Bitcoin is not only the first of the cryptocurrencies but also the one that has been the most successful since its appearance in 2009. The blockchain, the underlying technology of bitcoin, has largely revolutionized online transactions in recent years. In the world of cryptocurrencies, the blockchain has brought the risks related to fraud and security to almost zero, as transactions are more transparent. Nevertheless, we seem to be facing a double-edged currency. Mining, the process by which bitcoin transactions are secured, is increasingly raising concerns due to its growing energy consumption.

Mining is the process by which bitcoin transactions are secured. To this end, miners perform mathematical calculations with their computer hardware for the bitcoin network. As a reward for their services, they collect the newly created bitcoins as well as the fees from the transactions they confirm. Currently, this reward is 12.5 bitcoins per block. It is halved approximately every four years. New sets of transactions (blocks) are added to the bitcoin blockchain approximately every 10 minutes by miners. The process of producing a valid block largely relies on trial and error.

Miners attempt many times per second to find the correct value for a block component called "nonce," and hope that the resulting block will meet the requirements (as there is no way to predict the outcome). For this reason, mining is sometimes compared to a lottery where you can choose your own numbers. The number of attempts (hashes) per second is given by the hashrate of your mining equipment. This is generally expressed in gigahash per second (1 billion hashes per second).

In the long term, the electricity consumption of bitcoin from mining activities has reached a critical threshold and has therefore begun to raise countless questions related to climate change. In October of last year, scientists issued conclusions suggesting that Bitcoin could lead us to chaos in twenty years by increasing the global temperature beyond the critical limit. Indeed, they fear that if Bitcoin is adopted at rates similar to those of other technologies, such as credit cards, it could increase global temperatures by 2°C in less than two decades.

The conclusion comes from a study published in the journal Nature Climate Change in 2018. "Bitcoin is a cryptocurrency with high material requirements, which obviously translates into significant electricity demand," said Randi Rollins, a master's student at the University of Hawaii at Manoa (UH Manoa) and co-author of the study. Furthermore, another United Nations report on climate change revealed that an increase in temperature of more than 1.5°C would have irreversible and catastrophic climate effects. And to think that Bitcoin alone could increase global temperatures by 2°C within two decades due to mining goes beyond a simple matter of concern.

As a result, the Digiconomist site, a platform dedicated to exposing the unintended consequences of digital trends, generally from an economic perspective, has once again looked into the issue and published a new index dedicated to the energy consumption of bitcoin. According to the report, the energy needs of bitcoin mining activities to ensure the survival of the cryptocurrency have indeed evolved. Digiconomist estimated  two years ago that a single bitcoin transaction consumes as much electricity as is needed to power eight American households for an entire day. Today, this seems to have shifted from the energy required for eight households to about 18 households according to the summary table attached to the index.

The new Digiconomist study reveals that the annual energy consumption of bitcoin has reached alarming proportions. Why? The study's authors indicated that the continuous cycle of block mining encourages people around the world to mine bitcoin. Mining can generate a significant stream of income, so people are very willing to use energy-hungry machines to obtain a share of it. Thus, over the years, the total energy consumption of the bitcoin network has reached epic proportions, with the price of the currency hitting new highs. According to a report published by the International Energy Agency, the entire bitcoin network now consumes more energy than a number of countries.

In a table, Digiconomist has listed the most notable facts. The minimum annual energy consumption of bitcoin has increased from about 30 TWh (terawatt-hour) two years ago to 37.3 TWh in 2019 today, and this consumption can reach 66.73 TWh per year. As a result, the electricity consumption of bitcoin expressed as a percentage of global electricity consumption is estimated at 0.33% of global consumption per year. If Bitcoin were a country, its energy consumption would be comparable to that of countries like Australia, Chile, the Czech Republic, or even Colombia. Digiconomist ranks Bitcoin as the 42nd country that consumes the most electricity in the world with an estimated energy consumption of just over 66 TWh per year.

In addition, another critical aspect of bitcoin mining activities is its carbon footprint. The Digiconomist site states that the biggest problem with bitcoin may not even be its massive energy consumption, but that most mining facilities in the bitcoin network are located in regions (mainly in China) heavily reliant on coal (either directly or for load balancing purposes). To put it simply, "coal fuels Bitcoin".

Its impact on the climate is increasing. Last year, researchers at the University of Hawaii determined that Bitcoin generated 69 million tons of CO₂ last year. To predict the environmental footprint of Bitcoin, they examined the adoption rate of other popular new technologies in the United States, some of which experienced extremely rapid adoption (like credit cards) and others that saw slow adoption (like dishwashers). According to Digiconomist, assuming that 70% of bitcoin mining takes place in China and that 30% is completely clean, this results in a weighted average carbon intensity of 490 gCO₂eq/kWh.

This number can then be applied to an estimate of the energy consumption of the bitcoin network to determine its carbon footprint. According to estimates, the carbon emissions generated by the use of bitcoin far exceed today the 70 million tons of emissions equivalent to carbon dioxide (CO₂) in 2017. Another concern is, as highlighted by Digiconomist, that while renewable energies are an intermittent energy source, bitcoin miners have a constant energy need. Once activated, a Bitcoin ASIC miner will not be turned off until it fails or can no longer mine bitcoin profitably.

By comparing the energy consumption of bitcoin to other payment sources like VISA for example, the site Digiconomist reported that VISA consumed a total of 674,922 gigajoules of energy (from various sources) worldwide for all its operations. This means that VISA has an energy requirement equivalent to that of about 17,000 American households. Furthermore, VISA is said to have processed 111.2 billion transactions in 2017. On the comparison curve, it is noted that one hundred thousand VISA transactions required about 150 kilowatt-hours while a single bitcoin transaction required more than 500 (about 540) kilowatt-hours. The difference is indeed enormous. Bitcoin mining is energy-hungry and emits astronomical amounts of CO₂ per year.

Are there alternatives? According to the site Digiconomist, it is possible that other algorithms are not as energy-intensive as proof-of-work, the consensus algorithm currently used by bitcoin mining; proof-of-stake could be just as capable of doing the job. With proof-of-stake, Digiconomist explained, coin owners create blocks rather than this role being left solely to miners. This therefore does not require energy-hungry machines producing as many hashes per second as possible. As a result, the energy consumption of proof-of-stake is negligible compared to that of proof-of-work. Bitcoin could potentially switch to such a consensus algorithm, which would significantly improve sustainability.

However, Digiconomist continued, the only downside is that there are many different versions of proof-of-stake and none of them have yet been proven. Work on these algorithms, however, offers good hopes for the future. According to other forecasts from Digiconomist, bitcoin mining would be so energy-hungry that miners will ultimately end up spending 60% of their revenues on electricity. In January 2019, miners spent much more on electricity, according to Digiconomist. On January 22, 2019, the Bitcoin Energy Index estimated that 100% of miners' revenues ($2.3 billion) were actually spent on electricity costs. This can happen after a significant drop in mining revenues, where mining generally becomes unprofitable. In this situation, machines are removed from the network (rather than added to it).

Since investments in machines can be considered sunk costs (which are no longer relevant to the decision to continue mining), miners will continue to use their machines until the cost of electricity exceeds the amount of mining revenues (close to 100%). 

Source:  Digiconomist