What’s the cost of a bitcoin?
In one way, that’s a relatively easy question. As the crypto-currency has gained increasing acceptance this year, its value has soared from right around $1,000 to more than $18,000. A futures market opened this month.
In another way, it’s devilishly hard. Even though a bitcoin exists only in cyberspace, there are a lot of costs that go into it, the biggest of which is electricity to power the computer systems needed to process its equations.
It’s easy for those of us who don’t use bitcoin to come unglued if we try to come to grips with it. Even some of those heavily involved acknowledge that many users might not really understand it. And it’s true that since the essence of the currency is its decentralized nature, there is no certain answer to the question of cost.
But there is a lively debate among experts – some of whom have produced eye-popping estimates of the energy required, and what that really costs us. A futuristic network used by a very small percentage of humanity, they say, creates large environmental problems for everyone else.
Here is one way to think about the problem, courtesy Bloomberg news service: Processing bitcoin transactions, which earns the processors new currency, gets progressively harder, requiring more computer power, which requires more and more electricity. As the price rises, the risk increases. Bitcoin “miners” will try to protect themselves from volatility by keeping costs down. That means seeking out the cheapest sources of energy.
Not surprisingly, much of the action is in China – about 58 percent, according to Bloomberg. The U.S. is second with 16 percent. Bitcoin might be a 21st-century product, but we know what China uses to produce most of its electricity: coal.
The guru for those raising the alarm about electricity demand is a young analyst named Alex de Vries, who puts his calculations out on his Digiconomist website. “The energy consumption is insane,” De Vries told Bloomberg. “If we start using this on a global scale, it will kill the planet.”
Back in early November, when the price of bitcoin had just topped $7,000, Christopher Malmo of Motherboard said that De Vries’ calculations meant each bitcoin transfer took enough energy to run a comfortable American house, and everything in it, for nearly a week. Even if every transaction was as energy efficient as possible (and it isn’t), Malmo said, the entire network would use as much energy as more than 800,000 average American homes.
Malmo says calculations show that every hour a single Asian bitcoin mining operation runs, it releases the same amount of carbon dioxide as an average European car does – in 120,000 miles.
The price of bitcoin has gone up about 2½ times since early November. It’s only logical to assume that the amount of electricity used would have increased, too.
Proponents of crypto-currencies dismiss worries about them destroying the planet as so much hyperventilating.
They say bitcoin uses less than an eighth of the energy of U.S. data processing centers, less than the total global production of cash and coins, and about 0.2 percent of total U.S. energy consumption.
Bitcoin allows its owners to send money across borders without government permission, and to own an asset that can’t be seized, they say. That’s not usually an issue for Americans or Europeans, but it is for citizens of countries living through hyperinflation like Zimbabwe and Venezuela.
One issue that all sides acknowledge is that bitcoin is inefficient by design. That’s the way it aims to be both decentralized and trustworthy.
“We create trust by building a system based on distrust,” Malmo quoted De Vries as telling him. “If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself.”
Writing in the Financial Times, Izabella Kaminska raises the question whether bitcoin should now be considered primarily a currency or some kind of asset. As the price has increased, more people are inclined to the latter.
Bitcoin transactions are actually quite expensive, costing from $3 to $6 apiece, making it impractical to use it for small transactions, she says. So people tend to hang onto them.
Then, if it’s primarily an investment – in an era of concern about climate change – some investors may well think twice about holding bitcoin precisely because of its environmental impact. Plus, if bitcoin’s primary purpose now is an instrument of financial speculation, “the energy wastage serves very little constructive social purpose at all,” she argues.
There is a lot here that is unknown or in dispute. But we’ve learned enough to know that the environment should be part of the calculation before stepping into the murky world of bitcoin.