Bitcoin: a simple solution to reduce emissions exists

Since the Bit­coin net­work star­ted in Janu­ary 2009, the tokens issued by the net­work (the “bit­coins”), have grown in value: from $0 at the begin­ning, each bit­coin is now worth $43,144 (on 21st Septem­ber 2021). Many oth­er crypto-cur­ren­cies have fol­lowed Bit­coin, but it is still the largest with a cap­it­al­isa­tion of $800bn, rep­res­ent­ing about 44% of the cap­it­al­isa­tion of all crypto-cur­ren­cies, of which there are now more than ten thou­sand. The value of a bit­coin is extremely volat­ile and there is no guar­an­tee that it will con­tin­ue to rise; some eco­nom­ists, such as Nobel Prize Eco­nom­ist Jean Tir­ole, con­sider it to be a bubble that will burst¹.

Jean-Paul Dela­haye, math­em­atician and pro­fess­or of com­puter sci­ence has been watch­ing closely as crypto­cur­ren­cies exploded over the last dec­ade. For him, the energy con­sump­tion of the Bit­coin net­work is enorm­ous and absurd because it cor­res­ponds to an ini­tial design error in the net­work’s oper­at­ing pro­tocol, for which solu­tions have now been found and imple­men­ted by oth­er crypto-cur­ren­cies. It is only unhealthy spec­u­la­tion in Bit­coin that keeps the price high.

You are an expert on Bit­coin, can you give us a quick 1.01 of how it works?

Jean-Paul Dela­haye. The release and cir­cu­la­tion of bit­coins is oper­ated by a net­work of com­puters that works without a cent­ral author­ity (peer-to-peer net­work). This net­work was con­ceived by one or more people act­ing under the name of Satoshi Nakamoto, whose iden­tity is still unknown. Each com­puter in the net­work holds a copy of a file called the “block­chain” which con­tains all the inform­a­tion about the con­tents of bit­coin accounts and the move­ment of bit­coins from one account to another.

To encour­age new com­puters to par­ti­cip­ate in this man­age­ment of the Bit­coin cur­rency, an incent­ive is dis­trib­uted every 10 minutes to one of the com­puters on the net­work by cre­at­ing a few more bit­coins ex-nihilo. This reward – that was 50 bit­coins at first, then 25, then 12.5, and now 6.25 – is awar­ded to the win­ner of a cal­cu­la­tion con­test. This is known as “min­ing”, and it is this com­pu­ta­tion­al con­test, called proof of work, which involves a sig­ni­fic­ant expendit­ure of elec­tri­city. The com­puters that try to win the prize are called Bit­coin miners; a prize that is equi­val­ent to around $270,000 (on 21^st Septem­ber 2021).

This power con­sump­tion is prob­lem­at­ic for two reas­ons. It has become enorm­ous over time, and it is unne­ces­sary because there are oth­er meth­ods of award­ing the incent­ive, such as proof of stake, which do not involve massive use of electricity.

How much do you estim­ate to be the energy con­sump­tion of the Bit­coin net­work now? We can know the cumu­lat­ive power of all miners with good accur­acy because the aver­age time between two pages (or block) depends on it². As of 18^th August 2021, this total is around 120x10¹⁸ hashes per second (1 hash = 1 cal­cu­la­tion of the SHA256 func­tion³). Today, the best machine for cal­cu­lat­ing hashes is the Ant­miner S19 Pro, which cal­cu­lates 110 Tera­Hash per second with an elec­tric­al power of 3,250 W⁴. If we assume that all Bit­coin miners use this tool (which is of course very optim­ist­ic, as there are still a lot of min­ing tools in use that use more elec­tri­city per hash), a simple com­pu­ta­tion can tell us how many TWh/year the Bit­coin net­work uses:

This min­im­um is com­pat­ible with estim­ates by digi­con­om­ist (34 TWh/year)⁵ and Cam­bridge Bit­coin Energy Con­sump­tion Index (31.7 TWh/year)⁶. It can­not be less, and those who dis­pute this res­ult are not ser­i­ous. There­fore, each year Bit­coin uses (at least) as much elec­tri­city as four nuc­le­ar react­ors pro­duce per year, and (at least) as much as all the wind tur­bines in France. This is not a hypo­thes­is; it is a certainty!

For an even more pess­im­ist­ic out­look, we should con­sider the use of older, less effi­cient min­ing machines, the cool­ing required in the Bit­coin min­ing factor­ies and the energy used to pro­duce the machines. All of which mean that we should double or even triple the min­im­um estimate!

China recently banned Bit­coin min­ing. Why did they do this? What impact will this have?

Until recently, Bit­coin min­ing was con­cen­trated in China, with as much of 60% of min­ing factor­ies being found there. How­ever, the Chinese gov­ern­ment has now banned min­ing almost entirely. There are sev­er­al explan­a­tions for this, one of which being that China does not want its cit­izens or busi­nesses to use crypto­cur­ren­cies to pre­vent com­pet­i­tion with the Yuan and avoid money laun­der­ing etc. But also, China wishes to reduce its CO₂ emis­sions and the cheap elec­tri­city required for Bit­coin is risky in that respect. Today the energy spent on min­ing Bit­coin is not green at all. Miners have no par­tic­u­lar interest in it. What mat­ters to them is to pay the cheapest pos­sible kWh – they don’t care if it the energy is renewable.

As such, mines have been pushed to move to oth­er coun­tries where the elec­tri­city prices are low enough to remain prof­it­able. In France or Ger­many, for example, elec­tri­city prices are too high at ~$0.15-$0.20 per kWh. Where­as in USA or Canada it is much cheap­er reach­ing as low as $0.03–0.05 per kWh, in some cases. In the USA, Canada and Ice­land, there is the pos­sib­il­ity to buy cheap elec­tri­city from hydro­elec­tric dams. Hence, Bit­coin min­ing factor­ies are often built close by. When the Bit­coin price rises, it can even have the effect of reopen­ing old coal-fired power sta­tions!⁷

It is import­ant to under­stand that the more the Bit­coin price increases, the more elec­tri­city miners are will­ing to pay for elec­tri­city to mine, so if the Bit­coin price were to increase by a factor of 20 (which is a min­im­um for there to be enough money in Bit­coins to com­pete with the dol­lar or the euro) then the elec­tri­city for the Bit­coin net­work would also (even­tu­ally) increase by a factor of 20. There will nev­er be more than 21 mil­lion Bit­coins (that is a lim­it writ­ten into the base pro­tocol), so the value avail­able in Bit­coins can only increase if its price increases. I don’t think it’s con­ceiv­able that the power con­sump­tion of Bit­coin could be mul­ti­plied by 20, without strong push­back and reg­u­la­tion from gov­ern­ments. Moreover, if the demand of miners was mul­ti­plied by 20, this would have an enorm­ous effect on the price of elec­tri­city which would increase for every­one, which would just not be accept­able. Rather, I think that little by little crypto-cur­ren­cies using bet­ter pro­to­cols will take over, and in fact they already have. The rel­at­ive import­ance of Bit­coin is decreas­ing, from 68.2% a year ago to 44% today. Even the spec­u­lat­ors who hold Bit­coin are gradu­ally real­ising that it is doomed in the medi­um-term and that they should bet elsewhere!