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 !