The Bitcoin and Blockchain: Energy Hogs

coindispatch on May 16, 2017

The digital world still lives under the illusion that it is intangible. As governments gathered in Paris at COP21 in 2015, pledging to reduce their carbon emissions to keep global warming below 2°C, the spread of digital technology continued to take place without the slightest concern for the environment. The current popularity of the bitcoin and blockchain provide the perfect example. The Conversation

The principle of the blockchain can be summarized as follows: each transaction is recorded in thousands of accounting ledgers, and each one is scrutinized by a different observer. Yet no mention is made of the energy footprint of this unprecedented ledger of transactions, or of the energy footprint of the new “virtual currency” (the bitcoin) it manages.

Electricity consumption equivalent to that of Ireland

In a 2014 study, Karl J. O’Dwyer and David Malone showed that the consumption of the bitcoin network was likely to be approximately equivalent to the electricity consumption of a country like Ireland, i.e. an estimated 3 GW.

Imagine the consequences if this type of bitcoin currency becomes widespread. The global money supply in circulation is estimated at $11,000 billion. The corresponding energy consumption should therefore exceed 4,000 GW, which is eight times the electricity consumption of France and twice that of the United States. It is not without reason that a recent headline on the Novethic website proclaimed “The bitcoin, a burden for the climate”.

What do the numbers say?

Since every blockchain is a ledger (and therefore a file) that exists in many copies, the computer resources required for the calculation, transmission and storage of the information increases, as well as the energy footprint, even if improvements in the underlying technologies are taken into account.

The two important factors here are the length of the blockchain and the number of copies. For the bitcoin, the blockchain’s length grew very quickly: according to Quandl, it was 27 GB in early 2015 and rose to 74 by mid-2016.

The bitcoin, whose system is modeled on that of the former gold standard currencies, is generated through complex computer transactions, which become increasingly complex over time, as for an increasingly depleted goldmine in which production costs rise.

In 2015, Genesis Mining revealed in Business Insider that it was one of the most energy-consuming companies in Iceland, with electricity costs of 60 dollars per “extracted” bitcoin – despite benefiting from a low price per kWh and a favorable climate.

Finally, we can also imagine all the “smart contract” type applications supported by the Internet of Things. This will also have a considerable impact on energy and the environment, considering the manufacturing requirements, the electrical supply (often autonomous, and therefore complicated and not very efficient) and disposal.

However, although the majority of connected objects will probably not support smart contracts, a very large amount of connected objects are anticipated in the near future, with a total likely to reach 30 billion in 2020, according to McKinsey, the American consulting firm.

The bitcoin is just one of the many systems being developed without concern for their energy impact. In response to the climate issue, their promoters act as if it does not exist, or as if alternative energy solutions existed.

An increasingly high price to pay

Yet decarbonizing the energy system is a vast issue, involving major risks. And the proposed technical solutions in this area offer no guarantees of being able to handle the massive and global increase in energy consumption, while still reducing greenhouse gas emissions.

Digital technology already accounts for approximately 15% of the national electricity consumption in France, and consumes as much energy, on the global scale, as aviation. Today, nothing suggests that there will be a decrease in the mass to be absorbed, nor is there any indication that digital technology will enable a reduction in consumption, as industrialists in this sector have confirmed (see the publication titled La Face cachée du numérique – “The hidden face of digital technology”).

The massive decarbonation of energy faces many challenges: the reliability of the many different carbon sequestration techniques proposed, the “energy cannibalism” involved in the launch of renewable energies, which require energy to be manufactured and have technical, social, and political limitations (for example, the various sources of renewable energy require large surface areas, yet the space that could potentially be used is largely occupied)… The challenges are huge.

Fabrice Flipo, Maitre de conférences en philosophie, Télécom École de Management – Institut Mines-Télécom and Michel Berne, Economiste, Directeur d’études, Télécom École de Management – Institut Mines-Télécom