Although interest to cryptocurrencies has significantly weakened over the past six months, they are consuming more and more energy.
Despite the decline in interest in cryptocurrencies in 2018, electricity consumption by the infrastructure for their mining (issuing digital money) has grown since the beginning of 2017 – to 73 terawatt / hour. The annual cost of electricity (from the beginning of summer 2017 to the end of the current) exceeded $ 3.5 billion. This poses a threat to the economy, energy and even the environment.
Why does bitcoin, which lives only in electronic form, need so much energy? The problem in the mechanism of Proof-of-Work. Distributed systems that store information about money and their movement are protected from abuse by the fact that information obtained as a result of solving complex algorithmic problems gets into the blockchain. Solving a problem means creating (say “closing) a new block that contains information about transactions (records) of a distributed registry. For the closure of the block, the finder of the decision is given a reward in cryptocurrency. For a cryptocurrency network, Bitcoin now is 12.5 Bitcoins for each closed block. This premium is halved every four years.
The Proof-of-Work mechanism allows each node of the network to check the correctness of adding a new block: in other words, make sure that the other node, which adds a new block to the blockchain, actually did the necessary calculations. During the check, the hash (character string) of the header of the new block, which contains a link to the previous block, is found. Such hashing operations were carried out in March 2018 around 26 quintillons (billion billions) per second in the world.
This mechanism spawned the mining industry (making money on closing blocks) and made it a giant consumer of electricity. In 2012, the total capacity of the Bitcoin network exceeded the most powerful supercomputer in the world. Computers for solving algorithmic problems need a lot of energy. They become more and more productive, but the calculations in the Bitcoin protocol become more complicated – once every two weeks, after each 2016 block is filled. Otherwise, miners would generate too much digital currency.
In terms of energy consumption, this is a vicious circle: the equipment for mining becomes cheaper and more efficient, the more difficult it is for it to solve, in order not to cause overproduction of cryptocurrency. The number of bitcoins is algorithmically limited, but how much energy will be spent on their mining? Experts fear that Bitcoin electricity costs may rise from the current 0.5% of global energy consumption to 5%. They estimate that with the mining industry earning $ 5 billion in 2018, equipment and electricity costs will be about $ 3.7 billion. Opponents consider its estimate to be overestimated three times.
If the miners’ incomes stop paying for the equipment and electricity costs, the mining farms will be dismantled. If, of course, miners honestly pay for electricity and they have to buy mining equipment. There are other cases – for example, one smart guy used the National Science Foundation supercomputer to figure out bitcoins by about $ 10,000. The university’s costs therefore reached $ 150,000. And in Orenburg in an abandoned factory, was created the largest mining farm in Russia and Europe, not paying for 8 million kWh of electricity. Now it is closed.
In August 2018, the miners’ income exceeded their expenses by about 50%. This means that if Bitcoin does not become more expensive, we will no longer see such an explosive growth in the power consumed by it. But it’s hard to imagine how much energy can be spent on mining if bitcoin costs $ 50,000.
Much of the electricity on Earth is produced by coal-fired power plants. Their share is particularly high in China, which in 2017 accounted for 72% of bitcoin production. The government even had to start ousting miners from the country. This may be due to the fight against tax evasion and money laundering, as well as with plans to create their own national cryptocurrency. Bitcoin is extremely environmentally unfriendly. In the summer of 2018, 934 kW / h of energy was consumed to service one transaction in bitcoins. For comparison, to conduct of 100,000 transactions in the VISA system requires 5.5 times less energy. The carbon footprint produced by bitcoin is 17.7 million tons of carbon dioxide.
Even in countries that produce mostly green energy, mining can be a problem. For example, in Iceland, a cold climate saves on cooling, and almost all of the energy comes from environmental sources (solar, wind, and hydroelectric power plants). The Nordic country has become so attractive that in 2018 Iceland’s crypto farms will consume more electricity than households. If mining becomes unprofitable, it will be an economic blow for the country’s energy industry, and may also cause technological difficulties: it is not always possible to reduce electricity production fast enough.
Looking for a solution
The cryptoindustry has a way to reduce its energy intensity. One of them is the replacement of Proof-of-Work with other methods of closing blocks, for example, with Proof-of-Stake. In this case, the chances to generate the next block will be greater for those nodes that already have a large number of tokens and hold them longer. There is no need to build mining farms that compete in solving algorithmic problems. If the entire cryptoindustry had switched to Proof-of-Stake at once, its power consumption would have dropped tens of thousands of times. In the system with the Proof-of-Stake, the storage of one unit of cryptocurrency in the wallet of the owner is equivalent to one vote in the fight for the right to attach the next block in the blockchain.
In this case, rewards for creating new digital coins can be saved. Such a transition is planning to conduct a network Ethereum. A network of Durov brothers TON plans to launch a similar approach, where emissions are controlled by selected users – it also does not require mining.
Now the emission of bitcoins requires a lot of electricity and a negative impact on the environment. Jurgelevičius Algirdas, the vice-president of the Eastern European Association of the Greens, outlines that the Proof-of-Stake mechanism will relieve cryptocurrency networks from energy dependence. At the same time, other ethical issues will have to be resolved: in order to issue a cryptocurrency, you will already need to possess a cryptocurrency. Money, in fact, will be issued by a community of people who already have money. The disadvantage of this mechanism is that it stimulates the concentration of crypto-wealth in the same hands. But such a mechanism at least will not harm the environment and load the grid, and the output can be searched inside the crypto-community. For example, through the introduction of hybrid options.