Bitcoin was born ten years ago while the world teetered toward financial collapse as a result of the 2007 and 2008 financial crisis. A mysterious character called Satoshi Nakamoto in 2008 created a peer-to-peer system of electronic cash called bitcoin with a purported threefold aim. These were to wrest control away from those who created the financial crash; to create the first-ever money with a built-in monetary policy; and that it would be completely transparent.
A decade later, cryptocurrencies like bitcoin have experienced all manner of unforeseen turmoil, from booms and busts to bubbles.
The calculation is designed to be energy-intensive or complicated so that it secure
One of the most shocking aspects to the nascent industry has however only recently been reported – the enormous amounts of energy cryptocurrencies like bitcoin require to be mined.
Researchers at the Oak Ridge Institute have calculated one dollar’s worth of bitcoin requires about 17 megajoules (MJ) to mine, as compared with 4, 5 and 7 MJ for copper, gold and platinum.
Dr Max Krause, a co-author of the report – the first to quantify the energy cost per dollar benefit – said: “I added the comparison with mining because I want to give people unfamiliar with crypto mining process a metaphorical comparison or conceptual frame of reference.”
Bitcoin mining: BTC mining uses enormous amounts of energy (Image: Getty)
Bitcoin mining: Bitcoin was born only ten years ago (Image: Getty)
The bitcoin expert stressed BTC mining is on an ”unsustainable path” when considering the amount of energy used.
Bitcoin mining is a process of performing computer calculations that effectively validate transactions between different people across the world.
For the work these third parties are doing for validating these transactions, they are rewarded with newly created bitcoins.
Companies are also financially rewarded for taking the time and energy for processing these transactions.
Dr Krause explained exactly why such incredible amounts of energy are needed to mine cryptocurrencies like bitcoin, by contrasting them with more traditional forms of cash.
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He said: “The calculation is designed to be energy-intensive or complicated so that it secure.
“It is supposed to be something considered to be ‘trust-less’ – meaning we trust the banking system to be there tomorrow.
“This is designed to be un-hackable – you don’t know the people who are processing these transactions, so it is called a trust-less system because the system is so secure.
“These secure calculations have to be fairly complex and therefore it requires a lot of computing power to repeatedly perform these calculations.
“The reason it consumes so much energy is really because there is a profit incentive to process these transactions, so companies are rewarded with coins for doing this work and the coins are quite valuable.
“And when you have both quite complex calculations and then a large profit, or incentive, an arms race of different mining groups creates these large energy requirements.”
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Bitcoin mining: Is BTC mining on an unsustainable path (Image: Getty)
Bitcoin mining: Bitcoin may be virtual but the profit is very real (Image: Getty)
Bitcoin may be virtual but the profit is very real and Dr Krause said the numbers “can be substantial”.
For every completed block, miners are rewarded with 12.5 BTC tokens, which equates to about £XX ($100,000).
This happens roughly as often as every 10 minutes.
Dr Krause said: “So the money that changes hands at a macro level is quite large.
“The potential is huge – companies could be making millions of dollars a year.”
But the environmental impact of all of this energy consumption is beginning to be felt.
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The carbon dioxide (CO2) emissions alone produce a significant amount of greenhouse gas for a fairly nascent industry.
According to Dr Krause, cryptocurrency mining now contributes to about 15 million tonnes of CO2.
And it appears unlikely that improved efficiencies in mining technology will make a difference any time soon.
The BTC expert said: “When we calculated our estimates, we assumed more efficient miners in 2017 to 2018 than 2016.
“But mining activity is far outpacing the improved efficiency of the mining equipment.
Bitcoin mining: For every completed block, miners are rewarded with 12.5 BTC tokens (Image: Getty)
“Yes, the mining equipment is becoming more efficient, but the phase-out of technology is a little slower.
“The amount of interest in mining is increasing so much faster than they can create new, more efficient products.
The postdoctoral researcher at the US Environmental Protection Agency refused to condemn cryptocurrency mining but he does believe the amount of energy we consume is something we should all be mindful of.
He said: “We need to realise that digital products or processes are no different from physical one and can also consume a significant amount of energy.
“As we move to this new digital age where everything is connected and online we should keep in mind that we are not using less energy, but much more energy.”