The record-breaking surge in Bitcoin price at the start of 2021 may result in the network consuming as much energy as all data centers globally, with an associated carbon footprint matching London’s footprint size.
This is the conclusion of a new Commentary that was published on March 10 in the journal Joule. In the article titled “Bitcoin Boom: What Rising Prices Mean for the Network’s Energy Consumption” it is expained how the surging Bitcoin price is driving increasing energy consumption, exacerbating the global shortage of chips, and even threatening international safety.
Catching up with all data centers globally
The market price of Bitcoin is a strong incentive for miners to invest in more hardware and electricity. As the price rises, more people put in orders to purchase and run mining hardware, causing an increase in energy consumption; and vice versa when the price drops. Based on a Bitcoin price of $42,000 (the current price is $57,000), it is estimated that the entire Bitcoin network could consume up to 184 TWh per year (currently 79 TWh annually), close to the amount of energy all data centers consumed globally. The consumed energy could also result in 90.2 million metric tons of CO2, comparable to the carbon footprint of metropolitan London. This would also exceed the total amount of annual emissions related to gold mining, estimated at 81 million metric tons of CO2.
What makes these numbers mind-blowing is that those data centers serve the most of global civilization. Bitcoin serves almost no one but still manages to consume about an equal amount of electricity. It’s one percent of our total global electrical energy consumption, while the network is still only in its infancy. Only 120 million Bitcoin transactions are processed per year, whereas the global financial world processes 710 billion digital transactions per year. And so far, Tesla is the only company listed on the S&P500 stock market index that has acquired Bitcoins. One can only fear what would happen if Bitcoin got even more popular.
Beyond environmental impact
Sadly, Bitcoin’s negative externalities don’t stop there. Bitcoin mining rigs’ short shelf-life can mean a substantial amount of electronic waste in the coming years. Mining devices also exacerbate the current global chip shortage by competing for the same chips as personal electronics and electric vehicles, which play an essential role in combatting climate change. Countries with inexpensive electricity such as Iran can introduce new revenue streams though Bitcoin mining. This development may enable Iran to mitigate economic sanctions imposed on oil exports preventing nuclear weapon development and threaten international safety. The mining activity in Iran already represents 8% of the total computational power in Bitcoin’s network.
Preventing further damage
Fortunately, it’s not impossible for regulators put a halt to this. While Bitcoin may be a decentralized currency, many aspects of the ecosystem surrounding it are not. Large-scale miners can easily be targeted with higher electricity rates, moratoria, or, in the most extreme case, confiscation of the equipment used. Moreover, the supply chain of specialized Bitcoin mining devices is concentrated among only a handful of companies. Manufacturers like Bitmain can be burdened with additional taxes like tobacco companies or be limited in their access to chip production. Policymakers can be even be more restrictive to certain cryptocurrencies by barring them from centralized digital asset marketplaces. The article does note it would take joint and coordinated actions to really be effective.