Why is so much electricity spent to produce bitcoins (and how true it is that it consumes as much energy as Denmark)

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The increase in the value of bitcoin has also pushed up the bill of electricity used to coin it.

The claim that bitcoins consume more electricity than several developed countries has become as popular on the internet as the cryptocurrency itself.
Indeed, although the digital currency has been available since 2009, lately it has dominated the headlines thanks to its vertiginous appreciation, having reached US $ 18,000 this week.

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But can something that has no physical presence consume as much electricity as a whole country?
Unlike coins or bills that you carry in your pockets, bitcoin is not coined by banks or governments and exists primarily online.

Approximately 3,600 new bitcoins are created daily through a complex process called “mining”, which consists in awarding a bitcoin to computers that process complex mathematical equations through specialized software.

And we are not talking about a handful of computers, but thousands of machines around the world working day and night without stopping, which implies a high consumption of electricity that has not stopped growing.

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Bitcoin en computadora

The reason: as bitcoins become more valuable, more and more machines are turned on to dedicate themselves exclusively to the task of manufacturing them.

But what exactly do the computers involved in the task? And how much electricity is currently being spent on the “mining” of bitcoins?
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“As much energy as Denmark”

For the journalist of Motherborad and Vice Jordan Pearson, computers dedicated to the mining of bitcoins process “frankly useless” mathematical functions.

“All they do is show that they did a job,” he told the BBC’s Newshour program.

Copenhague de noche

   According to some estimates, the production of bitcoins already spends more energy than all of Denmark.

But in addition, as the Forbes journalist Frances Coppola explained to the same program, the machines also have to “review all previous transactions to ensure there are no duplicates.”

“And, obviously, to the extent that there is more that requires more computing power and more energy,” he said.
In fact, it is estimated that the production of bitcoins is currently consuming as much energy as Denmark.

“And by 2020 it will be consuming as much energy as the United States,” Dr. Catherine Mulligan, of Imperial College London, told the BBC.

But how accurate are these comparisons?
The short answer is that it is quite difficult to know, as there are no reliable sources of information on energy expenditure in digital currencies such as bitcoin.
In fact, as anyone can theoretically add to the effort of coining it, it is quite difficult to get a general idea of everything that has to do with the cryptocurrency, with the exception of its value.

Which does not mean that the attempt has not been made.

Operational costs
A popular formula for calculating energy consumption is that of the Digiconomist cryptocurrency blog, which is based on the performance specifications of the most used technology for mining.

As a starting point it takes all the income from mining, estimates the operational costs of the miners as a percentage of their income and converts them into expenditure for energy consumption based on the average prices of electricity.

This methodology yields an annual electricity consumption for the production of bitcoins that is currently equivalent to 32.56 kilowatts per hour (TWh), while Eurostat figures show that in 2015 Denmark consumed 30.7 TWh of electricity and the Republic of Ireland 25.07 TWh.

That means that using this measure the comparisons that are circulating on Twitter are correct in general terms.

And also that the production of bitcoins also uses more energy than that consumed in 13 different countries in Latin America: Bolivia (7.71 TWh), Costa Rica (9.55), Cuba (17.15), Ecuador (23 , 02), El Salvador (6.21), Guatemala (9.84), Haiti (0.43), Honduras (7.81), Nicaragua (3.75), Panama (8.77), Paraguay (11 , 03), Dominican Republic (16.18) and Uruguay (0.43), according to figures for 2015 from the International Energy Agency.

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However, as the method makes some assumptions and estimates, openly recognized by the same Digiconomist, it also has its critics.

The analyst Marc Bevand, for example, argues that the method is wrong because it does not take into account the increasingly modern and efficient technologies used by miners.

And neither does it share “the mistaken assumption that a fixed 60% of mining revenues are spent on electricity.”

Unjustified spending?
The discussion is not strictly academic, since the large amount of energy used in bitcoin mining has made the cryptocurrency the object of criticism by those who, like Jordan Pearson, consider such an unjustifiable expense.

“Satoshi Nakamoto, as the anonymous inventor of bitcoin is known, said that the cryptocurrency would end up being so useful that the only waste was not using that electricity,” Pearson recalls.

“The problem is that we are not seeing their use justify that expenditure of electricity,” he told the BBC.

Máquinas expendedoras de bitcoins y ethereums

As Pearson recalls, in the beginning, two potential uses of bitcoin stood out: as currency, to pay for goods and services, and as a base for applications.

“But now it seems less and less likely that bitcoin will be used to pay for things, and in terms of applications is ethereum and other projects that have occupied that niche,” he told the Newshour program.

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“While, suddenly, there are many people highlighting the use of bitcoin as a store of value, that is, as a stable place to place your money,” he added.

“And frankly I can not think of anything that speaks worse about the way our economy generates value than the fact that it does so by parking money in a system that entails a great environmental waste and that has no other use.”

 

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