Bitcoin’s ‘insane amount of energy’ use prompts environmental concerns

The growth of bitcoin is fueling speculation and debate about the environmental impact of the massive amount of energy needed to power the virtual currency.

Here are some questions and answers about the issue:

WHAT IS BITCOIN?

Bitcoin describes itself as an “innovative payment network and a new kind of money.” It was created in 2009 as a way of paying for things that would not be subject to central banks, which are capable of devaluing currency. Bitcoin transactions are also anonymous.

A bitcoin is essentially a line of computer code. It’s signed digitally when it goes from one owner to another.

In early January, the Wisconsin Department of Financial Institutions issued a caution, reminding investors to approach bitcoin and cryptocurrency with caution.

“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products where these virtual currencies are linked in some way to the underlying investment,” stated Leslie Van Buskirk, the administrator of DFI’s division of securities.

WHY ARE CRITICS CONCERNED ABOUT BITCOIN ENERGY USE?

The sustainability concerns about bitcoin, voiced by economists and environmentalists, stem from the process of “mining” that is central to its existence.

Bitcoin miners use computers to make complex calculations that verify transactions and also earn them bitcoins. Mining demands a tremendous amount of energy to power the computers and server farms the activity entails. This has given rise to concerns about the amount of fossil fuel-dependent electricity used to power bitcoin. Some estimates say the currency’s energy impact is more than that of a small country.

Experts estimate that more than 60 percent of the processing power used to mine bitcoin is in China, a country that relies heavily on generating energy by burning coal. Fossil fuels are also the largest generator of electricity for the rest of the world. Burning such fuels produces carbon dioxide, a gas that is a primary contributor to climate change.

This reliance on fossil fuels has given rise to speculation that bitcoin’s energy consumption will continue to rise as it grows in popularity. Glen Brand, director of a Sierra Club chapter in Maine, said in an interview that the growth of virtual currencies such as bitcoin “threatens progress we are making toward moving toward a low-energy, low-carbon economy.”

HOW MUCH ENERGY DOES BITCOIN REALLY CONSUME?

Estimates vary, and a true figure could be impossible to come by because of the intentionally anonymous nature of bitcoin use. But Dutch bitcoin analyst Alex de Vries, who operates a Bitcoin Energy Consumption Index on the website Digiconomist, has produced estimates he finds alarming.

If bitcoin miners are using the most efficient machines possible, the lowest amount of electricity they could possibly be using is 13 terawatt hours, de Vries said in an interview. That’s about as much as the entire country of Slovenia. De Vries said less conservative estimates make it entirely possible that bitcoin is using as much energy as Ireland, which consumes about twice as much as Slovenia, or about 0.7 percent of the U.S. total.

The problem is getting worse, said de Vries, who estimated the annual amount of energy consumed by bitcoin rose by 20 percent in the final weeks of 2017.

ARE THERE TWO SIDES IN THE BITCOIN ENERGY DEBATE?

The extent of bitcoin’s impact on the environment, and how much that should matter to people who use it, is a source of debate.

While de Vries says bitcoin is consuming an “insane amount of energy,” both on its own and relative to older payment systems such as credit cards, others think the situation is not so dire.

Bitcoin investor Marc Bevand, of St. Louis, has written that bitcoin likely uses close to four or five terawatt hours, less than the annual electricity consumption for Christmas lights in the United States. He believes bitcoin’s benefits, such as making payments more efficient and helping people escape inflation, outweigh the environmental toll.

However, he added, “We don’t have exact data to say how much we are benefiting from bitcoin.”