Bitcoin’s Sustainability Crisis
The cryptocurrency requires an ever-increasing quantity of energy thanks to mining, but is a greener process possible? If not, what do we do?
When Bitcoin first jangled onto my radar, I asked two questions, the first of which was: “Could this stuff make me very rich?” My answer was “perhaps,” and so in 2014 I bought some. Ultimately though, I didn’t hang onto it!
Considering the sharp increase in Bitcoin’s value in recent years (see the market summary below, sourced from Google), needless to say this was a miscalculation of such epic proportions that I truly empathise with James Howells (that poor guy stuck in a futile battle to recover an accidentally discarded hard drive containing a Bitcoin wallet valued at a whopping £340 million).
My second question was: “How much future energy will Bitcoin guzzle?” After working on a project with Visa to design a blockchain (the same year I picked up the Bitcoin), my answer was “a lot.”
As predicted, Bitcoin now requires an eye-watering — and increasing — quantity of energy. At the time of writing, the University of Cambridge Bitcoin Electricity Consumption Index estimated that the cryptocurrency’s network power demand is approximately 136.98 TWh per year. For context, that’s almost half of the UK’s annual energy use — a country with 67.2 million people.
If you compare the chart above with the one below (sourced from the aforementioned Index), it’s clear to see that Bitcoin’s energy consumption rises and falls with its value, which in turn fluctuates with the number of people mining the cryptocurrency. More Bitcoin miners = higher value and energy needs.
The potential environmental impact of Bitcoin’s colossal energy consumption is so severe that governments across the globe — keen to meet carbon neutrality promises over the next few decades — are left with little choice but to consider taking drastic action.
China took the lead last year when it chose to ban the practice — although it should be noted that other factors also contributed to this decision. At the time, the country was reportedly responsible for around two thirds of the world’s Bitcoin generation, so the ban wreaked havoc on the industry. Against all odds though, it bounced back relatively quickly, and the cryptocurrency’s sustainability crisis persists.
As other countries consider following suit by banning the practice, I can’t help but wonder: could we avoid this by increasing the industry’s sustainability? Possibly, seeing as there is a more energy-efficient way of mining Bitcoin than Proof of Work (PoW), the technique currently relied upon by the industry.
It’s called Proof of Stake (PoS), which its proponents argue not only requires substantially less energy but also reduces the risk of network attacks. Sadly those proponents are in a minority, with critics loudly contending that the technique is a step backwards for cryptocurrency — meaning the switch to PoS has been incredibly slow.
Paul Brody, EY’s Global Blockchain Leader, weighed in on the issue last year, calling a greener Bitcoin “very realistic” but also raising some challenges in getting to that point. Speaking to CNBC in the US (while sporting a jaunty ‘airplane-flying unicorn’ t-shirt) he said:
“Bitcoin mining is greening just like the rest of the electrical grid. So, it’s not unreasonable to think that we can have greener Bitcoin.”
However, Paul added:
“It’s hard though to be able to pin down where specific Bitcoin came from after it was mined. So, you have to think about not just ‘where did your Bitcoin get mined?’ but ‘what is the overall green level of the Bitcoin grid?’ And so some more systemic or system-wide Bitcoin-level solution has to be found for you to be able to say, unequivocally, that you’re doing a green transaction in the Bitcoin system.”
It’ll be fascinating to see how Bitcoin’s sustainability crisis plays out in the coming months and years. Personally, I see bans as more likely than a switch to PoS based on the almost visceral response to the technique from many Bitcoin miners.
Perhaps (as Paul Brody states is essential) we will find a widespread green solution, and possibly even one that remains true to the original spirit of cryptocurrency. Unfortunately, as far as I’m aware, we’re nowhere near close to any such solution. By the time we are, further bans could be implemented, which would likely cause the industry real harm.