Electronic cryptocurrencies like Bitcoin were supposed to provide us with the means to destroy our corrupt banking and finance system without destroying the essential payments system that the global economy depends upon. Bitcoin has the potential to take down the current system in two ways. First, the blockchain technology that provides a digital record of every transaction, preventing banks and governments from debasing money by printing it out of thin air. Second, Bitcoin allows payments and transfers to be made without the need for a bank as an intermediary.
Unfortunately, cryptocurrencies like Bitcoin have the potential to undermine the switch to renewable energy, and to dash hopes of meeting climate change targets too according to Sebastiaan Deetman from Leiden University:
“This network of so-called bitcoin ‘miners’ ensures the security of the system, but unfortunately also consumes a lot of electricity—currently about 350 megawatts according to my own calculations, which is roughly equivalent to the electricity demand of 280,000 American households.”
Deetman ran two scenarios which depended upon the extent to which the Bitcoin “mining” technology becomes energy efficient, together with the rate at which people adopt Bitcoin as a payment method. The results differ widely between the best and worst cases. However, even the best case will cause headaches:
“Even in the optimistic scenario, just mining one bitcoin in 2020 would require a shocking 5,500 kWh, or about half the annual electricity consumption of an American household. And even if we assume that by that time only half of that electricity is generated by fossil fuels, still over 4,000 kg of carbon dioxide would be emitted per bitcoin mined. It makes you wonder whether bitcoin could still be called a virtual currency, when the physical effects could become so tangible.”
Things could be a lot worse. If Deetman’s pessimistic scenario proves correct, by 2020 Bitcoin could be using 14 gigawatts of power – as much electricity as Denmark!
Bitcoin might work if we simultaneously shut down the current banking system. In this case, we would be transferring the power used by the old to the new technology. However, the point about Bitcoin is that it is disruptive. It is not being introduced by the existing banks because it will destroy their business models. So Bitcoin has to operate in conjunction to the existing system. And that means that it may well require energy generation capacity that does not exist, and produce greenhouse gas emissions that we cannot afford.
Maybe we should go back to tally sticks!