Among the 1,600-plus cryptocurrencies listed in the world since 2009, Bitcoin, regarded as the first of its kind, is by far the most popular. This activity has generated enormous demand in the last few months and has surpassed the USD 60,000 per unit barrier. What is certain is that the higher the value, the greater the number of people interested in engaging in the so-called “mining” of cryptocurrencies, a process whereby individuals equipped with supercomputers connected to a blockchain network solve the encrypted puzzles that validate financial transactions and receive rewards for doing so, or in other words, they generate more virtual currency.
As in the search for gold and other minerals, there are prospecting costs, and this activity also has its price. This involves not only the cost of the hardware and software, which is expensive and becomes obsolete quickly, but the cost of electricity too. In other words, we associate virtual currencies with a lesser environmental impact, but the truth is that this activity is not as eco-friendly as one might think. Estimates calculated using a recent tool designed by the University of Cambridge´s Centre for Alternative Finance (CCAF), known as the Cambridge Bitcoin Electricity Consumption Index, show that the production of Bitcoin involves an average electricity consumption of 130 terawatt hours (TWh) a year, that is, around 0.63% of all the energy consumed in the world (approximately 20,863 TWh). This expenditure increased by around 40% in 2020 compared to the previous year, according to figures released by the CCAF.
This index illustrates, when making several comparisons between countries, that the annual expenditure of electricity involved in the production of this virtual currency is around the same amount consumed, for example, by Argentina and slightly more than that consumed by Sweden. If it were a country, this activity would be among the 30 biggest consumers in the world. Compared to Portugal, whose consumption stands at at 48 TWh (52nd place in the world ranking), this energy would be enough to supply the national economy for more than two and a half years. As an interesting fact, the CCFA reveals that the energy used to produce bitcoin would supply every kettle used to heat water in the United Kingdom for 31 years - a region with an average annual consumption of 300 TWh.
Two-thirds of the energy comes from non-renewable sources
The impact of the virtual currency on energy usage - at a time when sustainability goals are becoming increasingly ambitious – is exacerbated when the sources used to produce the electricity are analysed. Due to the fact the cost of electricity bears heavily in this industry, the large mining pools (sites where the supercomputers are installed) are normally located where energy is cheaper and is generally produced by burning fossil fuels. According to CCFA researchers, around two-thirds of this energy comes from non-renewable sources.
It should be pointed out that energy is used not only to keep the equipment in operation 24 hours a day, but also for the entire associated cooling process. China is the country with the most equipment linked to Bitcoin mining, accounting for over 50% of this industry. Electricity in that country, produced mostly from coal, is still affordable for these investors. According to Michel Rauchs, one of the CCAF researchers involved in the aforementioned study, a large slice of this activity is now concentrated in the Middle East, where Iran already accounts for around 10%.
According to a study conducted by New Mexico University in 2019, entitled “Cryptodans: the monetary value of the impacts of mining and cryptocurrency on air pollution and human health”, the data collected illustrated that in 2018 – prior to the mining craze – one dollar of value created by Bitcoin represented 0.49 cents of impact on health and the environment in the United States and around 0.39 cents in China.
Some critics of the usefulness of cryptocurrencies go so far as to say that the production of Bitcoins is the antithesis of efficiency, such as David Gerard, the author of the book “Attack of the 50 Foot Blockchain”. He says, for example, that Tesla damaged its good image by announcing that it had invested around 1.5 billion dollars in Bitcoin and that it would accept this currency as a form of payment in the future. This announcement had an immediate impact on the value of the currency. “Elon Musk threw away some of the good work Tesla had been doing in relation to the promotion of energy transition. Tesla received around USD 1.5 billion in subsidies paid by taxpayers and now spends the same amount on a currency that is produced from electricity produced by burning coal” declares David Gerard.