In mid-May 2021, billionaire Elon Musk sent
a tweet that crashed the cryptocurrency market. The Tesla CEO announced the electric vehicle
company would no longer be accepting bitcoin for purchases due to its environmental impact. People have long been warning about the insane
amount of energy that’s required to mine Bitcoin. So why does bitcoin use so much energy? And do other cryptocurrencies have the same problem? Most of the money we use today has been issued
by a central bank. You’re familiar with them; the U.S. Federal
Reserve, the European Central Bank or the Bank of Japan, for example.
What made bitcoin and other cryptocurrencies
revolutionary was cutting these institutions out of the picture and using a decentralized
ledger, known as blockchain, instead. To learn more, I called in one of CNBC’s
resident crypto experts, Ryan Browne. Hi, Ryan. Hi, Nessa. People around CNBC were saying that you were
one of the main guys to go to when we’re talking about cryptocurrencies. Having been covering this space for I think
four years now, it’s definitely been a learning experience. What was one of the early big hurdles for
this kind of digital currency? One of the big problems with cryptocurrency
was the question around double spending. And this is essentially the idea that a coin
virtually could be used more than once. And that would essentially be theft and if
that were to happen, confidence would be completely lost in the Bitcoin network. So how did they solve this issue? Well, this is where bitcoin-mining comes in.
Now, every computer in the network has a full
list of bitcoin transactions to make sure that they’re valid. If one single participant in the network doesn’t
have the same list, everything falls apart. This is how they prevent theft from happening. So if Person A is sending Bitcoin to Person
B, that transaction needs to be verified by miners. Once verified, each part of the blockchain
needs to be updated with that transaction. Miners are then rewarded in some bitcoin.
Okay, I know that’s a lot, but stick with me. Mining was this ingenious solution to a big
problem, but it also has problems of its own. The whole point of cryptocurrency mining,
and what makes it so secure is this proof of work mechanism that underpins everything. Miners effectively have to solve these very
complex math puzzles that are generated every 10 minutes. The point of this is to make sure that the
blockchain is cryptographically secured, so that we don’t have any of those security
issues that we’ve mentioned. Now the result of that, you then have more
computers being logged on to the network essentially. Right, and this process takes up a lot of
energy. That’s correct. And as the price goes up, more and more miners
will want to reap the rewards. Because it can be potentially very lucrative,
right? We’ve seen the price of Bitcoin rise wildly
this year. Sometimes, they will combine into these mining
pools which pool together computing resources to effectively improve their chances of cracking
that puzzle, so you’re just going to get more and more energy being consumed all over
the world.
Large-scale electricity consumption is measured in
terawatt-hour, which is equal to one trillion watts. A report by Cambridge University says that
the bitcoin network alone consumes more than 116 TWh per year, about 0.5% of total electricity
in the world. Bitcoin's annual electricity consumption is
higher than countries like the Netherlands, Philippines and Singapore. In fact, if bitcoin were a country, it’d
be number 33 on the list of top energy consumers. So how is that possible? There is a direct correlation people have been
noticing between the rising price of Bitcoin, and the level of network difficulty and
competitiveness of all these miners trying to participate in the network over time, and
so it gets higher and higher.
And is this just a bitcoin problem?
What about other crypto? It’s definitely not just a Bitcoin problem. Those other cryptocurrencies, some of them
are using the same protocol that Bitcoin uses, which requires you to use all of this computing
power to figure out those puzzles. So where is this mining taking place? The U.S., Russia, Kazakhstan and Malaysia
are all big players, but the vast majority, some 65%, is happening in China.. A lot of miners will migrate to southwestern
provinces in China, which are rich in hydropower. Which obviously, is a renewable source of energy. Now on the flip side, if the cheapest source
of energy is fossil fuels, that is where Bitcoin mining gets a little dirtier. In Iran, when it comes to bitcoin mining,
one of the big concerns there was, it started leading to blackouts, power outages, in parts
of the cities.
And that really speaks to just the amount
of energy that is required to mine cryptocurrency. China, United States, they all have carbon
neutral targets. But they’re countries with noteworthy mining
facilities or at least, mining habits, right. So how are these governments responding? We have already seen signs of increased regulation
from the U.S. on cryptocurrencies at the moment. In China, the Inner Mongolia region has effectively
cracked down on mining by shutting down Bitcoin mining completely. Cryptocurrency advocates, however, argue all
this energy use is worth it, if it means crypto can democratize the world’s financial system. Crypto advocates also say they are making
efforts to use renewable energy, and that it’s not just them consuming energy. Online banking platforms and data centers
use a lot of energy too. Global data center electricity demand was
about 200 TWh in 2019, which makes up 0.8% of global electricity demand. We need to look at the entire Internet and
how it is powered, and at the moment it is, by and large, quite dirty.
The effort going forward will be making sure
that the Internet is powered by renewables, and you’ve got massive tech companies, mind
you, like Amazon, Microsoft and others, they are trying to do exactly this. The only counterpoint that critics of Bitcoin
will have is how much is Bitcoin used, as opposed to all of these online platforms and
services that we use every single day. The general consensus is it’s fractionally
much lower. Now, an interesting thing about Ethereum is
that it’s trying to become a bit more energy efficient, so it’s actually in the process
of upgrading its network.
I’m finding it hard to understand how is
that possible, if they’re using the same technology, using the same blockchain technology? I don’t blame you at all, Nessa, this topic,
it is almost intentionally difficult to understand. What the Ethereum network is essentially proposing
is that it upgrades itself to a new protocol. And this is very significant because it will
move Ethereum into a new mechanism which essentially validates transactions, and the validators
of those transactions, they don’t have to do all those complex competing puzzles that
we’ve been discussing.
I had to ask Ryan: Is there any cryptocurrency
available out there that’s actually worth it to mine, or at least able to break even? If you’re a believer in crypto, you certainly
think it’s worth the massive computational effort to mine cryptocurrencies, because believers
in cryptocurrency will say well, it is a decentralised currency, it’s outside of government control. I mean, the remarkable thing about cryptocurrency
is that it has survived so long, through all the hacks and scandals and questions about
money laundering and illegal activities. They’re still seeing lots and lots of money
flowing into them. And right now, it’s a trillion-dollar market
at least. And that certainly says something about the
potential staying power of these cryptocurrencies.
Now, whether all of them will exist in their
current form in several years’ time, that’s obviously up for debate. I have a joke. Do you want to hear the joke? Absolutely. How many crypto-miners does it take to change
a light bulb? How many? A million. 1 to do it, and the rest to determine who
gets the credit. That’s good. I’m gonna use that one..
