Most people are aware of the rising price of Bitcoin. Despite the fact that most people are unaware of how to transact in it, and few merchants take it as a form of currency, Bitcoin is becoming an increasingly popular investment. As interest in Bitcoin grows, a few people are starting to take notice of the startling energy costs associated with Bitcoin transactions.
As Mind Matters has been pointing out for years, the energy costs associated with having a “trustless” system such as Bitcoin is immense, with Bitcoin transactions generally costing 400,000 times as much energy as a single transaction on the Visa network. According to the BBC, the Bitcoin network – which, again, very few people are regularly transacting in – now consumes more energy than the entire country of Argentina.
This surge in energy consumption is causing worry among many technologists who are concerned about environmental impacts of Bitcoin. Forbes recently reported that Bill Gates is coming out against Bitcoin because of its potential impact on climate change.
What is surprising, however, is that some “green” companies such as Tesla seem to be embracing Bitcoin. According to CNBC, Tesla recently bought $1.5 billion worth of Bitcoin in order to support usage of the currency for the company, and to provide additional returns on the company’s use of cash. Additionally, Elon Musk, Tesla’s co-founder, promoted the currency itself by adding the #bitcoin hashtag to his profile.
This is ironic in two ways. From a “green” perspective, the entire premise of Tesla is that electric vehicles are supposed to utilize less energy, but Musk is now promoting Bitcoin, the most energy-consumptive currency available, as the future. The second irony is that Tesla apparently profited more on the Bitcoin investment than in the entire last year of selling cars. In other words, Tesla’s main profit over the last year came at the expense of the world’s carbon footprint.
So what happens when Bitcoin scales up and starts becoming a real consumer phenomenon? The effect of this is difficult to estimate, as the computation growth in Bitcoin is based more on the competition for the blockchain than on the number of transactions. The Bitcoin algorithm auto-adjusts its difficulty based on the number of blockchain miners. As more miners get into the game, the per-transaction costs go up. It is therefore difficult to separate out the costs due to the Bitcoin transactions themselves compared to the costs due to the increase in competition among miners. However, that distinction may not matter as the increase in usage of the platform will likely continue to attract more miners.
Bitcoin’s power-hungry system, known as a “proof of work” system, isn’t the only one available. Other systems have been developed which use “proof of stake”, which doesn’t have the same heavy power utilization. However, the whole point of Bitcoin was to be a completely trustless system, but “proof of stake” actually winds up creating a sort of oligarchy of control of the system—the very thing cryptocurrencies are supposed to avoid.
The modern zeitgeist seems to be in tension with itself, desiring both the lack of centralization made possible with Bitcoin while aiming in all other aspects of life to build more sustainable solutions. Nonetheless, for the present moment, many companies such as Tesla are fully embracing both sides of the paradox for the time being.