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.
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.
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.
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.
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