Say what you like about bitcoin – and we certainly do our best – it is rarely dull. Not only – in the space of just eight days – has the value of a single bitcoin seen its ‘value’ fall more than 20% from $7,549 to $5,857 and then bounce almost all the way back up again to $7,499 (at least at the time of writing), it now appears the cryptocurrency is helping to destroy the planet.
The 'mining' of bitcoing has tangible implications
Bitcoin may be a so-called virtual currency but the mechanism by which new bitcoins are created or ‘mined’ has some very tangible implications indeed. In theory, anybody with internet access and the right software can mine bitcoins – a process whereby transaction records are added to the cryptocurrency’s public ledger of past transactions or ‘blockchain’.
Miners all around the world are competing with each other to create the next bitcoin by compiling recent transactions into ‘blocks’ and then solving a very difficult puzzle known as the ‘proof of work problem’. Whoever manages to do that first is rewarded with the fees associated with the processed transactions in the latest block and a fixed amount of bitcoins. Then the whole process starts all over again.
As the price of the cryptocurrency forges ever higher, the more people are encouraged to start mining bitcoins – and the less worried they are about the costs involved in doing so. Here on The Value Perspective, we are continually fascinated by unintended consequences we see in life – one of the latest of which is that the global bitcoin mining network now consumes a truly staggering amount of electricity.
If bitcoin were a country, its energy consumption would be 66th in the world
According to the Bitcoin Energy Consumption Index that features on the Digiconomist blog, if bitcoin were a country, its estimated energy consumption of almost 28 terawatt hours of electricity per year would, again at the time of writing, place it 66th in the world – between Bahrain and the Slovak Republic and, in the last week alone, having overtaken Nigeria and Ireland.
And since bitcoins are used for a relatively small number of transactions – an estimated 300,000 or so per day – the per-transaction energy figure is even more mind-boggling. Admittedly, this is not a perfect analogy, but the average 215 kilowatt hours consumed for every single bitcoin transaction would be enough to meet the power needs of the average US household for an entire week.
And maybe if the world’s bitcoin production were powered by renewable energy resources, this level of energy consumption would be fine – but that simply is not the case. To take just one example, again courtesy of the Digiconomist blog, there is a coal-powered bitcoin mine operating out of Mongolia that is responsible for between 8,000 and 13,000 kilogrammes of carbon dioxide for every single bitcoin it mines – the same amount as the average car produces by driving 10,000 miles.
Notwithstanding our views on the ever-more incredible value being accorded to bitcoin and some of the other cryptocurrencies – which we have expressed in articles such as Echo of the dotcom boom – it is hard to deny the underlying blockchain technology has some striking possibilities. Presumably, though, boosting global warming was not meant to be one of them.