The Weekend Wonk: Will Bitcoin Save Us or Kill Us? And What the Hell is it?

December 9, 2017

Talk me down, but I’m trying to get my mind around this. If something is going to swallow the planet, I’d at least like a description of it.

Something so poorly understood that is obviously growing at a phenomenal rate, might possibly have an unforeseen impact on the economy.
In the excerpt from Wired below, we find this –
By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.”
If something sounds this absurd, sometimes it actually is, well, absurd. But I stopped ruling out absurd things in the last year.

CNBC:

No, you are not imagining things. Everyone is talking about bitcoin, even your mom.

With a price approaching $20,000 a coin this week, it’s not hard to understand why. The digital currency started out the year below $1,000.

Why is it rallying?

A mere curiosity until recently, Bitcoin is about to get a big dose of legitimacy, something that could be helping to boost its price. This month, two of the world’s biggest exchanges will begin trading bitcoin futures, pushing it further into the mainstream and establishing a layer of official oversight that hadn’t previously existed.

Wired:

If you’re like me, you’ve probably been ignoring the bitcoin phenomenon for years — because it seemed too complex, far-fetched, or maybe even too libertarian. But if you have any interest in a future where the world moves beyond fossil fuels, you and I should both start paying attention now.

Last week, the value of a single bitcoin broke the $10,000 barrier for the first time. Over the weekend, the price nearly hit $12,000. At the beginning of this year, it was less than $1,000.

If you had bought $100 in bitcoin back in 2011, your investment would be worth nearly $4 million today. All over the internet there are stories of people who treated their friends to lunch a few years ago and, as a novelty, paid with bitcoin. Those same people are now realizing that if they’d just paid in cash and held onto their digital currency, they’d now have enough money to buy a house.

That sort of precipitous rise is stunning, of course, but bitcoin wasn’t intended to be an investment instrument. Its creators envisioned it as a replacement for money itself—a decentralized, secure, anonymous method for transferring value between people.

But what they might not have accounted for is how much of an energy suck the computer network behind bitcoin could one day become. Simply put, bitcoin is slowing the effort to achieve a rapid transition away from fossil fuels. What’s more, this is just the beginning. Given its rapidly growing climate footprint, bitcoin is a malignant development, and it’s getting worse.

Cryptocurrencies like bitcoin provide a unique service: Financial transactions that don’t require governments to issue currency or banks to process payments. Writing in the Atlantic, Derek Thompson calls bitcoin an “ingenious and potentially transformative technology” that the entire economy could be built on — the currency equivalent of the internet. Some are even speculating that bitcoin could someday make the US dollar obsolete.

But the rise of bitcoin is also happening at a specific moment in history: Humanity is decades behind schedule on counteracting climate change, and every action in this era should be evaluated on its net impact on the climate. Increasingly, bitcoin is failing the test.

Digital financial transactions come with a real-world price: The tremendous growth of cryptocurrencies has created an exponential demand for computing power. As bitcoin grows, the math problems computers must solve to make more bitcoin (a process called “mining”) get more and more difficult—a wrinkle designed to control the currency’s supply.

Today, each bitcoin transaction requires the same amount of energy used to power nine homes in the US for one day. And miners are constantly installing more and faster computers. Already, the aggregate computing power of the bitcoin network is nearly 100,000 times larger than the world’s 500 fastest supercomputers combined.

The total energy use of this web of hardware is huge—an estimated 31 terawatt-hours per year. More than 150 individual countries in the world consume less energy annually. And that power-hungry network is currently increasing its energy use every day by about 450 gigawatt-hours, roughly the same amount of electricity the entire country of Haiti uses in a year.

That sort of electricity use is pulling energy from grids all over the world, where it could be charging electric vehicles and powering homes, to bitcoin-mining farms. In Venezuela, where rampant hyperinflation and subsidized electricity has led to a boom in bitcoin mining, rogue operations are now occasionally causing blackouts across the country. The world’s largest bitcoin mines are in China, where they siphon energy from huge hydroelectric dams, some of the cheapest sources of carbon-free energy in the world. One enterprising Tesla owner even attempted to rig up a mining operation in his car, to make use of free electricity at a public charging station.

In just a few months from now, at bitcoin’s current growth rate, the electricity demanded by the cryptocurrency network will start to outstrip what’s available, requiring new energy-generating plants. And with the climate conscious racing to replace fossil fuel-base plants with renewable energy sources, new stress on the grid means more facilities using dirty technologies. By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.

This is an unsustainable trajectory. It simply can’t continue.

There are already several efforts underway to reform how the bitcoin network processes transactions, with the hope that it’ll one day require less electricity to make new coins. But as with other technological advances like irrigation in agriculture and outdoor LED lighting, more efficient systems for mining bitcoin could have the effect of attracting thousands of new miners.

Motherboard:

Bitcoin’s incredible price run to break over $7,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency.

An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to “mine” more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year.

This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day). Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes.

Expressing Bitcoin’s energy use on a per-transaction basis is a useful abstraction. Bitcoin uses x energy in total, and this energy verifies/secures roughly 300k transactions per day. So this measure shows the value we get for all that electricity, since the verified transaction (and our confidence in it) is ultimately the end product.

It’s worth asking ourselves hard questions about Bitcoin’s environmental footprint

Since 2015, Bitcoin’s electricity consumption has been very high compared to conventional digital payment methods. This is because the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it. As the price rises, miners add more computing power to chase new Bitcoins and transaction fees.

EcoWatch:

Bitcoin’s insane price hike to more than $15,000 on Thursday has left me thinking one thing: I’ll never be able to afford these things, so why should I care?

But while bitcoin-money lines the pockets of early investors and digital currency speculators, the rest of the planet is suffering. As it turns out, bitcoin is sucking up a whole lot of energy.

According to Alex de Vries, who tracks the industry on the site Digiconomist, each bitcoin transaction consumes 250 kilowatt hours of power—or enough to run the average American household for about a week. In all, the entire bitcoin network consumes an estimated 32 terawatt-hours a year. That’s more than the electricity consumption of at least 159 other countries, including Ireland and most African nations.

And the network isn’t exactly running on clean, green renewables.

“Bitcoin’s biggest problem is not even its massive energy consumption, but that the network is mostly fueled coal-fired power plants in China,” De Vries noted.

So why does a bitcoin—a weightless digital currency you can’t exactly hold or touch—consume so much energy?

Well, first you have to understand that the world has a finite supply of 21 million bitcoins. Then, to “mine” one of these bitcoins, a computer must solve a complex cryptographic puzzle. As the number of bitcoins dwindle, the puzzles get more and more challenging to solve, and thus these computers need more and more energy to run.

Companies mine bitcoins with large warehouses full of noisy, energy-sucking servers that are built just for the task. For instance, the coal-powered Ordos bitcoin mine in China consists of eight buildings filled with 25,000 mining machines. Their daily electricity bill costs a staggering $39,000.

Ultimately, if bitcoin or other digital cash forms become our mainstream currency as some predict, this could come at the peril of the planet’s health.

Proponents, however, argue that bitcoin’s environmental footprint doesn’t have to continue on this upsetting trend. As Elaine Ou, a blockchain engineer at Global Financial Access, wrote:

What’s more, bitcoin’s consumption won’t necessarily keep rising as it has. Data centers, for example, have gotten a lot better. Not long ago, the Department of Energy was predicting that their electricity use would double every five years, and Google was getting slammed for consuming enough to power 200,000 homes. In recent years, though, the centers’ total electricity use has flattened even as their number has kept growing. As it turned out, better cooling and power management technology improved efficiency. Bitcoin miners are no less motivated by profit, so it stands to reason that they will seek to become more efficient and employ the cheapest energy available, which generally means hydroelectric plants and other renewable sources.

IBM:

Blockchain technology uses decentralized data storage to record digital transactions. Instead of having a central administrator, such as a traditional database (controlled by banks, governments, accountants, registries), blockchain has a network of replicated databases, synchronized over the internet and visible to anyone on the web.

The use of intelligent meters (IoT) as nodes for energy consumers and producers makes it possible to track consumption and payments. Smart contracts can initiate the transfer of funds between accounts based on usage data received from each of these meters, ensuring accuracy. Blockchain is intertwined with all of this, documenting the transactions and creating a reliable network of energy tracking.

Blockchain in action

Institutions such as the American LO3 TransActive Grid and the Australian Power Ledger understand the business potential these technologies may represent in the near future. These institutions present solutions for the commercialization of surplus energy produced by any consumer, whether a residence, a condominium, a factory or a farm. Solutions typically allow each unit of electricity to be traced from the point of generation to the point of consumption using the local electricity distribution network. Blockchain combines a tracked energy transaction with a financial transaction, making the process simpler and safer.

In Europe, TenneT, a leading electricity transmission system operator, is concerned about the limitations of conventional energy sources and decided to invest in new ways to produce and supply energy to be ready for the future increase in demand. TenneT joined forces with sonnen, in Germany, and Vandebron, in the Netherlands, to explore a permissioned blockchain network using Hyperledger Fabric to integrate flexible capacity supplied by electric cars and household batteries into the electrical grid.

Vandebron is a known 100 percent renewable energy supplier in the Netherlands that has acquired expertise in electric transportation. In the partnership with TenneT, Vandebron clients will make their electric car batteries capacity available to TenneT to balance its grid, without compromising the availability of their car batteries. Blockchain enables each car to participate by recording their availability and their action in response to signals from TenneT.

The sonnen Group is one of the fastest growing companies in Germany, and sonnen eService (the energy branch of sonnen group) already supplies over 60,000 people globally with clean energy. The sonnenCommunity is an online network based on the blockchain idea for sharing self-generated power. To help reduce the instability of wind energy distribution caused by insufficient transmission capacity, a network of residential solar batteries is been formed by sonnen eServices. Blockchain allows the operator from TenneT to view the available pool and activate the batteries according to the grid need. Blockchain also records batteries’ contribution and credit.

Fast Company:

Slovenian website NiceHash, which lets users buy and sell computer time for mining cryptocurrency, lost about $77 million when its payment system was hacked in a “highly professional” heist, it told Reuters. In total, about 980,000 bitcoins, worth about $15 billion in today’s skyrocketing prices, have been stolen from exchanges over the currency’s lifetime, the wire service estimates.

But exactly who is behind the theft, or other recent cryptocurrency heists, is unclear. In September, security firm FireEye reported it had seen signs of North Korea targeting South Korean cryptocurrency exchanges, but given cryptocurrency’s relative anonymity and rapidly rising prices, exchanges are likely natural targets for skilled digital criminals from around the world.

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3 Responses to “The Weekend Wonk: Will Bitcoin Save Us or Kill Us? And What the Hell is it?”

  1. indy222 Says:

    Heisting a million bitcoins, when the fixed total number is only 21 million…. seems like a gaping hole in the supposed value of this cryptocurrency. Will Bitcoin save us or kill us? Increasingly seems more likely to be the latter. The more bitcoin’s price rises, the more profitable it is for crypto-criminals to figure out ways to heist it, and leaving all of us to foot the energy and CO2 cost.

    Prof. Joseph Tainter has a lot to say about the way complexity kills past civilizations, and is in the process of killing ours. Bitcoin seems to be a signature example now.

  2. andrewfez Says:

    One of these guys I work with bought a bunch of that a while back. He says he makes more money from the price inflation of that than he does working, and he makes 130k per year or so.

    Reminds me of the myth started years ago that said the internet would send us into a climate catastrophe from its power consumption, if I’m remembering that right.

  3. Paul Whyte Says:

    So just looking at those figures of growth in bitcoin mining, I’d have to say it’s getting near to a point that it will become too expensive to keep mining at some point. Especially where almost all of the easy to find coins are already found.


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