Is It Worth Worrying About Crypto Energy Consumption?

The mining of cryptocurrencies come with energy consumption that cannot be ignored. How deep is the energy demand?
Energy Consumption

Cryptocurrencies are often criticised for their high energy consumption. The counter argument to the problem with cryptocurrency energy consumption rests on four main issues:

  • Cryptocurrency energy consumption is misinterpreted
  • The current monetary systems are inefficient and wasteful
  • Renewable sources are used for mining in many areas
  • The cost of energy consumption pushes technology innovation

Simply give “cryptocurrency energy consumption” a Google search. The results turn out articles and websites with polar opposite positions on the topic.

Regardless of the stance, few mention the importance of a miner’s electricity source, and even fewer share any data on how much energy is used by our current fiat system.

There are huge costs associated with printing money and minting coins that only represent the precious metals our societies once held value in.

Energy Consumption

Bitcoin is by far the most widely used cryptocurrency, holding more than 50% of the overall cryptocurrency market cap value.

One website[1] tracks Bitcoin and Ethereum (the second most active cryptocurrency) energy consumption.

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According to the data, Bitcoin accounts for just one-third of one percent of total global energy usage right now, and Ethereum uses only one-tenth of one percent.

But even these low estimations cannot be taken at face value. Not all miners are using the same hardware setup – some equipment is more energy efficient than others.

Further, a recent article[2] by a researcher at the University of Pittsburgh argues that the source, not the amount, of energy is what matters in the end.

Energy Consumption Design

“If Bitcoin technology were to mature by more than 100 times its current market size, it would still equal only 2 percent of all energy consumption.” – Electrical and Computer Engineering with focus on Renewable Energy Researcher Katrina Kelly-Pitou[3]

Others who assess cryptocurrency through the lens of economics believe that as their use grows, energy use will increase proportionally.

To show the contrast in opinion between two experts in the related fields on the energy consumption of Bitcoin mining:

“It’s an extreme difference compared to the regular financial system, and this increasing electricity demand is definitely not going to help us reach our climate goals.” – Economist Alex De Vries[4]

Mining Vs. Regular Financial System

The traditional banking industry consumes closer to 100 terawatts[5] of power each year (roughly – 26Twh on data servers, 58Twh on branches, 13Twh on ATMs). With cryptocurrencies, all users need is a phone or computer that they likely already have and use frequently.

The estimated energy consumption by cryptocurrencies currently is around 70Twh, according to the data[6] used to formulate the opinion by economist Alex De Vries.

Financial System

In the U.S. the expected 2018 currency manufacturing budget is $861.7 million, according to the Federal Reserve[7]. The process to produce the currency each year is not only expensive, but energy intensive.

This study[8] breaks down the process fairly and highlights the positives and negative aspects associated throughout.

The facility used to manufacture all currency for the U.S. uses many energy saving and energy recycling systems, but is powered by a fossil fuel energy plant.

Most paper currencies are made using fibre, not tree paper, so that they can withstand daily use. And in the U.S. most of the product is recycled from old bills to re-use in the new ones.

However, the method for creating the feel and appearance on a bill is created by first cooking in sodium hydroxide, and then brightening the fibre with sodium hypochlorite (use in bleach).

Both are strong contaminants to the environment. Overall it uses more than 1 million gallons of water each day in the process, with 30% water waste.

The Mining Misunderstanding

The mining process is where most people who learn about cryptocurrencies come to a stop.

Some of the most technical aspects of their functionality comes into play with terms like from coding and mathematics such as hashing, SHA-256 algorithm, nonce and cryptographic signatures.

This debate of energy consumption largely rests on Bitcoin, because of its mining process and its high popularity in relation to any other cryptocurrency.

For Bitcoin, whether a transaction is worth $1 or $1 billion dollars, the transaction will be blocked into the same amount of data. Bitcoin was designed specifically to maintain what are comparatively slow transaction times to credit card transactions.

This is an intentional part of the mining process, which ultimately maintains the security of the network.

Mining provides an incentive to participate honestly that vastly outweighs the effort it would take to steal. In its 10 year existence, the Bitcoin network has never been hacked.

This brings two major benefits related to energy consumption: First, the total possible amount of energy used per minute, hour, day, or year, is indirectly limited to this underlying protocol.

Second, the incentive pushes miners and energy producers to create new, faster and more efficient technology.

Mining Misunderstanding

Driving Innovation and Progress

The business of mining is hyper-competitive. Individuals in the early days of Bitcoin could mine with just a standard computer, but specialized computers were developed to outpace competition from the average user, and are now necessary to be successful.

The hardware needed has now become more widely available, so miners need to find new ways to be profitable. One of the most significant ways to do so is to reduce their electricity costs.

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Because of this, they are commonly at the forefront of new technology related to renewable energy and energy efficiency, as well as cryptocurrencies and blockchain technology.

Re-Focus On The Energy Source

The renewable energy researcher quoted earlier in contrast to the economist is adamant that the conversation needs to shift toward where that energy is produced and what it is generated from, instead of energy-intensivity.

Many countries around the world have developed much more rigid guidelines or tax incentives for energy production that employs more efficient systems or ideally, renewable or “green” sources.

“By talking specifically about … the consumption of energy alone… many fail to understand one of the most basic benefits of renewable energy systems.

Electricity production can increase while still maintaining a minimal impact on the environment… Not all types of energy generation are equal in their impact on the environment, nor does the world uniformly rely on the same types of generation across states and markets.” – Katrina Kelly-Pitou[9]

Polar Opposites

Polar Opposites

The cryptocurrency mining activity in China and Iceland highlight the strong disparity that exists relating to power generation and government influence, as well as one of the issues with cryptocurrencies that cannot be refuted.

China is a cryptocurrency mining superpower due to its cheap electricity supply. Some estimates show that China accounted for over 70% of total Bitcoin mining in 2017.

However, a study by the University of Cambridge in April of 2017 shows that the country accounts for only 60%. In either case, it is the majority and poses a problem because the country uses primarily fossil fuels.

Iceland is becoming a popular spot for cryptocurrency miners, because of similarly low electricity rates. But the lower rates are in place because of their near 100% renewable energy sources of geothermal and hydroelectric.

Image Credits
Feature Image Credit:
Inpost Image Credit:, cointelegraph
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The writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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