technology

Is bitcoin an environmental disaster?

Digiconomist
Financial Writer
Genesis
Response
Penultimate
Finale

Alex de Vries

Digiconomist

June 4th, 2021
In 2008 Satoshi Nakamoto introduced the world to the digital currency Bitcoin. This new currency wouldn’t be controlled by anyone, but instead allowed anyone to join their computer hardware in maintaining the system. New bitcoins would be released slowly over time, to those producing new blocks for Bitcoin’s underlying blockchain, as an incentive to support the network. At the same time, Satoshi Nakamoto made it computationally expensive to produce a new block. All machines in the network have to participate in what is effectively a game of “guess the number” where they, through a process of trial an error, try to guess a winning number that will allow them to create a new block and reap the rewards.
Nowadays, the entire Bitcoin network is generating 150 quintillion of such guesses every second of the day non-stop. Even so, the network self-adjusts to ensure a new block will only be generated once every 10 minutes. Since incorrect guesses serve no further purpose, almost all effort produced by the network this way is completely useless. The ultimate goal of this “mining” mechanism is to keep the network secure, as an attacker would have to spend money on hardware and electricity to generate even more useless computations than the ones currently participating, in order to successfully harm the network. In a way, we can compare this to the ghost flights that were observed around the world after COVID first hit in 2020. In order to keep their flight slots, airlines were flying empty planes. Even though this had a purpose, it was a clear waste of resources nonetheless.
In Bitcoin, the number of resources that are ultimately employed for the mining process depends directly on the value of Bitcoin. A higher Bitcoin price increases the value of the bitcoins mined, increasing the profitability of mining, and incentivizing the addition of more machines to the network. All these machines require a huge amount of energy. It is estimated that all machines currently used for mining are consuming as much electricity as a country like the Netherlands, or half a percent of our global electricity consumption. Because the majority of the network is powered by fossil fuels, this energy consumption results in a carbon footprint that exceeds the global net CO2 savings from deploying electric vehicles.
Given that the environmental impact ultimately relates to the Bitcoin price, there’s no real ceiling to how much further these numbers can grow. At the same time, we have to establish that Bitcoin is still quite small, and not even capable being adopted as a mainstream currency or payment system. The network can handle 7 transactions per second at most, which can cost up to $60 to process. By comparison, a payment provider like VISA can handle 65,000 transactions per second. With these limitations, speculation has been Bitcoin’s only real use case to date. We can only fear the environmental disaster that would happen if Bitcoin were to receive widespread adoption as a global currency or payment system.
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