Imagine a world where creating money required using enough electricity to power the entire planet. Producing a single coin of this currency would cost a massive amount of resources and hardware and some of those costs might even outpace the coin's market value. The currency's worth wildly fluctuates - sometimes dropping by 25-50% overnight -- and can be affected by news stories and speculation. Furthermore, continuing to create, or 'mine', bitcoin wreaks massive environmental damage.
It might sound like a Black Mirror episode, but it's not too far from reality. Some may say that Black Mirror is a little too real already with The Waldo Moment and The National Anthem eerily "predicting" Trump's presidency and David Cameron's #piggate scandal.
The bleak situation described above is the unfortunate truth behind Bitcoin mining. One wouldn't expect a virtual currency to have an environmental impact, but much like Men Against Fire, things are always more sinister than they seem.
What exactly is 'Bitcoin Mining' (and why should I care)?
Bitcoin mining is described as the process by which transactions are verified & added to the public ledger (aka, the 'blockchain') -- which is also the way new bitcoin are released. Many years ago, your computer could effectively mine Bitcoin (with just your CPU power), but it's so competitive today that specific hardware has been designed for it, called ASIC (Application-Specific Integrated Circuit). Unfortunately, if you use legacy CPUs, GPUs, or early ASICs that were released, the cost of energy consumption outweighs the revenue generation. The long and short, you're upside-down unless you're using newer, more efficient 'miners' (which aren't cheap, by the way).
Creating the world's most popular cryptocurrency becomes more difficult as production increases. Basically, mining involves an immense amount of computing power to find a number called a nonce. As more computers join the mining network, each nonce becomes harder to find and costs a greater amount of energy and resources. What could once be done with a single laptop now requires a vast network of computers.
Bitcoin mining in 2017 used 36 terawatt hours of energy in 2017, according to a Morgan Stanley report. To put that into perspective, that level of energy consumption is like that of Qatar and Denmark and higher than Nigeria, Ireland, and Uruguay. It's also about thirty times greater than all the energy used by Tesla cars.
Energy Impact: Facts & Speculation
Digiconomist predicts that, if Bitcoin's energy consumption expands at its current rate, it would be enough energy to power the entire globe by 2020. BitTorrent creator Bram Cohen estimates that Bitcoin mining uses $10 million worth of electricity every day. Fifteen Million merits looks like easy work in comparison.
The Morgan Stanley report estimated that mining a single Bitcoin cost anywhere between $3,000 and $7,000 in both hardware and energy charges. Bitcoin's all-time high was about $20,000 at the end of 2017, but the price has plunged significantly since. If the cost of mining goes any higher, Bitcoin's price will have to increase as well.
What's even scarier is that Bitcoin's carbon footprint can leave incredible environmental damage. Digiconomist estimates that Bitcoin mining creates 16,000 kilotons of carbon dioxide each year, mostly thanks to Chinese power plants fuels by coal. Approximately 4 million more Bitcoins can be mined until the supply is completed. The increasing energy usage will be incredibly costly, especially considering the over-dependence of fossil fuels.
Satoshi Nakamoto, Bitcoin's anonymous creator, created the blockchain system this way to ensure that information would be safe from attacks and that no one organization could hold a monopoly over the mining process. In his whitepaper, he says that a "greedy attacker" would "find it more profitable to play by the rules." Luckily, this means that blockchains will be immune from Shut Up and Dance situations.
The energy take
A switch to renewable energy can make a world of difference on Bitcoin's carbon footprint. Just ask Jim Bridgeforth, President of American Power and Gas (AP&G), a company which hopes to bring renewable energy to millions of Americans.
"It might not be today, and I don't know if it is going to take one year, two years or even ten years, but there will be a shift to where you can get non-fossil fuel, sustainable energy for the same price you pay to pollute the air, and who would choose otherwise if that was the case?"
AP&G CEO, Tom Cummins, shared with an interview with Forbes,
"We want to change this market from death back to life. From non-renewable energy to renewable energy,"
I had a chance to briefly speak with Cummins on the subject of crypto energy consumption to which he further added,
"Crypto mining is a real concern for me as far as our green energy strategy goes -- it's like an episode right out of Black Mirror, seriously. Crypto itself is speculative and volatile, I don't think it's implications on future economic and energy trends have been explored fully.
Cummins made clear that referencing Black Mirror is an extreme outcome but theorized why,
"Think about the people that are mining cryptocurrency on a daily basis today -- at the exponential level, it's sort-of scary to think about waking up one morning and having our lives regulated by an intangible and decentralized currency that has a conscious consumption of energy at the expense of others."
"We are trying to force the energy grids to be supplied with renewable energy sources yet the consumption required by mining in the US alone would put a strain on this program and could pose numerous ramifications for the environment. The solution would be to have the largest mining groups tap right into renewable sources from the get-go. It would be better for them and all of us."
The need for leaner, meaner, greener crypto
Many important cryptocurrency figureheads, such as Peter Van Valkenburgh of cryptocurrency advocate group Coin Center, have expressed their concerns as well.
"The electricity usage is really essential," he said. "Because of the costs, we know the only people participating are serious, that they are economically invested. That creates the incentives for cooperation."
He also added that miners should work near green energy sources such as hydroelectric power plants.
"I would personally feel very unhappy if my main contribution to the world was adding Cyprus's worth of electricity consumption to global warming," said Ethereum creator Vitalik Buterin.
Ethereum has the second largest market cap behind Bitcoin and uses only about a third as much energy, according to Digiconomist.
Furthermore, the Ethereum foundation is creating a new way to verify transactions. The Proof of Stake (PoS) method would improve upon Bitcoin's and Ethereum's current Proof of Work system. Those who own coins would help validate transactions and receive a transaction fee as a reward.
Cohen has another alternative. He's working on the Chia Network which will utilize Proof of Space. Minters will be able to verify transactions and receive rewards by providing extra space on their computers. It's something that allows almost anyone to participate and can be done from the comfort of one's own home laptop. Cohen hopes to launch it by the end of this year.
Other altcoins like Stellar and Ripple were created to improve on Bitcoin's shortcomings, including its energy consumption. There's even the SolarCoin, which can be mined through rooftop solar panels. Miners receive a coin per every megawatt hour of electricity they generate.
A legitimate risk still looms
While Black Mirror episodes such as USS Callister and Arkangel seem so far ahead in the future that we could never possibly worry about it, unfortunate realities like Bitcoin mining present a very legitimate threat. It's carbon footprint has incredibly severe consequences. For example, China sees 1.6 million deaths a year due to air pollution. In 2014, Beijing had over 200 days of "unhealthy" or worse air quality, according to Pew Research Center. The U.S. might be safer, but still faces incredible risks as 47% of Americans live in areas with dangerous air pollution, according to the American Lung Association.
If episodes like Playtest and Metalhead didn't convince you to fear technology, consider the real-life effects happening every day. Cryptocurrency can revolutionize the economy by giving countless people access to decentralized and secure funds with anonymous transactions and low fees. However, we shouldn't discount the enormous environmental impact that many of these currencies create. Just because they are digital doesn't mean they can't affect the real world -- we need to remember that.
Columnist disclosure: Tom currently holds Ripple and Stellar cryptocurrencies.