Bitcoin mining could have severe environmental and economic impacts that risk spilling over into other industries and may even affect global security, argues a new commentary focused on the blockchain-based cryptocurrency's soaring price.
Bitcoin uses roughly 1% of the world’s energy to mine currency
The article, authored by financial economist Alex de Vries and published in Joule, looked at the relationship between Bitcoin’s price –, which currently sits at over $55,000 – and the resulting hidden costs of the currency.
For de Vries, the most immediate and salient point to consider in relation to Bitcoin’s stratospheric rise is the impact on the environment. “What we can expect is that the network will ultimately consume the same amount of electricity as all data centers, globally. The carbon footprint associated with that is going to be the size of London’s," de Vries explains to Technology Networks.
Bitcoin’s encryption requires users to “mine” the currency through deploying computational resources to solve complex mathematical equations. Bitcoins are distributed in a regimented and random way, meaning for miners, the only way to increase their chances of striking digital gold is by using more and more computational resources to mine.
Whilst in theory any processing unit with an internet connection can be used to mine, in practice, professional Bitcoin mining operations use highly specialized, energy-guzzling devices.
These machines fuel the Bitcoin economy, which totals around 120 million transactions per year. That is a tiny fraction of the more than 500 billion transactions made by the global financial system, de Vries points out. Nevertheless, he estimates that Bitcoin uses roughly one percent of the world’s energy to mine currency, a mind-blowing figure that will only rise as the price of Bitcoin is fueled by increased interest.
de Vries’s analysis was able to tie Bitcoin’s price to its energy consumption by analyzing how much miners pay for their electricity – estimated to be ~60% of the total cost of their operations.
What is particularly concerning to de Vries is the “locked in” nature of much of the energy consumption. His analysis notes that many providers of Bitcoin mining devices have sold out of their machines, with orders on backlog for several months. Even if Bitcoin prices collapse, as they did at the end of 2017, miners will be forced to use their machines as their purchase is a non-refundable sunk cost that they will need to recoup through mining, even at lower prices, de Vries suggests. This guarantees a huge energy demand from even a devalued Bitcoin.
Electronic waste, chip shortages and international security
de Vries’s analysis extends beyond the direct environmental impact of Bitcoin, which remains a fiercely contested topic. He also highlights that secondary impacts will come from the short lifespans of current mining devices: “This results in a big pile of electronic waste from specialized equipment that cannot be repurposed.”
The rigs are also contributing to the global shortage in computer chips, says de Vries. “These Bitcoin miners want the same chips that we need for our phones or for self-driving electric vehicles.” The bottleneck here is so severe that to produce just one million units of the most powerful mining device, Bitmain’s Antminer S19 Pro, roughly half of the world’s global production of 7 nm chips would be needed for an entire month.
de Vries finally points out that the anonymous, decentralized nature of Bitcoin would allow countries like Iran – where eight percent of global Bitcoin manufacture is now based – to avoid economic sanctions by repurposing sanctioned oil destined for export to instead fuel Bitcoin mining. As these sanctions were originally put in place to prevent the proliferation of nuclear weapons, de Vries credibly points out that Bitcoin’s spillover now includes international security concerns.
How can we deal with Bitcoin’s growing impacts? Could miners switch to renewable sources? de Vries accepts this is a possible route forward but points out that fossil fuels remain the majority source of power for the currency. De Vries says that policymakers might need to take drastic steps to regulate this decentralized currency: “You can do a lot about these problems. Mining facilities are usually centralized. They're pretty easy to target.”
Could we see Bitcoin miners subject to a moratorium on operations or even confiscation of equipment? What’s certain is that, if Bitcoin’s current trajectory continues, its staggering energy use is going to increase. de Vries acknowledges that Bitcoin has already outpaced the highest estimate calculated in his paper, which was written in January 2021. At Bitcoin’s current price, he estimates that mining operations could consume up to 241 TWh of energy. That’s larger than Australia’s total annual energy consumption.
Vries, A. de. (2021). Bitcoin boom: What rising prices mean for the network’s energy consumption. Joule, 0(0). https://doi.org/10.1016/j.joule.2021.02.006