Bitcoin Energy Requirements Climbing Even as Revenues Fall

No matter your opinion on the prospect of digital currencies replacing traditional fiat currencies, the fact is that central banks and investors now find themselves evaluating the benefits of and exposure to cryptocurrencies. Today we’re focusing on the market and environmental implications of the large power requirements to mine bitcoin tokens and conduct digital currency transactions in a fossil-fuel dominated world.

• According to estimates by Dutch bank ING, one bitcoin transaction typically requires about 200 kWh of electricity, which could power a home for almost a month or run 200 cycles of a washing machine.
• Another estimate by Digiconomist, a platform dedicated to exposing the unintended consequences of digital trends, is even higher — 427 kWh per transaction. Based on this assumption, the whole bitcoin network currently consumes around 56 TWh per year as of April, or roughly the equivalent annual electricity generation of Greece, population 10.8 million.

The large power requirement behind digital currency mining is deliberate, increasing the cost of fraudulent transactions and deterring misuse of the currency. But what is mining, why is it done, and why are the power requirements escalating?

• Unlike fiat currencies issued by governments, bitcoin ‘currency’ is issued based on ‘miners’ using specialized computers and software to solve mathematical problems and earn bitcoins in exchange. And, its supply — like mined minerals, such as gold — is finite — 21 million is the maximum bitcoins that will ever exist, according to the anonymous bitcoin founder Satoshi Nakamoto.
• Bitcoins are mined by generating ‘blocks’, aka transactions, and verifying transactions using energy-intensive algorithms. Miners need to find the correct hash every time they want to add a new block into the blockchain. The miner who finds the solution first earns the new bitcoin.
• The probability of solving a problem for each participant is the same and is directly proportional to the power of the miner’s computer. The resulting incessant competition among miners drives up the productivity requirements of their computing systems to bypass rivals and thus the transaction-by-transaction power requirements.

View original infographics, live dashboard and download data at knoema.com.