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!