Why does bitcoin consume crazy energy?

Becoming one of the cryptocurrency prophets, Tesla boss Elon Musk rocked the price of bitcoin by assessing its growing environmental impact on Wednesday, all the way to asking questions about the future of the virtual currency.

“Energy use over the past few months is crazy,” tweeted the capricious billionaire on Thursday morning, sharing a graph from the Cambridge Electricity Consumption Index (CBECI).

This table shows the evolution of the estimated electricity consumption of the virtual currency, which has been growing almost continuously since 2016 and accelerating sharply since the end of 2020, on an annual basis.

It is currently estimated at a maximum level of 149 TWh (terawatt-hour).

“If bitcoin was a country, it would use the same amount of electricity per year as Switzerland,” Deutsche Bank analysts say in a note.

By comparison, Google consumed 12.2 TWh in 2019, and all data centers around the world, except those digging for bitcoin, consume about 200 TWh, according to George Kamija, an analyst at the International Energy Agency (IEA).

But things get complicated when you read the above range of CBECI estimates. The slope is much more vertical and could soar above 500 TWh if bitcoin hunters, the “miners,” use the most energy-intensive equipment, this index shows.

The price of bitcoin has fallen 15%, to its lowest level in two and a half months, following Elon Musk’s announcement Wednesday that Tesla will no longer accept paying for its vehicles in bitcoins as long as its mining consumes so much fossil fuels, especially coal.

Buyers of the manufacturer, which also invested $ 1.5 billion in virtual currency in February, could officially use it from the end of March.

In the origins of all the frantic energy consumption in the bitcoin market, whose capitalization exceeded $ 1 trillion earlier this year before falling again, there’s the juicy reward they crave for these miners, for a big boost of dedicated data centers.

– Complex equations –

The Bitcoin code stipulates that people who participate in the network prove their work by solving complex equations, which have no direct connection with transactions. In return, they automatically receive a bitcoin reward every ten minutes.

Electricity consumption in virtual currency has been growing almost steadily since 2016 and has accelerated sharply since the end of 2020 (AFP / Archive - PHILIPPE HUGUEN)

Electricity consumption in virtual currency has been growing almost steadily since 2016 and has accelerated sharply since the end of 2020 (AFP / Archive – PHILIPPE HUGUEN)

This is one of the fundamental principles of the cryptocurrency star, created in 2008 by one or more anonymous people who wanted a decentralized digital currency: “proof of work” or proof of work, aimed at guaranteeing the integrity of the network.

As the price of bitcoin increases, so does interest in mining and electricity consumption.

Which is not without environmental consequences: the scientific journal Nature published a study last month showing that bitcoin mining in China, which drives nearly 80% of global cryptocurrency trading, risks endangering the country’s climate.

In this country, part of the mining is done with coal, a particularly polluting lignite.

However, in order to have carbon-free energy in the country that could enable mass mining of renewable energy sources, we will have to wait around 2060, Bloomberg predicts.

As for mining, “many people will say a large part can be rebuilt,” analysts at Deutsche Bank say. “But most of it isn’t at all!”.

To try to get out of excessive power consumption, the solution would then be to move from “proof of operation” to a system that consumes less energy, which would allow the avoidance of some processors, a solution provided by another cryptocurrency, ethereum. But it’s hard to see bitcoin adopting such a change that would risk making the network less decentralized and secure.

“Tesla’s decision serves as a sharp alarm for companies and consumers who own bitcoin and who have not previously paid attention to the green bill,” Laith Khalaf, an analyst for AJ Bell, said.

“This shows that the long-term adoption of this currency by businesses, consumers and investors is still very uncertain.”

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