Any company that supports bitcoin is making one thing clear: they don’t care about the environment. At a time when global warming is a real threat to the planet, bitcoin is one of the worst offenders.
The global network of computers that “mine” bitcoin consumes an entire country’s worth of energy in their race to win the next block on the blockchain—and get the 6.25 bitcoin block reward, currently worth $300,000.
Since PayPal, Square, MicroStrategy, and Tesla got onto the game—and started shilling bitcoin on social media—the price of bitcoin has soared to new heights. And the higher the bitcoin price, the greater the lure for people to invest in warehouses full of power-hungry rigs to mine bitcoin for profit.
Digiconomist’s Bitcoin Energy Consumption Index, run by Alex de Vries, a blockchain specialist at Big Four accounting firm PwC, estimates bitcoin’s energy consumption to be 79 terawatt-hours of electricity per year, on par with the entire country of Chile. Per his index, bitcoin also emits 37 megatons of carbon dioxide per year, comparable to that of New Zealand.
Researchers at the University of Cambridge Judge Business School figure bitcoin’s power consumption to be even higher. According to their Cambridge Bitcoin Electricity Consumption Index, bitcoin consumes 124 terawatt-hours of electricity a year, bringing it inline with countries like Argentina and Norway.
In October, just before PayPal announced it would allow users to buy and sell bitcoin via their digital wallets, bitcoin’s power consumption was 75 terawatt-hours per year, according to the CBECI. Since then, bitcoin’s price climbed from $10,000 to upwards of $50,000, increasing its energy consumption by 40 percent the process.
In 2018, all of the world’s data centers consumed 205 terawatt-hours of electricity, or 1% of all of the world’s electricity. Bitcoin accounts for half of that.
Can the world’s power grids tolerate this added demand for electricity in the midst of global warming? In the U.S., we are already seeing the impact of extreme weather on our power grids—millions in Texas shivering in cold, dark homes this week. And rolling black outs in California last year. In Iran last month, authorities blamed massive blackouts on bitcoin mining.
And bitcoin’s energy consumption isn’t green either—though bitcoiners like to say that it is. Bitcoin miners are tuned to profits. That means the fastest rigs and the cheapest energy available, mostly in the form of fossil fuels.
“Coal is fueling bitcoin,” Christian Stoll, an energy researcher at the Technical University of Munich, told Wired magazine a few years ago.
In a paper published in Joule in June 2019, Stoll and his researchers examined bitcoin mining based on where miners are located and the types of rigs they use. Two-thirds of all bitcoin mining is centered in China, 17% is in Europe, and 15% in North America, the researchers found.
In China, bitcoin’s mining is spread throughout the country’s sprawling western provinces, Sichuan and Yunnan, and also in the north, in Xinjiang and Mongolia. In the Sichuan province, where about 58% of the world’s bitcoin mining takes place, miners take advantage of cheap hydroelectric power—but only during the rainy season, which lasts about six months.
Bitcoin is a 24/7 business, however, and when green energy isn’t available—and the price of bitcoin is high enough to reap a profit in the dry season—the miners in Sichuan turn to coal, the country’s most abundant energy source. Sixty-five percent of China’s electricity comes from coal. Bitcoin miners in the Xinjiang province and inner Mongolia also rely heavily on coal-fired electricity.
Even when bitcoin uses clean energy, that pushes the use of dirty energy elsewhere. A few years ago, HyperBlock, a bitcoin mine in Missoula County, Montana, struck a deal with a nearby dam for cheap renewable power. They thought they were doing it right, until county officials noted that if energy from the dam went to bitcoin mining, the county as a whole would end up using more coal.
That was the end of that. In April 2019, Missoula required all future mines to purchase or build their own renewable power. And soon after the price of bitcoin crashed in March 2020—slipping down to below $5,000—HyperBlock declared bankruptcy because it could not pay its power bills.
Bitcoin mining and proof of work
Why is bitcoin so inefficient? It turns out that the system uses copious amounts energy not by accident but by design.
Satoshi Nakomoto, bitcoin’s pseudonymous creator, had to figure out a way to solve the double-spend problem. We don’t have this problem with paper money. But with digital money, someone could copy the file and use it to spend the funds over and over, rendering the currency useless.
In a centralized system, a trusted third-party, like a bank, checks the digital money you spend against a central ledger to make sure there’s no funny business going on. But bitcoin’s ledger (the blockchain) is decentralized, which makes the double-spend problem harder to solve.
The solution Satoshi came up with was a clever hack that involves bitcoin mining and proof-of-work. In bitcoin, mining is the process of adding new transactions to the blockchain, and proof-of-work secures the network so transactions can’t be reversed. You would need more than half of all the computing power on the bitcoin network to double-spend a bitcoin.
It wasn’t a perfect solution, but Satoshi solved what computer scientists had long thought was unsolvable: how to build a decentralized payment system. The irony is, unless you are collecting payments for ransomware, bitcoin has proven unusable as a payment system. No merchant wants to risk their profit margin on bitcoin’s volatility.
Winning the lottery
Bitcoin miners have their eyes feasted on the bitcoin block reward.
Every 10 minutes, the bitcoin network adds a new block to the blockchain, minting 900 new bitcoins a day in the process. That block reward is reduced by half every four years. Prior to May 2020, the bitcoin block reward was 12.5 bitcoins—double what it is now—and the network produced 1,800 new bitcoins per day. And around February 2024,* the block reward will be 3.125 bitcoins.
When you request a transaction on the bitcoin blockchain, your transaction goes into the bitcoin mempool, a waiting area for unconfirmed bitcoin transactions. Miners select transactions from the pool—usually the ones with the highest transaction fees—and package those into a block ready to process as the next block in the blockchain.
Any server can produce a “candidate block,” but if it were too easy to do, the network would be spammed. So there had to be a financial cost to creating a block, hence the work.
In the case of bitcoin, that work involves solving a hash puzzle; the cost is computing time and electricity. The hash puzzle is very difficult to solve, but easy for peers in the bitcoin network to verify, so they can prove you did the work and the block is valid.
Some people refer to this puzzle as a complex math problem, but it’s really not. Working out a hash is easy, but in bitcoin, working out a hash that meets certain conditions is tricky. Finding the solution is a bit like winning a lottery.
Solving the hash puzzle
A hash is a fixed-length output calculated from a piece of data. Whether you hash Herman Wouk’s “War and Remembrance” or a grocery store list, the resultant hash will always be the same length. And you will always get the same hash for the same string. But if even one letter changes in “War and Remembrance,” the resultant hash will be different.
Bitcoin uses the hashcash proof-of-work, originally developed by cryptographer Adam Back in 1997 as a way to prevent email spam and denial-of-service attacks, and the SHA-256 hashing function, which has been around since 2001.
When you hash a bitcoin block, you also track the hash of the previous block—which “chains” a block to the one before it, and so on down the line to the first bitcoin block ever created—and a random number called a nonce. The idea is to produce a hash that is lower than the numeric value of the network target. (This target changes periodically to adjust the mining difficulty, thereby assuring only one block gets created every 10 minutes.)
When you mine bitcoin, you repeatedly hash the block while incrementing the nonce. Each time you change the nonce, you also change the value of the resultant hash. The number of hashes that a miner makes per second is called the hash rate; the higher your hash rate, the better your chance of solving the puzzle. A single bitcoin mining rig can make up to 14 trillion guesses per second.
If you discover a hash value that is small enough before anyone else does, you win! Your block is then transmitted to the rest of the network, and the other nodes begin work on the next block using the hash of the accepted block.
As bitcoin went up in value over the years, miners found faster and faster ways to win the bitcoin lottery. When bitcoin was first introduced in 2009, you could mine bitcoin with the CPU on your own personal computer.
Those days are a distant memory. As bitcoin mining became more profitable, miners switched to graphic processing units (GPUs). And in 2011, they migrated to field-programmable gate arrays (FPGAs). But starting in 2013, the field was taken over by application-specific integrated circuit equipment (ASIC) rigs—which is the only way to make a profit mining bitcoin these days.
Over the past decade, bitcoin miners have set up thousands of warehouses of computer hardware dedicated to performing trial-and-error computations in a race against each other to win the block reward.
The result is a massively inefficient coal-powered monster that consumes the same amount of energy as a country (Argentina) with 45 million people, all in the name of “number go up,”
*This is an approximation. The next bitcoin halvening event could happen before or after this date.
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