WILL CLEAN ENERGY HELP BITCOIN SURVIVE THE GREEN REVOLUTION?
Earlier this month, electric car company Tesla announced that it had bought €1.2 billion of the cryptocurrency, Bitcoin.
It also simultaneously became the first major car manufacturer to take payments for its products using the cryptocurrency. It was a big investment for the company, which said it wanted “more flexibility to further diversify and maximise returns”.
The value of the digital asset surged, reaching a high of nearly €48,000 per coin. But it then subsequently tumbled leaving many investors out of pocket, with much of its volatility based on the speculation of Tesla founder, Elon Musk’s tweets.
With announcements that its value had reached an all-time high, however, came concerns that the electricity consumption of the cryptocurrency was getting out of hand. As prices increased, so did the energy it used up.
The potential for Bitcoin’s carbon footprint to increase grew astronomically.
Some estimates state that every year, the cryptocurrency alone could emit around the same amount of carbon dioxide as New Zealand. For many, the news called into question Tesla’s environmental credentials, but are there alternatives that could turn this virtual currency green?
HOW DOES BITCOIN MINING WORK AND WHY DOES IT CONSUME ENERGY?
Bitcoin ‘miners’ use highly specialised computers, connected to the cryptocurrency network to solve complex mathematical puzzles. This process verifies transactions, preventing the global record from being edited fraudulently. As a reward, these miners occasionally receive a small amount of Bitcoin.
Since it was created in 2009, Bitcoin mining has become a lucrative business. But, as the rewards are a bit like a lottery, you need a lot of computers to make it profitable. Massive warehouses around the world filled with specialised machines run round the clock and, as you might expect, these consume large amounts of energy.
So much so that in the last few years, the cryptocurrency has grown to consume more energy than the Netherlands, Argentina or Switzerland.
The cryptocurrency has grown to consume more energy than the Netherlands, Argentina or Switzerland.
The Cambridge Bitcoin Electricity Consumption Index tracks the energy usage of mining operations based on varying levels of efficiency around the world and the demand on the cryptocurrency’s network at any one time.
The team behind the tracker say that Bitcoin needs to be inefficient in order to be secure. If mining were efficient then it would be easy for a “single entity or colluding group of actors to dominate the network”.
With efficiency out the window, to be cost-effective, mining operations are often located where energy is cheap. There’s profit to be made when electricity costs less and Bitcoin’s value is high. That has meant that in the past, miners have often taken advantage of inexpensive coal power in countries like China.
As Bitcoin has grown, the amount of computational power being used to mine is thought to have more than doubled over the last year. Some estimate that Tesla’s purchase alone caused it to increase by 6 per cent, likely resulting in its energy consumption jumping by the same amount.
Critics of the electric car giant’s investment have said that this potential jump in carbon emissions from electricity use could wipe out its environmental efforts.
But – the future of Bitcoin doesn’t have to be in cheap, dirty energy.