There have been debate over whether or not bitcoin is an environmental disaster waiting to happen, though nobody seems to know the exact assumptions to use. Depending on what efficiency ratios we assume for the present operating ASIC mining rigs, which either consume about 35 terawatt-hours per year, something equivalent to Denmark’s power consumption, or something far less, closer perhaps to Bolivia’s.
It is also unknown how much of mining runs on low-carbon energy, such as the mining farms that use geothermal energy in Iceland or hydropower in Washington State. Surely that matters.
But if bitcoin is to be evaluated in comparison to fiat currencies, banks and traditional payment systems, then we must consider the costs associated with securing of those systems, which include building the physical bank branches, purchasing the armored cars, staff remuneration, fraud detection, etc.
Currently, Bitcoin is still very insignificant when compared with the total value of fiat transactions, which still means that Bitcoin’s energy consumption in relation to its use is proportionately very high. According to a recent claim by Motherboard “one bitcoin transaction uses as much electricity as the average house does in a week.”
Still, transaction growth on the bitcoin network has been slowed down due to congestion and a fixed block size. So, as rising bitcoin prices keep enticing miners to add more hashing power, the numerator is increasing while the denominator stays steady, resulting in a massive surge in per-transaction electricity.
All these seems like an impediment to bitcoin endorsement. However, things are changing. Only people who don’t think assume that technology remains static. They fail to see the dynamic feedback loops generated by rapidly changing technologies such as bitcoin. That’s actually a crazy assumption for an industry in which intense competition for block rewards and an open-source developer pool come together in a dynamic cauldron of development. We must keep that in mind that technological advances in both cryptocurrencies and energy are changing more rapidly than any of us can keep up with.
On that note, Lightning is coming. Though Lightening payment channels solution isn’t precisely targeted at energy efficiency, but if we consider the cost issue as a per-transaction metric, it could help making bitcoin less damaging to the environment – at least when assessed relative to its utility as a payments service.
If the costs to running the tiny amount of computer processing power to send peer-to-peer payments over a network of Lightning channels is compared against those of the banking and infrastructure needed to process card payments over the Visa network, this future model for bitcoin starts to look far more efficient.
Secondly, Coin Center’s Peter Van Valkenburgh, astutely argued that the more miners are enticed to compete for bitcoin, the more they are encouraged to seek ever-more efficient sources of power to boost margins and secure an advantage over others.
With the price of solar and wind energy in some places now at 2 cents per KwH or lower, that search will increasingly lead them in the direction of renewable sources.
If such happens, then it should not only incentivize miners to seek low-cost renewable energy, but also drive energy firms to work hard at developing solutions for them, with spillover benefits for the rest of the world. In other words, the incentives that bitcoin demand puts in place could not only drive efficiency and green energy solutions in the crypto world but help to spur them in the wider economy too.
This, I think is the most important lesson from the many debates that roil the bitcoin community. In an industry where rapid, relentless changes in technology is the only constant, any debate about the future must acknowledge it as a variable.
Do you also believe that Bitcoin can offer the best technology? Let us know through the comment box.