(Bloomberg View) -- While much of the world marvels at bitcoin’s meteoric rise, another part is focused on an environmental byproduct: The sheer amount of electricity that crypto-currencies use. By some estimates, bitcoin’s consumption alone exceeds -- or will exceed -- that of Ireland, Denmark, Japan or even the entire world.
Instead of worrying about how soon bitcoin will melt the polar ice caps, though, it’s worth considering how much energy might be saved.
Digital currency is wasteful by design. Bitcoin “miners,” who process transactions in return for new currency, must race to solve extremely difficult cryptographic puzzles. This computational burden helps keep the transaction record secure -- by raising the bar for anyone who would want to tamper with it –- but also requires miners to build giant farms of servers that consume vast amounts of energy. The more valuable bitcoin becomes, the more miners are willing to spend on equipment and electricity.
Still, it’s important to put things in perspective. A recent report suggests that at current prices, Bitcoin miners will consume an estimated 8.27 terawatt-hours per year. That might sound like a lot, but it’s actually less than an eighth of what U.S. data centers use, and only about 0.21 percent of total U.S. consumption. It also compares favorably to the currencies and commodities that bitcoin could help replace: Global production of cash and coins consumes an estimated 11 terawatt-hours per year, while gold mining burns the equivalent of 132 terawatt-hours. And that doesn’t include armored trucks, bank vaults, security systems and such. So in the right context, bitcoin is positively green.
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 200,0000 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.
It’s easy to criticize bitcoin for being wasteful. But so are many things in life, including airplanes, commuting to work and Sunday Night Football. A return to subsistence farming could drastically reduce our carbon footprint, but sometimes using energy to improve our quality of life is worthwhile.
The bitcoin network has the potential to generate a lot of benefits. How much is sound money worth? How about the ability to send money freely across borders, with no permission or central counterparty involved? Or to own an asset that can’t be seized? People in the U.S. and other developed countries might take these things for granted, but people in places like Zimbabwe and Venezuela are turning to bitcoin for survival. So perhaps all those computations aren’t wasteful: Maybe the miners are simply transforming the energy into something more valuable.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Elaine Ou is a blockchain engineer at Global Financial Access, a financial technology company in San Francisco. Previously she was a lecturer in the electrical and information engineering department at the University of Sydney.
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