Bitcoin Price Goes Up But So Does Its Use Of Resources

  • Bitcoin Price Goes Up But So Does Its Use Of Resources

    The price of Bitcoin is continuing to rise (dips and corrections aside) and it is easily the most successful asset over the last decade. However, as the price goes up so does the amount of energy required to run the mining rigs across the globe.

    Maybe it’s due to its fundamentals, or maybe it's just that there aren't really any other assets to buy that give such a good hedge against the present failures of the economic system. Whatever it may be, Bitcoin is the stand-out asset of these times and its success looks to continue, at least into the medium term.

    However, all is not rosy in the garden of the king of the cryptocurrencies. Unlike other financial assets, Bitcoin uses a vast amount of resources, and this increase in energy consumption goes up as the price goes up.

    In the Bitcoin system, transactions are logged and verified by a network of miners. These miners compete against each other by trying to be the first to work out the answer to a complex algorithm. The first miner to guess the answer receives the reward of newly minted bitcoin.

    This sounds like a mathematical game, but in order to play the game you need to have state of the art mining rigs, and lots of them, in order to have any chance of winning. The mining rigs are actually incredibly powerful, energy intensive computers, and as the Bitcoin price rises, so does the amount of electricity needed to power these machines.

    Due to the global spread of miners, it’s very difficult to get a handle on how much electricity is being used, but according to the cryptocurrency tracking site Digiconomist:

    “The record-breaking surge in Bitcoin price at the start of 2021 may result in the network consuming as much energy as all data centers globally, with an associated carbon footprint matching London’s footprint size.”

    If we take gold as a comparison, we can see that gold annual emissions related to gold mining, are estimated to be at around 81 million metric tons of CO2. The current bitcoin consumed energy could result in 90.2 million metric tons of CO2. If we take the gold market cap as $10 trillion, then it is around 10 times bigger than that of bitcoin.

    Therefore, we can see that Bitcoin is far more energy intensive than its ‘store of value’ competitor, and this comparison will only get worse as the bitcoin price rises and uses even more resources.

    Is the answer a switch from proof-of-work to a proof-of-stake system, just as is happening with Ethereum? This would certainly curb Bitcoin’s power-hungry consumption drastically as miners were replaced by validators. However, detractors would argue that this would lead us down a more centralised road.

    Bitcoin’s various advantages will have to be weighed against the consumption of more and more precious resources. Could this be what finally puts the brakes on Bitcoin?

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