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Bitcoin’s staggering energy consumption figures revealed

  • March 11 2021
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Bitcoin’s staggering energy consumption figures revealed

By Maja Garaca Djurdjevic
March 11 2021

As sustainable investing continues to draw increasing attention, questions are being raised about bitcoin’s energy consumption and its environmental impact.

bitcoin s staggering energy consumption figures revealed

Bitcoin’s staggering energy consumption figures revealed

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  • March 11 2021
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As sustainable investing continues to draw increasing attention, questions are being raised about bitcoin’s energy consumption and its environmental impact.

bitcoin s staggering energy consumption figures revealed

The soaring popularity of bitcoin has sparked a fresh debate on its energy use and its ultimate carbon footprint.

New research by digiconomist.net founder Alex de Vries revealed this month that the bitcoin network could consume as much energy as all data centres globally, with an associated carbon footprint matching London’s footprint size.  

According to Mr de Vries, the problem lies in bitcoin mining – an intricate process of solving a computation puzzle that requires specialised bitcoin mining devices and a large amount of electrical energy. Mr de Vries' research puts the amount of electricity consumed by all devices in the bitcoin network at between 78 and 101 terawatt-hours (TWh) of electricity - note, these figures were derived at before bitcoin’s latest surge in popularity.

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Another study by Cambridge’s Centre for Alternative Finances puts the consumption at above 115 terawatt-hours (TWh), while a further paper by a UK published said recently that computer power required to mine bitcoin quadrupled in 2019 when compared to a year earlier. 

Returning to Mr de Vries' research, which further mapped bitcoin’s energy consumption in comparison with countries around the world, bitcoin consumes more TWh each year than Chile and just a little less than Finland. 

But, as Mr de Vries explained, bitcoin’s biggest problem is perhaps not even its massive energy consumption, but the fact most mining facilties in bitcoin’s network are located in regions (primarily in China) that rely heavily on coal-based power.

To put bitcoin’s environmental cost in perspective, when compared with another payment system like Visa, for example, bitcoin emerges as extremely more energy-intensive per transaction, with one bitcoin transaction equivalent to the footprint of 751,205 Visa transactions.

As such, RMIT senior lecturer in finance Dr Angel Zhong believes investors need to be conscious of the environmental impact of cryptocurrencies and the consequences of adding cryptocurrencies to their investment portfolios.

“Even if you are not directly investing in cryptocurrencies, you may need to review your portfolios and watch out for firms that invest in cryptocurrencies. For instance, Telsa claims to work toward a “sustainable energy future”.

“But the recent investment in cryptocurrencies actually goes against this mission. This also has implications for rating agencies that evaluate the ESG (environmental, social and corporate governance) ratings of firms,” Dr Zhong explained.

But it’s not bitcoin alone that is the problem, ethereum too is said to consume more electrical energy than Ecuador at 26 TWh per year.

Ethereum, however, has intentions to roll out its proof-of-stake algorithm to an energy-friendly algorithm termed Casper in order to minimise energy consumption.

There are those, however, that defend crypto's power drain, with Fidelity Digital Assets' director of research Ria Bhutoria recently noting that "bitcoin would not be able to fulfill its role as a secure, global value transfer and storage system without being costly to maintain". 

The question, however, remains how costly do we allow it to be?

 

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About the author

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Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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