[ad_1]
Somewhere in Siberia, a Soviet-era dam is generating energy for a remote mining operation. But nothing physical is coming out of the earth. Instead, the hydroelectric power plant fuels massive machines that churn out solutions to complicated mathematical problems. In other words, this renewable energy is being used to mine the cryptocurrency bitcoin. A Bitcoin analyst and self-professed “hippie miner,” Jason Deane uses computers that run exclusively on hydro power—though this eco-friendly setup is likely the exception, not the rule.
Deane’s model of work might sound like the perfect antidote to Bitcoin’s environmental woes, but renewable energy isn’t a cure-all. Bitcoin’s annual energy use is currently estimated at 127.22 terawatt hours. For comparison, that’s just over 3 percent of the total terawatt hours consumed in the US in 2020. As this number continually grows, we will need to find solutions to reckon with this kind of consumption.
What is Bitcoin?
The allure of Bitcoin is that it’s a decentralized digital cryptocurrency system. Anyone can sell, buy, or exchange without middlemen or intermediaries like big banks. It also exists outside of any government’s control. Bitcoin was the first and is still the most prominent cryptocurrency, despite the rise of other coins like Ethereum, Cardano, and the joke currency Dogecoin.
Bitcoin uses blockchain technology to secure, validate, and document transactions. Blockchains, named rather intuitively, operate by storing transactions in “blocks” that are validated by the “nodes,” or computers, that make up the network. Once validated, that block is connected to the other blocks, and cannot be rolled back or reversed. This creates a chain of data blocks—hence the term “blockchain.”
You can also think of a blockchain as a digital ledger, documenting all the transactions that occur on it. The nodes that validate those outstanding transactions and lock them into a block are referred to as “miners,” who solve complex mathematical problems as part of Bitcoin’s code. For doing so they are rewarded with bitcoin.
There are only a finite number of bitcoins in the system—21 million total, to be exact. So far over 18.5 million have been mined. To make sure they don’t exhaust the supply too quickly, the difficulty of the math problems miners have to complete continually increases in complexity. So much so, that the last bitcoin isn’t estimated to be mined till 2140.
[Related: This is what determines the price of Bitcoin]
There are lots of miners trying to solve these math problems—all at the same time. But only the first miner to solve the math problem gets the bitcoin reward. This competition, along with the growing scale of the Bitcoin blockchain, means miners are upgrading and grouping computers to make them more powerful.
But this also means it requires increasingly more computing power—and electricity—to carry out the mining. Long gone are the days of personal computers and niche hobbies. Mining is an industrial operation.
To quantify Bitcoin’s energy use, follow the miners—if you can
All this computing requires energy. A lot of it. And people are starting to take issue with that.
On the day tech billionaire Elon Musk announced that Tesla would no longer accept bitcoin as payment for its cars, the value of bitcoin dramatically plummeted, wiping away hundreds of billions of dollars in value. Musk justified his decision by citing concerns over Bitcoin’s increasing use of fossil fuels to power mining and transactions.
This is the crux of the current uproar: Is Bitcoin as green as mining enthusiasts claim? Or is the crypto ecosystem wreaking climate havoc on the physical world?
It’s not a simple question to answer. Bitcoin’s energy consumption has been compared to the total consumption of many countries, from Sweden to Argentina to Pakistan. These energy consumption estimates—from sources like the widely quoted Cambridge Bitcoin Electricity Consumption Index and Alex de Vries’ Digiconomist—vary and are hard to conceptualize, as there is no centralized source of data for bitcoin mining, with most analysis based on models.
[Related: NFTs are blowing up the digital art and collectibles worlds. Here’s how they work.]
Despite the difficulty of pinpointing Bitcoin’s exact energy use, these numbers are arguably easier to calculate for cryptocurrencies than for other high energy-consumption industries like banking or gold mining—although some estimates do put their consumption far higher than Bitcoin.
“Bitcoin uses a tiny amount of power compared to the banking sector or other systems along those lines,” says Deane. “It’s a tiny, tiny percentage, but people really go on about it because there’s this whole perception of ‘Well, but do we actually need Bitcoin?’”
Because Bitcoin consumes energy in a network of anonymity, analysts calculate the consumption through “hash rates,” or the amount of computing and processing power used in mining and transaction operations. Mining equipment uses electricity, and that electricity has to come from the grid.
Nearly two-thirds of all bitcoin mining happens in China (although authorities there have recently started to crack down on the practice). While tracking down exactly where Bitcoin’s energy is being supplied from is tricky, researchers can make approximations based on who is doing the mining and where their energy comes from. Approximations of the grid mix and energy use allow them to arrive at estimates.
“We don’t know where an individual miner is located,” says Benjamin Jones, an assistant professor of economics at the University of New Mexico. “This whole idea of decentralized currency is that these miners are anonymous, but in some cases, they will self-identify.”
When miners self-identify, it’s easier to locate “mining pools,” places where miners combine their resources together to scale up their operations. In the US for example, these pools are concentrated in the Pacific Northwest, according to Jones. Still, the exact location of most bitcoin miners is unknown.
Without that information, researchers have to make certain assumptions to approximate how much energy bitcoin mining consumes—and whether that energy comes from renewable or non-renewable sources.
One way to do this is by looking at the general electricity mix across a country to create an average electricity profile. For example, electricity yielded from coal accounts for around 20 percent of all electricity produced in the US. So if a miner is located here, then 20 percent of all output through mining would be produced using coal. But averages are just averages, and could be more or less accurate depending on the location of the miner, the time of year, and even the business model.
What Bitcoin really does to the environment—and public health
Energy use, whether it’s renewable or fossil-fueled, always comes at a cost. Several studies have looked into quantifying Bitcoin’s carbon costs or pinning down its carbon footprint. But Jones wanted to calculate more of the downstream effects.
In a study published in 2019, Jones and other researchers sought to quantify how much air pollution mining camps generated in the surrounding communities, and what the impact on climate would be. They applied standard economic cost metrics to health and climate impacts.
“We linked energy use to emissions at fossil fuel power plants, and then linked those emissions to things such as particulate matter, nitrogen oxides, and sulfur dioxide,” says Jones. “And then linked those to human mortality.”
The researchers first calculated emissions profiles for the US and China. Then they used an air pollution mapping model developed by the Center for Air, Climate, and Energy Solutions, a research center at Carnegie Mellon that was created in partnership with the Environmental Protection Agency.
“[The study is] saying for every dollar value created—and this is created to the miner, it’s like my personal value from mining this to society—[mining is] generating 49 cents in damages, and those damages are premature mortality and climate change effects associated with carbon dioxide emissions from fossil fuel power plants,” says Jones.
“So it’s basically a trade-off of a private value: $1 in private value, compared to a 49 cents in social costs that society faces through health and the environment.”
There are no excess renewables
The crypto miner Jason Deane argues that miners usually congregate at places with excess power—like surplus hydropower generated during a rainy season that would otherwise go to waste.
This excess power is what lures miners to places with cheap electricity and large profit margins. For proponents of green mining like Deane, this means using renewable energy. But right now, renewable energy only accounts for roughly 20 percent of the US electricity supply.
“Maybe 30, 40 years from now, we will have a bunch of excess renewables. But right now, as we’re making the transition away from fossil fuels, the renewables are all being utilized for some purpose, and so if bitcoin miners or cryptocurrency miners are going to take that renewable, that means it’s not there for somebody else to use,” says Jones. For example, to power an electric car, your home, a business, or factory.
[Related: Your brain is wired to regret missing the GameStop stock boom]
Like many other industries, there are slow albeit palpable shifts toward using renewable resources. But until more capacity to produce electricity through renewables exists, there will always be an opportunity cost.
“I do believe it is the absolute responsibility of all miners to run on renewable energy. There’s no question in my mind that it is collectively our responsibility to do so. But we make no apologies for the power that it consumes,” says Deane. “And that’s the difference, I think, because the network has to use that power. We’ve got to be responsible, how to source it and how it’s created.”
Pioneering greener consensus mechanisms
High electricity consumption is built into the very design of cryptocurrencies like Bitcoin and Ethereum partly because they operate with “proof-of-work” consensus mechanisms. This “consensus” prevents digital currency from being spent twice when there’s no central entity in charge.
As miners race to solve increasingly complex mathematical problems and validate transactions, proof-of-work demands more and more energy over time. This consensus mechanism helps secure the network against economic attacks, since there is only one validated ledger of transactions that has been agreed upon by every single participant in the network. It prevents data from being overwritten or altered, but this comes at an intensive energy cost.
But what if there was another way?
Recently, Ethereum caused waves in the cryptosphere when co-founder Vitalik Buterin announced that its next iteration, Ethereum 2.0, would transition the virtual coin to a proof-of-stake model of operation.
Proof-of-stake (PoS) is an alternative consensus mechanism where instead of every blockchain being sent to every computer in the system, it’s randomly sent to one miner who validates the transaction. To ensure security, miners are asked to stake coins as collateral. The energy consumption drops rather dramatically as miners aren’t racing to secure transitions in return for minted coins.
The cost of transitioning to proof-of-stake is not cheap; Ethereum is currently investing millions of dollars into this pivot.
As Zaki Manian, a co-founder of various crypto projects like iqlusion and Sommelier, points out, nearly all of the new cryptocurrencies appearing on the market have already adopted the PoS model. They can be built greener by design because they have no legacy ecosystem like Bitcoin or Ethereum to uphold.
“They can just create a de novo design for their cryptocurrency that you leverage as proof-of-stake and can leverage all of this existing software and technology that already exists,” says Manian. “Let’s say we wanted to move Dogecoin proof-of-stake? I don’t think I could do it for less than $10 million.”
The central question at the heart of Manian’s work is whether or not these new systems can still preserve the quality of being open-entry, open-exit while not burning excessive amounts of energy. The allure of crypto is that it does not require any mediating party: Participants can enter and leave as they please, and the system lives on without them. PoS could be that happy medium. It just took a lot more work to get there.
“These modern consensus algorithms that we use for proof of stake took years, dozens of researchers, dozens of engineers, enormous expertise to work,” says Manian. “But now that these things are working and securing tens of billions of dollars of value, we have increasing confidence that they work.”
[ad_2]
