Bitcoin consumes more energy than many countries
12:24

Bitcoin consumes more energy than many countries

Crypto
Speaker 1: Cryptocurrencies were pitch as bringing us the utopian dream of the centralized economy. Interesting Bitcoin particularly has climbed and crypto miners. These days look less like a person with a computer in a basement and more like a data center worker. And that takes a lot of electricity. Now what Bitcoin uses as much energy per year as Argentina its carbon footprint is comparable to the [00:00:30] one of Beru and it generates as much electronic waste as looks and work. This estimates come from the Bitcoin energy consumption index at digital economist. I'm here with Alex dev blockchain specialist and the founder of this platform who has been standing this issue for years. Welcome Alex. So why does Bitcoin use so much energy in Speaker 2: Bitcoin? The pain is ultimately in its proof of work. Mining algorithm. Bitcoin is an open network nobody's in control. [00:01:00] Uh, it rewards people for participating in maintaining the underlying blockchain. So if new transactions are happening, people can join their hardware in this network and help process these transactions into new blocks for the underlying blockchain. Now the painful part is the mining, where are, let's say all these machines that are participating are actively competing with each other to create the next block [00:01:30] for the blockchain. And what they have to do is participate in what is the world's largest game of guests. The number only if you guess correctly, you get to create the next block for the blockchain and get the reward that's associated with that. And it's a process of trial and error. So you have a whole network that's making over 100 quintillion guesses every second of the day, nonstop in just, you know, hoping to get lucky and make the next block for the blockchain. And then even, so it still happens only once every 10 minutes on average. And [00:02:00] this process is what uses all that energy. So you have have millions of machines all around the world, participating in this gas number game, and that's where the energy consumption comes from. Speaker 1: How accurate can we say these estimates are? Speaker 2: That's a good question, but we have different methods to come up with an energy consumption estimate. There is my own bit con energy consumption index, which tends to look at how much money our earning and then rise. How much of that is being spent on energy, knowing how much these mins on average, [00:02:30] uh, pay for one kilo one hour of electrical energy. Uh, but for example, you can also look at, uh, Cambridge, they have their own, uh, Bitcoin electricity consumption index. They look more at the total computational power in the network and then try to make, uh, an estimate of how, uh, what, what machines are currently contributing to that computational power and then come to a power estimate based on that these approaches result in different numbers. But I think in [00:03:00] general, they trend in the same direction and you know, they, they, they are typically not that far often if they are off only for a limited amount of time. So I think we can get a pretty good idea of where the energy consumption of this network is by using these different approaches together. Speaker 1: Um, in the first years of Bitcoin, we used to talk a lot about individual hobbies, minors, but what we are seeing now is big operations with access to cheap electricity. How has the industry evolved? Speaker 2: [00:03:30] Bitcoin mining used to be something that anyone could do. Anyone could participate their computer and, you know, make new block for the Bitcoin blockchain. The thing is, this is a highly competitive process. The primary cost components for this are well actually primarily electricity. And what we see is that you have professional miners that just load up large facilities, but highly specialized equipment. That's really good at doing specifically, but Bitcoin [00:04:00] mining and also take advantage of the lowest rates of electricity all around the world. Yeah. As a, as a normal consumer, you can no longer compete with that. So that's how mining has professionalized because you have professional institutions taking advantage of economies of scale, and just looking all around the world for the cheaper sources of electricity, Speaker 1: Of course, power consumption is not the same as carbon emissions. And the industry likes to talk a lot about the growing use of renewable energies for these operations. [00:04:30] Is this the answer? Speaker 2: Well, it, it looks like these mins are actually losing their only major source of renewable energy. Now that China has banned Bitcoin mine very recently, uh, what has always gone, uh, which, which has always been the case in the Bitcoin network is that all these min were primarily located in China up up to 65% of the network. And they were using, uh, a call in the winter time. And, and during the summertime, [00:05:00] they all moved to the south of China and then used excesses of hydro power from the provinces of unan and CSUN. Um, on average that left the Bitcoin network were pretty dirty because, you know, they were only getting clean energy during the summer. And then the rest of the year they were using coal. But now that China has band Bitcoin mining completely, they also lose access to hand that that source of renewable energy during the summertime, these mins will have to relocate elsewhere. We see active [00:05:30] examples of mine relocating now from the province sh one where they use hydro power to for example, Kazakhstan and other areas around, especially Northern America. Texas is a big hub. Yeah. All those areas have a larger, uh, carbon emission factor than, uh, in China. So proponents Speaker 1: Sometimes claim that much of the energy they're used to man cryptocurrency is energy that would go to waste otherwise like the natural cost obtained [00:06:00] as a byproduct of oil production or waste coal, could this energy be used for something else or Speaker 2: I, I ironically one of the reasons why China banned Bitcoin mining specifically is because these mining were reviving. I coal mines and that's, that's not something they exclusively do in, in China. That's something they're also doing elsewhere. We have seen, uh, very recent examples in, uh, the state of New York where minors [00:06:30] were reviving in idle, natural gas plant. We have seen something similar in Montana where they were contributing to keeping and obsolete core plan. So, um, yeah, I, I, I, I don't see it being the case that these min are using, uh, energy that would've gone to waste. Uh, they, they use energy that isn't being used, but it would be better if you left that in the ground, Speaker 1: A common response to the, and middle mental concerns of Bitcoin points [00:07:00] to the energy costs of traditional banking. And of course, to make this comparison, I guess we need to decide if they're equally useful, um, as a society is having Bitcoin worth this cost of energy. Speaker 2: The thing is Bitcoin has more problems than just the energy consumption. One other problem problem is that the system isn't scalable. So Bitcoin actually cannot handle more than just seven transactions per second. That there's a theoretical maximum, compared that to a traditional payment provider [00:07:30] like visa, they can handle 65,000 transactions per second, if needed. So in, in all honesty, Bitcoin just isn't K capable of doing a whole lot. It cannot function as a payment system. It cannot be a world reserve currency because it is so extremely limited in terms of scale. Uh, and then you have to conclude that at the moment, the only good use case for Bitcoin is speculation while we are consuming half a percent of global electricity for that. [00:08:00] And I think that's where the real pain is. Hey, that it's a system that just isn't even capable have of having much of a function, but definitely doesn't have a limit in how much energy it can Speaker 1: Use. What about other cryptocurrencies that are not Bitcoin? Are they, are there better alternatives? Speaker 2: There are solutions to the environment that image of Bitcoin, the proof of work mining is not necessarily required and can actually be replaced. Um, and there are other ways [00:08:30] to do, uh, this type of consensus algorithms. Uh, one popular alternative to the proof of work mining is what is known as proof of stake. And what that does is like in Bitcoin, the whole block block creation process depends on computational power. If you have more machines, you have a bigger chance of winning. Let's say the block mining lottery and make the next block for the blockchain improve of stake, BA based systems. You still have a, a lottery going on, but then your chance of winning depends on how much wealth [00:09:00] do you have in the system. How much is your stake? And if you have that, then you only need a computer with an internet connection and you don't, you are not dependent on how much energy consuming machines you have. Speaker 2: So there is no end of whatsoever to use energy consuming hardware. So that eliminates, uh, the majority of the energy consumption is estimated that if you were to change proof of work to proof of steak, you can save 99.9, 5% of the energy consumption. [00:09:30] And you also have to consider not just the energy consumption. You also don't need the specialized where anymore. So you also reduce in terms of electronic waste and it's, it's something that other cryptocurrencies are already running on. So it's, it's not like this is a hypothetical solution it's already out there available, except the currencies that are using it are a lot smaller than Bitcoin. Bitcoin is simply the most popular one, the most well known one. And yeah, these other alternatives are just in terms of size, just several percentages [00:10:00] of what Bitcoin is. Speaker 1: Well, that can be one solution. What are other solutions? How do we solve this Speaker 2: Problem? Well, the, the problem is that if the solution doesn't come from within the community, external solutions tend to be a lot more drastic head. We have seen now China doing actually two things. They banned bit Bitcoin mining altogether, and they also prohibited people from investing their money in crypto assets. Those are two solutions that do have an effect because they [00:10:30] drive up the cost of electricity. First of all, Hey, if you cut off minus from the cheaper sources of electricity, uh, the bill will go up and they will not be able to afford as much energy as they did before this doesn't solve the problem. Because mining is something that ultimately can be done anywhere in the world and in the worst case from your own home, but it does make mining more expensive. So there will be less energy consumed in total. Um, and then of in these assets, the ultimate [00:11:00] environmental impact also relates to the value of the assets themselves. Speaker 2: So let's say if the Bitcoin price goes up, Bitcoin, mine is they'll be earning more money because they get paid in Bitcoin. And if the value of that is going up, it increases their profitability and it increases their incentive to, I have more energy consuming machines. The opposite is also true. If the Bitcoin price is zero, then also the environmental impact of the system is zero because minus will not have anything to pay the electricity bills with. [00:11:30] So how do you impact the value of Bitcoin? Well, you can think about carbon taxes, making it less attractive for people to invest and use Bitcoin or as China did in the worst case, prevent people from investing their money in Bitcoin. So it doesn't push up the Bitcoin price and ultimately, uh, the environmental impact of the system. Those are very drastic solutions, but it's definitely something that you will start to consider on a policy [00:12:00] side. Uh, as obviously now happened in China. Um, if, if, if the community itself doesn't wanna make any changes, Speaker 1: Thank you very much. I've been talking to Alex Aris, founder of digital economist and developer of the Bitcoin energy consumption index about the environmental cost of Bitcoin.

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