Bitcoin recently turned ten years old . In that time, it has proved
revolutionary because it ignores the need for modern money’s
institutions to verify payments. Instead, Bitcoin relies on
cryptographic techniques to prove identity and authenticity.
However, the price to pay for all of this innovation is a high carbon
footprint, created by Bitcoin mining .
Fundamental to that mining process is a peer-to-peer network of
computers, referred to as validators, who perform Proof of Work . In
essence, this involves computers solving computationally-intensive
cryptographic puzzles that prove blocks of transactions, which are
recorded in a public asset ledger, known as a blockchain. This ledger
is publicly viewable by all computers, which helps the system achieve
consensus in an unreliable network of participants.
Validators are called miners because the computer, or node, that
successfully validates one of those blocks is rewarded with “mined”
Bitcoin. Thus mining is also the process by which Bitcoin adds new
coins to the network.
But these processes consume a vast amount of power.
In my 2016 article, Socialism and the Blockchain , I estimated Bitcoin
mining’s annual energy use at 3.38 TeraWatt hours (TWh), which I
equated to the total 2014 annual consumption of Jamaica. Recent
estimates show the currency’s annual consumption rising
exponentially, currently reaching an incredible 55TWh. Indeed, a new
paper in Nature Sustainability suggests that the energy costs of
mining cryptocurrencies exceed the costs of mining physical metals.
Furthermore, the paper estimates that Bitcoin emitted between 3m and
13m metric tonnes CO₂ in the first half of 2018. A team in Hawaii
even suppose that, if Bitcoin’s adoption continues to rise, within a
couple of decades, such emissions could help push global warming above
2°C.
However, both the study in Nature and the team in Hawaii make
assumptions about the means of energy generation. In the light of the
recent disturbing UN 1.5°C Report, humanity would be wise to act
on the recommendation for an “unprecedented shift in energy
systems”. The hope is that such a shift towards large-scale renewable
energy does occur, thus invalidating the assumptions made in those
papers.
Nevertheless, concerns over Bitcoin’s energy consumption remain, so
Ethereum , another cryptocurrency, is investigating a more energy
efficient consensus algorithm known as Proof of Stake. This method
differs from Proof of Work because miners on this network use their
economic stake to prove transactions and therefore, they are not
performing energy intensive calculations.
That introduces some complications – not least, how to ensure that
people in this network act honestly, as they would have nothing to lose
by behaving dishonestly? Ethereum’s proposed solution is to introduce
penalties through measures such as penalising miners for simultaneously
producing blocks on two versions of the blockchain. After all, only one
of those blockchains is valid.
Bitcoin’s Proof of Work overcomes such problems implicitly because
it includes natural penalties since miners have to expend energy to
prove transactions.
In economic game theory, a Nash Equilibrium is said to be reached
when a system stabilises because no one gains by changing strategy
from that which produces the stable state. Since Bitcoin rewards are
given to miners only if their blocks help form the valid Bitcoin
blockchain, the most profitable outcome, or the Nash Equilibrium, is
for each miner to act in consensus with the majority.
As a result, Bitcoin’s Proof of Work algorithm has proven effective,
despite the excessive energy consumption.
A price worth paying?
In essence, my work looks at whether blockchains are a rebuttal to the
hierarchies of capitalism. If Bitcoin promotes a way of organising that
does not rely on capitalist consumption , might that indirectly drive
down society’s energy use and help lessen its environmental impact?
After all, consider the recent alarming WWF report , which all but
blamed capitalism for the dramatic decline in wildlife populations. We
need alternatives.
Perhaps, then, Bitcoin’s revolutionary offer, as an alternative to
capitalism, means its energy use is a price worth paying? That
argument holds some weight if it drives down consumption in other
areas of society because Bitcoin mining is not the primary driver
behind climate change. However, even then, given the urgency of
environmental degradation, if we continue to produce energy in a
manner that creates so much warming CO₂, that argument may provide
scant consolation.
Perhaps alternative consensus schemes, such as Ethereum’s Proof of
Stake, provide part of the solution. However, Bitcoin or not, if
humankind is to avoid climate catastrophe, we need to take urgent
action and find solutions that produce clean, sustainable energy. If we
do that, humanity will benefit, and as a by-product, so will Bitcoin.
_______
revolutionary because it ignores the need for modern money’s
institutions to verify payments. Instead, Bitcoin relies on
cryptographic techniques to prove identity and authenticity.
However, the price to pay for all of this innovation is a high carbon
footprint, created by Bitcoin mining .
Fundamental to that mining process is a peer-to-peer network of
computers, referred to as validators, who perform Proof of Work . In
essence, this involves computers solving computationally-intensive
cryptographic puzzles that prove blocks of transactions, which are
recorded in a public asset ledger, known as a blockchain. This ledger
is publicly viewable by all computers, which helps the system achieve
consensus in an unreliable network of participants.
Validators are called miners because the computer, or node, that
successfully validates one of those blocks is rewarded with “mined”
Bitcoin. Thus mining is also the process by which Bitcoin adds new
coins to the network.
But these processes consume a vast amount of power.
In my 2016 article, Socialism and the Blockchain , I estimated Bitcoin
mining’s annual energy use at 3.38 TeraWatt hours (TWh), which I
equated to the total 2014 annual consumption of Jamaica. Recent
estimates show the currency’s annual consumption rising
exponentially, currently reaching an incredible 55TWh. Indeed, a new
paper in Nature Sustainability suggests that the energy costs of
mining cryptocurrencies exceed the costs of mining physical metals.
Furthermore, the paper estimates that Bitcoin emitted between 3m and
13m metric tonnes CO₂ in the first half of 2018. A team in Hawaii
even suppose that, if Bitcoin’s adoption continues to rise, within a
couple of decades, such emissions could help push global warming above
2°C.
However, both the study in Nature and the team in Hawaii make
assumptions about the means of energy generation. In the light of the
recent disturbing UN 1.5°C Report, humanity would be wise to act
on the recommendation for an “unprecedented shift in energy
systems”. The hope is that such a shift towards large-scale renewable
energy does occur, thus invalidating the assumptions made in those
papers.
Nevertheless, concerns over Bitcoin’s energy consumption remain, so
Ethereum , another cryptocurrency, is investigating a more energy
efficient consensus algorithm known as Proof of Stake. This method
differs from Proof of Work because miners on this network use their
economic stake to prove transactions and therefore, they are not
performing energy intensive calculations.
That introduces some complications – not least, how to ensure that
people in this network act honestly, as they would have nothing to lose
by behaving dishonestly? Ethereum’s proposed solution is to introduce
penalties through measures such as penalising miners for simultaneously
producing blocks on two versions of the blockchain. After all, only one
of those blockchains is valid.
Bitcoin’s Proof of Work overcomes such problems implicitly because
it includes natural penalties since miners have to expend energy to
prove transactions.
In economic game theory, a Nash Equilibrium is said to be reached
when a system stabilises because no one gains by changing strategy
from that which produces the stable state. Since Bitcoin rewards are
given to miners only if their blocks help form the valid Bitcoin
blockchain, the most profitable outcome, or the Nash Equilibrium, is
for each miner to act in consensus with the majority.
As a result, Bitcoin’s Proof of Work algorithm has proven effective,
despite the excessive energy consumption.
A price worth paying?
In essence, my work looks at whether blockchains are a rebuttal to the
hierarchies of capitalism. If Bitcoin promotes a way of organising that
does not rely on capitalist consumption , might that indirectly drive
down society’s energy use and help lessen its environmental impact?
After all, consider the recent alarming WWF report , which all but
blamed capitalism for the dramatic decline in wildlife populations. We
need alternatives.
Perhaps, then, Bitcoin’s revolutionary offer, as an alternative to
capitalism, means its energy use is a price worth paying? That
argument holds some weight if it drives down consumption in other
areas of society because Bitcoin mining is not the primary driver
behind climate change. However, even then, given the urgency of
environmental degradation, if we continue to produce energy in a
manner that creates so much warming CO₂, that argument may provide
scant consolation.
Perhaps alternative consensus schemes, such as Ethereum’s Proof of
Stake, provide part of the solution. However, Bitcoin or not, if
humankind is to avoid climate catastrophe, we need to take urgent
action and find solutions that produce clean, sustainable energy. If we
do that, humanity will benefit, and as a by-product, so will Bitcoin.
_______
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