Bitcoin. The cryptocurrency-turned-galactic-buzzword has a big problem and it has nothing to do with devaluation.
Just so we’re all on the same page, let’s start with some background. If you’re already a blockchain and crypto-mining wizard, feel free to scroll on down.
The Blockchain — and other cool facts you can whip out at a neighborhood cookout
Bitcoin and other crypto coins rely on the core idea of the blockchain. Oh yeah, I know you’ve heard of “the blockchain.” Yet another buzzword that surrounds all things cryptocurrency. You probably heard Dave toss around the word at a barbecue and if you ever thought “oh that’s too confusing for me,” well, here’s an explanation in easy-to-understand, tech-jargon-minimal form.
Cryptocurrencies and the blockchain are a method of moving away from old, archaic methods of transaction processing that hinged on a central organization like a bank that takes care of money balances and transfers. Cryptocurrencies decentralize that process and move away from the central big-bank players by making it public. Because the location of the transactions is decentralized, the process can’t be controlled by one person or entity and complete privacy is achieved.
And now, here’s how the “block”-“chain” is created:
Every cryptocurrency transaction that occurs is added to a “block.” Every block holds a certain capacity and once that capacity is reached, the block gets added to the chain — and thus is derived the blockchain.
Still Confused? Google will help.
The easiest analogy to help wrap your head around the blockchain is Google Docs.
In 2016, William Mougayar wrote an exceptional article explaining blockchain by comparing Google Docs to Microsoft Word.
In traditional Microsoft Word, only one person can work on a file at once. One person creates it, changes the font, adds hanging indents, etc. Traditional banking worked in the same way, having one, centralized player doing all the work and having all the power.
By contrast, in a Google doc, any number of people can make edits at the same time, updating a single version.
Here’s an excerpt from his piece:
“That’s how databases work today. Two owners can’t update the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).
With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.” — William Mougayar
Cryptocurrency Mining — channeling your inner Tolkien dwarf
Bitcoin, Bytecoin, Ethereum, Litecoin, Monero, Vertcoin, Electroneum, Dogecoin, and loads of other __coins all structure themselves around the concept of mining.
Cryptocurrency mining does not involve swinging a pickaxe in a poorly-lit, claustrophobia-inducing mineshaft. It does not require years of tutelage under the expert dwarf miners of Erebor. Quite the opposite — cryptocurrency mining can be conducted from the comfort and safety of your own home. Hell, you could make some deviled eggs, garnish them, take your dog, Lucy, for a walk around the block, and proceed to eat those deviled eggs all while you mine for Bitcoin.
Here’s how it works at a simplified level:
Every time a cryptocurrency transaction takes place, a miner is responsible for ensuring its authenticity and updating the blockchain with the transaction.
To do this, miners compete with each other to solve really complicated math problems. Imagine if the worst multivariable calculus problem you ever had in school was bit by a radioactive spider and had all six Infinity Stones. That would get you to around how much of a fight these cryptographic problems put up.
Don’t worry, miners don’t actually do the computations, they just sit back and let their computers go to war with mathematical Thanos.
So why do people mine in the first place? What’s in it for them?
Well, the first miner to crack the code and subsequently authorize the transaction is rewarded in (at the time of writing) 12.5 bitcoin.
Say Steve takes up Bitcoin mining and starts trying to solve the cryptographic problems. Say his mining efforts pay off and his computer cracks the code! Steve would earn 12.5 Bitcoins for his effort — or $132,461.13 at today’s valuation. Now you see the allure.
Okay, let’s make some money!
So what’s stopping everyone from making thousands doing this every day?
Well, put simply, it takes superheroes to fight supervillains.
Putting my MacBook Pro’s measly 16GB of RAM against these problems would be like throwing magnets at Magneto.
The pros use dedicated Bitcoin mining hardware like the Antminer S9 which could run you a cool $3,000. Even then, you would need a small army of these things to run any sort of profit Bitcoin mining.
The current average price of electricity in the US is 13.31 cents per kWh. The Antminer S9 runs at about 1650 watts. If you bought an Antminer S9 today and started mining in a mining pool (when miners pool resources and split the reward), here’s how much you’d make:
Honey, grab the kids, we’re going to be rich.
At What Costs?
The hidden consequence of all this mining and public verification boils down to one word: energy.
The reason we’re in the red on that profitability calculator above is energy costs — fanning the bellows of the Antminer forge (keeping its fan running and computations whizzing; in less poetic wording) takes a lot of energy.
One mining facility in Mongolia is believed to use 20,000 Antminers alone. When you amass that army of Antminers and put thousands of these machines together, you can imagine the number of lightning bolts it would take to keep that blockchain humming along.
Because I know you’re curious now, I did the math:
An average lightning bolt is made up of 0.0000027 TWh (Terawatt-hour).
The Bitcoin Energy Consumption Index currently estimates we use 67.734 TWh a year to fuel Bitcoin.
Do some simple division and it would take just about 25,086,667 lightning bolts to power the Bitcoin infrastructure. Or, about the same annual energy consumption of the Czech Republic.
Bitcoin’s Dirty Secret
With dirty energy comes emissions. With emissions comes pollution. With pollution comes health problems.
China, which leads Bitcoin mining, produces 60% of its energy from coal (*we’ll take a more nuanced look at this later).
One research publication estimates Bitcoin’s annual carbon footprint at an immense 32,659 kilo-tons of CO2 a year.
And that’s just Bitcoin. Include all the other cryptocurrencies and researchers estimate that energy consumption — and resultant carbon emissions — would almost double.
But hold up, is it actually that bad?
Many would say no.
The data above comes predominantly from a researcher named Alex de Vries. In 2018, de Vries published a research paper in the sustainable energy journal Joule that outlined concerns regarding Bitcoin’s perceived growing energy problem.
De Vries’ data and research methods have been criticized by some who point out that the figures he provides are flawed or lack explanation. His critics jump to point out that most Chinese miners have taken up shop in Sichuan province where the majority of energy is produced renewably with hydroelectric dams.
If you want to read into some of the perceived criticisms of de Vries’ research, I would recommend reading this extensive — if emotionally-charged — article by Robert Sharratt. Sharratt makes valid claims disputing the validity of de Vries’ research while arguing for the benefits of blockchain technology.
While many dispute de Vries’ research, a new, peer-reviewed research article published in Joule and carried out by Christian Stoll from the Center for Energy Markets at the Technical University of Munich, Germany, and the MIT Center for Energy and Environmental Policy Research estimates Bitcoin’s annual energy consumption at 45.8 terawatt hours (about 22 TWh less than de Vries’ estimations). This allowed them to calculate Bitcoin’s annual carbon emissions range between 22,000 and 22,900 kilo-tons of CO2.
But even with these new numbers, could Bitcoin’s benefits still outweigh its carbon costs?
The traditional transaction-processing infrastructure uses energy. A lot of energy. To really compare Bitcoin to that hefty infrastructure, someone would have to calculate all the energy usage of PayPal, its employees, the cars its employees drive, the list goes on, and on, and on. And that’s just PayPal.
The promise of Bitcoin is in replacing or reducing the traditional transaction-processing infrastructure. Bitcoin has a long way to go, but removing or diminishing banks’ roles as centralized middlemen might actually reduce the energy used per transaction in the long run.
No one disputes the necessity of transaction-processing. No one disputes that transaction-processing — like all digital processes — uses energy. But how can we discern and utilize the most efficient and clean means of transaction-processing to reduce carbon costs?
While the question remains, one thing is clear: more peer-reviewed research must be done with regard to the perceived costs and benefits of Bitcoin and cryptocurrency mining.
As Christian Stoll states:
“We do not question the efficiency gains that blockchain technology could, in certain cases, provide. However, the current debate is focused on anticipated benefits, and more attention needs to be given to costs.”
Is the carbon-cost of each new block on the ever-increasing blockchain worth it?
Maybe, maybe not. For now, in mining centers across the world, hundreds of thousands of Antminers will fight away at those mathematical supervillains.
Block after block, the chain moves forward.