to make cryptocurrencies sustainable?

There are some potential solutions being mooted for the energy problem. Austrian startup HydroMiner is using renewable hydropower to operate its mining servers. Similarly NastyMining is using solar and wind energy to mine for bitcoin in a green way. Then there is the Harvest project, which is using wind energy to mine cryptocurrency that will then be used for climate change research. These solutions work on a small scale, but given the fact that most major bitcoin mining centres are based in China, where they are powered with electricity that is produced largely by burning fossil fuels, then it is probably not a cure all solution.

Reducing the amount of energy that each cryptocurrency transaction uses is another way to make it more sustainable. This is something that Ethereum is working towards by switching to a different model of verification. The bitcoin community is also working on the Lightning Network which will enable more transactions on the network without using more power. Yet neither of these changes are imminent, meaning that for now energy consumption rates are locked at the high level.

The gold rush on cryptocurrency isn’t showing any signs of abatement. Even if the bitcoin bubble bursts there will still be energy-intensive mining taking place. It’s not an easy problem to solve, and it’s one that is here to stay.


This series of articles has been prepared with the support of our partner Viessmann — they’re celebrating 100 years of their company this year (2017) and are actively involved in positively shaping the next 100 years.

This article is also available to view on our Medium page.