Bitcoin, dirtier than your cash?!

Cryptocurrencies have grown exponentially in 2017, Bitcoin as the biggest of them all grew from a 1000 Dollars in January to almost 15,000 Dollars at the end of the year. Because of this increase and perhaps a slight fear of missing out I decided to enter this volatile market in October last year. Things were looking very bright and the market only went up. It was by the end of the year that I was shocked to find out that my greediness was being powered by the equivalent of 3 million household’s worth of energy. Bitcoin has had many critics from the start whom I always put away as being jealous or deeply frustrated because of not daring to invest. But from on this moment I decided to look into what I was actually investing in and what possible impact this had on the environment.

Mining, but not underground?

“Bitcoin is the first, and the biggest, “cryptocurrency” – a decentralised tradeable digital asset.” (The Guardian)

            Bitcoin was the first cryptocurrency and has been around for almost ten years. Bitcoin’s have to be created with a process called mining. This process is performed on enormous computers, these are constantly trying to solve so called algorithms. This is where the problem gets in. There is a limited supply of Bitcoins that can be mined, and the more Bitcoins have been mined the harder it gets to solve these algorithms. In other words, computers have to work longer and harder to solve these algorithms and this subsequently uses more and more energy. At the moment of writing about 80% of the Bitcoins have already been mined, meaning many people are battling to mine the last ones. Cranking up your computer power increases the chances of “winning” a Bitcoin and this decreases everyone else’s chances. This in turn creates even more of an incentive to use more power. Currently the power used to mine Bitcoin is similar to the electricity consumption of the whole of Colombia.

chart

A second problem arises when a Bitcoin gets sent to a different wallet; a transaction. These transactions have to be approved by the ledger, in other words approved by many different users. This approving also uses power, power which otherwise could be used to mine new Bitcoins, this means there is a fee for approving. In November 2017 a transaction of a whole Bitcoin would cost approximately 215 KWh. To put this into perspective, a regular Dutch household uses about 3000 KWh per year. So the energy it takes to transfer 1 Bitcoin can sustain a regular Dutch household for almost three weeks in its energy needs.

How to stop this?

The first obvious thing we could hope for is a drop of value for Bitcoin. The energy usage is almost paired to the value of Bitcoin. More than 80% of the price of a Bitcoin is due to energy usage. When prices decline the least efficient miners will be shut down and energy use will subsequently decline. But prices will only drop when Bitcoin loses popularity, and as long as money can be made with mining, people will continue to mine.

The second option would be to change the mining process, currently this process relies on computing complicated hash functions. Other currencies have looked into improving this process, making it less energy intense. But to implement this into the current Bitcoin mining process will cause a lot of controversy in the community as this is unfair for the previously mined coins, which will have had higher energy costs.

Thirdly governments could interfere in the mining industry. Problem with legislation is the difficulty with implementing this on a global skill. Implement restrictions in country 1 will result in the moving of miners to country number 2 and so on.

Real Solutions

As governments can do little to stop Bitcoin completely, we could focus more on alternatives. To limit the damage and maybe even use resources we wouldn’t have used before to our advantage.

Many large mining operations moved to rural China, areas that got their own power supply before people decided to actually move there. There is a surplus of electricity power, and this makes it cheap to run miners there. The problem here is that these are filthy coal plants and this will become a huge burden on the climate eventually. Because this is becoming more of a problem, many mining companies are moving their installations to Iceland or Norway. In these countries they also have an electricity surplus but contrary to China this is clean green energy. They are not always able to store this energy and so to use this for mining Bitcoin could be a possible solution. At the moment almost 50% of Iceland’s energy is being used to mine cryptocurrencies.

Another solution would be to try and get people to use pre-mined coins. This is not some future hope; the third largest cryptocurrency called Ripple is pre-mined meaning it is created without solving an algorithm and the accompanying energy usage. All the available coins are all already existing, but mostly in possession of the company behind the Ripple project. On top of this transactions get approved in a different way using almost no electricity at all.

Conclusion

After all I decided to move out of Bitcoin and other useless energy consuming cryptocurrencies as new more energy efficient coins are already widely available and being developed. How silly does it sound if a stupid, useless and impractical currency like Bitcoin contributed to the melting of our icecaps and the killing of our polar bears. Bitcoin has been a pioneer but should clear the field for its improved counterparts.

I am personally really into a project called Skycoin, it is one of the more advanced cryptocurrencies and has a clear target and timeline. It has been around for some years and is taking its time to perfect processes. It is pre-mined and transactions are as fast as a Visa transaction, using almost no energy proving the practical use of this currency. I am not giving any investment advice, but keep an eye out for Skycoin. This is also where I see the future of cryptocurrencies move towards, energy consumption will become more important and the “green” energy-efficient currencies will survive and possibly provide us with many cool things and uses to come.

 

More on Cryptocurrencies and the environmental impacts:

8 thoughts on “Bitcoin, dirtier than your cash?!

  1. Cool post and an important topic that hasn’t been so much yet.
    I got curious about these pre-mined currencies. I still don’t really understand the whole crypto-hype, but do these pre-mined coins also rely on blockchain technologies? I’m wondering, because I thought the energy intensive mining process (as used e.g. by Bitcoin) is essential to the whole system…
    Maybe you have some recrouces for a complete noob on this 😉

    Like

  2. Interesting topic! You mention that changing the minig process would be unfair for the previously mined coins. Is this unfair because these ‘older’ coins have higher production costs than the ‘new’ coins? How bad would this be if everyone can change to a different (more sustainable) mining process? Or are there high investment costs linked to the current mining process?

    Like

  3. Interesting topic! You mention that changing the mining process would be unfair for the previously mined coins. Is this unfair because these ‘older’ coins have higher production costs than the ‘new’ coins? How bad would this be if everyone can change to a different (more sustainable) mining process? Or are there high investment costs linked to the current mining process?

    Like

  4. @adalbert1996 Thanks for your comment! The idea behind blockchain is not build on the mining, it is about the concensus. So it is about who approves what, and this has to happen without interference. So if a transaction gets sent it has to be approved by some parties, and this process is now being made less energy intense. Bitcoin never intended to be a huge currency as it is now, and the energy problems that arise now are due to the low scalability. These pre-mined coins are sold in Initial coin offerings, or as a return on something you give to the company behind the coin. The value is then determined by the market. So this process is completely different than Bitcoin for example. Many people say premined coins are therefore unfairly distributed because the creators distribute them. But this completely depends on the way the creators do this. There are ways to distribute them in a fair way, and this has also been done so. For more info on this, please check:
    https://www.abitgreedy.com/premined-coins/

    Like

  5. Thanks sofie. With “the old coins” I mean the previously mined Bitcoins. It would be unfair if they would have costed more than the newer produced Bitcoins. So people wouldnt agree with that. But completely new cryptocurrency could very well be made more efficient by changing its mining characteristics. But it would have to do it from the start to prevent changes during the lifetime of the coin.

    Like

  6. After reading your post I started wondering how much energy “real” money transactions (i.e. paying with dollar bills) consume compared to the classical bitcoin or even wireless transactions like VISA or iDeal? Do you have any numbers on this comparison? Furthermore, do you believe the enormous energy consumption to be the biggest hurdle for cryptocurrencies to overcome or are there other more severe problems?

    Julian

    Like

  7. @123menno is it expensive to shift to another mining process? I don’t really see how it is unfair if everyone can make the shift to a mining process with lower energy costs. Also, the “old” bitcoins will probably lose value anyways if other more sustainable cryptocurrencies gain popularity… that’s how a market economy works.

    Like

  8. I think you are discussing a very relevant topic as Bitcoin (and its underlying technology Blockchain) is a very new technology of which many people lack extensive knowledge. Moreover, Bitcoin has gained a largely predominantly negative reputation due to its history in Silk Road and the enormous amounts of energy that the proof of work consensus mechanism consumes. However, I believe Bitcoin and in particular, the distributed ledger technology underlying the currency have great potential in many areas and this should not be overshadowed by the energy consumption. Definitely, the proof of work Blockchains are not sustainable, however, as cryptocurrencies are young innovations, in my opinion, they should be given some time and space for R&D and to improve their infrastructure, just like many other innovative technologies have had (think of cars). As you have pointed out as well, more sustainable alternatives have already been introduced and are being adopted by many crypto’s already.

    About the issue of transitioning from proof of work to for example proof of stake (pre-mined coins), in my opinion, this is definitely possible and not unfair in any way. Namely, in proof of stake miners invest coins instead of energy into the consensus mechanism, and consequently, miners with more coins have a higher probability to get rewarded. Hence, miners who already mined coins in with the previous mechanism have a substantial advantage as they most likely possess a fair amount of coins which they can thus use in Proof of Stake. What is your opinion on this view?

    Overall, I believe that Bitcoin and other cryptocurrencies should be seen as a new innovation and people should rather invest in their development towards more sustainable versions, than trying to get rid of the innovation as a whole.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s