Bitcoin’s energy consumption will grow, and it can’t be stopped
Not all problems have a solution. Bitcoin is an unstoppable energy locust, and there's little to be done.
It's still not possible to accurately calculate bitcoin's current and future energy consumption. Rather, there are just a handful of generally accepted estimates and you can shift the numbers significantly in either direction by changing some of the unknown variables.
But no matter how you shift them, it's clear beyond any doubt that bitcoin consumes enormous amounts of energy, and that its current growth rates aren't sustainable for long.
The hardest-core bitcoin proponents argue that future increases in energy production will be enough to offset this as bitcoin ascends to its throne as a universal currency, or that it's actually a good thing because it encourages more investments in renewable energy.
A new study published in Joule has now estimated that bitcoin, if its current miner growth continues, could be consuming as much as 0.5% of the world's energy production, roughly equivalent to the country of Austria.
Like all estimates of bitcoin energy consumption, the paper makes a sweeping series of predictions and estimates. One of the major problems is that it's not actually clear how much energy each mining operation uses, or what the norm is. Crypto-mining is an intensely secretive hyper-competitive world and that kind of information simply isn't widely known.
But it might not really matter if the numbers are off by a bit. Even if the current paper is overestimating bitcoin energy consumption five-fold, which it almost certainly isn't, the numbers are still quite outrageous.
Another criticism of the paper is that it fails to factor in the efficiency gains that tend to come with developments in mining equipment. In just two years, Bitmain's bitcoin miners have seen 250% improvements in energy efficiency.
But that criticism might not mean much either. Energy consumption is just another design factor, to be balanced with hashing power, cost, dimensions and exact functionality.
Why is bitcoin so inefficient?
Bitcoin's grossly hilarious inefficiency is mostly an unforseen side-effect of its design.
Basically, bitcoin miners process transactions by pumping computing power into the network. It's a competition, where more power means more chance of winning transactions, and therefore more rewards.
But the rewards and transaction speeds are capped at a certain point, to better maintain the network economic stability, so no matter how much energy goes into the network it won't actually get any faster. Instead, the network compensates by making it much more difficult, and therefore energy-intensive, to uncover blocks and process transactions.
This led to an arms race effect, where competing groups of miners kept pumping as much power into the network as possible, to improve their chances. Now there is no much power that it's not worth mining bitcoin unless you can pour a ludicrous amount of power into the network.
The bitcoin network has since turned into a handful of big players constantly competing with each other to pump as much energy into the system as possible. When bitcoin prices drop, their margins get thinner.
The funny part is that they can't really turn off the machines when prices drop. If they do, the difficulty instantly drops and it suddenly becomes profitable for the remaining competitors.
This has the industry's big players caught in a vicious multi-billion dollar circle of constantly increasing investments.
At the end of the day, bitcoin mining outfits have one objective: to produce as much hashing power as possible as cost-effectively as possible.
A now-defunct bitcoin mining maker, Butterfly Labs, thought it was onto a winner with an ultra-powerful mining chip, faster than anything else on the market. The problem is that it emitted too much heat, and necessitated fancy liquid cooling systems rather than a more basic rack of fans, like Bitmain's mid-range chips do. It was too focused on being the fastest, rather than being the most efficient.
This single mindedness is a double edged sword.
On the one hand, it's what keeps driving the extraordinary increases in bitcoin energy consumption, and it's why bitcoin mining difficulty has kept increasing even as prices slump.
The energy use isn't caused by too many people mining bitcoin at home. It's caused by a small handful of enormous entities manoeuvring tens of thousands of machines in the most efficient way possible, constantly hooking up thousands more, running 24/7 with new shipments arriving all the time. The industry's scale is vast, and it's mostly powered by wholesale energy purchases, directly from power plants behind the grid.
They're not going to stop either. Their income depends on being able to successfully and efficiently mine bitcoin en masse. If they fall behind, that income drops off and it will very quickly become impossible to catch up again. It's a constant and relentless arms race to produce as much hashing power as possible, which indirectly means consuming as much energy as possible.
It's also a significant weakness. Despite the "decentralisation" buzzword, proof of work mining means bitcoin and other proof of work coins are actually extremely centralised, and almost entirely under the control of a small handful of companies.
What will happen?
The somewhat outrageous energy consumption will probably see a swift backlash in certain areas, if and when it actually starts causing brownouts.
When this happens, a country wouldn't even need to ban bitcoin mining. Simply adding a healthy tax to energy costs used for cryptocurrency mining would probably be enough to upset the efficiency balance, and see the companies quickly rebalance to other parts of the globe. Russia and other parts of Eastern Europe are a likely location. As other countries wring their hands over bitcoin's energy consumption, that region is welcoming miners with exceptionally cheap (and dirty) subsidised energy. Russia is well and truly keen on cryptocurrency, and this open arms policy won't be changing any time soon.
At the same time, it might also spur the development of more energy efficient miners, as the ideal balance shifts towards more energy efficiency, even at the cost of power. Miners might invest more heavily in control of their own energy infrastructure, and start building and buying more power plants of their own. This will be done with a focus on cost effectiveness, which fortunately will naturally incline towards the use of renewables.
Some people are speculating that bitcoin will shift to proof of stake, but there's zero chance of this ever happening.
Firstly, because you can't just smack PoS onto any PoW coin. It's a slow and difficult process which bitcoin is in no position to carry out. It can't even change its block size without starting a civil war, let alone do something as complex as a switch to PoS. And even if they could, there's also zero chance that miners would vote to kill their own industry, and these days the miners are unequivocally running the show.
Bitcoin will not become any more energy efficient and as long as it lives, its energy consumption will continue to grow rapidly.
Trying to tamp down on the mining industry in the USA and elsewhere in response would also be environmentally counter-productive, and would probably only serve to drive a greater proportion of production to dirtier energy sources in Russia and elsewhere.
In the end, the goofy "bitcoin's energy consumption will encourage further developments in renewables" argument might be true. Not for any real merit, but simply for lack of alternatives. Bitcoin is an unstoppable energy locust which will devour as much energy as possible as fast as possible for as long as it exists, and renewable energy is cheaper in the long run.
Not all problems have a solution. In the long run, bitcoin will likely encounter economic unsustainability before environmental unsustainability, as the mining arms race keeps increasing block difficulty and dropping block rewards, and the system gradually falls apart. It wouldn't be the first time an industry voraciously dug its own grave.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO
- Shiba Inu price touches all-time high despite recent Elon Musk snub
- Bitcoin price tumbles despite positive ETF news continuing to mount
- Experts remain bullish on Bitcoin despite minor dip after all-time-high price
- Ethereum price outlook remains bullish after touching all-time high
- Senate Crypto report: What was recommended and what does this mean for Australians?