You, like many others, might be forgiven for assuming that, as a digital currency, Bitcoin is green. After all, it exists only online. However, this doesn’t mean it has no impact on the real world. In fact, Bitcoin mining is said to use over $300,000 worth of electricity per day.
How does this happen?
In brief, Bitcoins are generated by computers solving complex mathematical problems. Mining Bitcoins is an interesting issue: computers essentially ‘find’ Bitcoins by solving processor-intensive equations, which get harder as the number of Bitcoins grow. The idea behind the increasing difficulty is one of supply – Bitcoin tries to keep the supply of Bitcoins from growing too quickly, as this would likely significantly devalue the currency. The increasing difficulty mimics the supply of gold and silver in bygone days. For instance, in California when the California Gold Rush first started in 1848, everyday gold panners and miners were able to get ample quantities of gold working on their own, with gold pans and shovels. Gold was a very plentiful resource. However, as time went on and the top gold became more scarce (as it had already been mined), it became more and more difficult to ‘uncover’ the gold. This is the type of situation that Bitcoin appears to be emulating.
Today, with almost half of all Bitcoins in circulation (the currency comes with an inherent cap of 21 million Bitcoins), the mathematical problems required to mine Bitcoins require so much processor power that it is often done with specialized computers; i.e. ASICs as found from Butterfly Labs. This requires a huge amount of electricity.
Blockchain.info, a site that tracks Bitcoin mining data, gives an estimated electricity consumption of 2,045.17 megawatt hours, for a total of $306,774.97 per day. This cost naturally doesn’t factor into consideration the vast cost of energy and resources required to make and run the computers themselves.
How can this be justified?
Well, to start with, the $306,000 worth of electricity being used results in almost $354,000 of profits a day. This makes it quite lucrative for Bitcoin miners (though less so than in April, when Bloomberg reported a daily profit of over $600,000). With this type of payday, most miners certainly can find reasons ($) to justify using this process.
Is the use of ‘real world’ resources worth the virtual return? Should we return to the days where mining for our currency (e.g. gold and silver) required huge amounts of energy and resources? I think Bitcoin mining is a far cry from the “environmental disaster” that Mark Gimein of Bloomberg reported in April. However, in these days of global warming, and focus on reducing energy usage, I find it hard to hail a currency that requires intensive energy usage (which will only grow as the problems get harder) as the ‘currency of the future’.
This is a guest post contributed by Mary Ernst.