Elon Musk says Bitcoin is bad for the environment, and some very big numbers are behind it.
The price of Bitcoin dropped by more than 7 per cent yesterday, off the back of a single tweet by tech billionaire Elon Musk.
Mr Musk’s problem? He said Bitcoin mining is bad for the environment, and as a result he announced Tesla would no longer accept Bitcoin payments.
The move away from the lucrative cryptocurrency saw its price fall significantly but how can a digital currency cause damage to the environment?
After all, calling it “mining” is just a metaphor, right?
What is Bitcoin mining?
Bitcoin ownership is verified through a public digital ledger known as the blockchain.
Every time a transaction happens, information needs to be recorded in the blockchain as proof money changed hands.
Mining is the process through which new bitcoin is created.(Reuters: Jim Urquhart
To do that, dedicated computer farms around the world spring into action and begin trying to solve what amounts to a very complex guessing puzzle.
When one of those computers hits on a right answer, a block is added to the blockchain, verifying the transaction.
Bitcoin’s website describes this process as a lottery that prevents people who want to commit fraud from being able to make dodgy additions to the blockchain.
“In this way, no group or individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends,” it says.
But why would someone bother to set up computer farms dedicated to verifying other people’s Bitcoin transactions?
Because when someone successfully adds a block to the blockchain, they’re rewarded with brand new, freshly minted bitcoin of their own.
Hence the term “mining”.
The high environmental cost of mining cryptocurrency, video streaming and sending emails
If Bitcoin is virtual, why are there environmental concerns?
The issue is that all these computer farms working overtime to mine bitcoin use up a lot of real-world energy.
The grunt work of adding to the block chain has computers run guessing games involving an astronomically large number of guesses each second.
To be more precise, the network is currently estimated as being able to handle 176,000,000,000,000,000,000 (that’s 176 quintillion) computations every single second.
All those numbers are energy intensive, so the power consumption of the Bitcoin network is huge.
According to the University of Cambridge’s Centre for Alternative Finance, the estimated annualised consumption of electricity by the Bitcoin network is 149.6 terawatt hours and growing.
That’s more than countries like Sweden, Pakistan and Malaysia, and about 61 per cent of Australia’s total energy consumption.
Tesla CEO Elon Musk suspends the use of bitcoin to purchase vehicles.
A report from the centre noted that miners “have long competed on accessing the cheapest energy source”.
Many of those sources are fossil fuels.
According to German research published in the academic paper Joule in 2019, Bitcoin was responsible for up to 51 megatons of CO2 emissions annually.
What is cryptocurrency and how does it work?
Professor Jason Potts from RMITs Blockchain Innovation Hub explains how digital money works.
Since then, the estimated energy use of the Bitcoin network has tripled, though the mix of renewables and fossil fuels may have changed too.
And while Bitcoin’s energy consumption is growing rapidly, the Cambridge Centre for Alternative Finance noted its total direct contribution to climate change was currently “marginal at best”.
Will these concerns continue?
Mr Musk wasn’t the first to raise concerns over the energy impacts of Bitcoin.
Fears emerged earlier this year over the sudden popularity of trading unique artwork identifiers known as NFTs or non-fungible tokens.
Like Bitcoin, NFTs are traded using blockchain technology.
US Treasury Secretary Janet Yellen told American network CNBC earlier this year Bitcoin was “extremely inefficient”.
“The amount of energy thats consumed in processing those transactions is staggering,” she said.
And Microsoft founder Bill Gates has criticised it as using “more electricity per transaction than any other method known to mankind”.
In recent days Mr Musk has also talked up alternative cryptocurrency Dogecoin, which also utilises blockchain technology.
But Dogecoin requires less energy-intensive computational tasks to verify transactions.
According to an analysis by TRG Datacentres, Dogecoin requires 0.12 kilowatt hours of electricity on a per-transaction basis, compared to 707 kilowatt hours utilised by Bitcoin on a per transaction basis.
But Mr Musk has plans to keep using Bitcoin once miners have transitioned to renewable power sources.
“Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy,” he said in a statement.
“We are also looking at cryptocurrencies that use <1 per cent of Bitcoin’s energy.”