Bitcoin – a currency that consumes a lot of energy
Cryptocurrencies are often presented at the news, but what impact does this trend have on our planet? Mining bitcoins is a lucrative business. As a reward for such services, the miners receive the newly created bitcoins as well as the transaction fees they confirm. Currently, this reward is 12.5 bitcoins per block. It is halved every four years or so. With the rise of bitcoin prices and trade volumes, miners’ incomes have exploded. But more and more people want to share the cake. And the authorities do not always see them favorably. Beijing wants to “disconnect ” this new industry by prohibiting some hydroelectric plants from providing any energy to Bitcoin Mines.
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Bitcoin ‘mines’ absorb electrical power
You’ve undoubtedly heard of Bitcoin, but do you also know Ethereum and Ripple? Just like Bitcoin, these are cryptocurrencies. All these digital currencies (there are already more than 1,300) are based on blockchain technology. It is certain, that this technology and cryptocurrency will only become bigger and more important in the future. In many sectors, such as banks, insurers, betting with blockchain tech, this innovative technology has already been embraced.
The so-called ‘mines’ of Bitcoins cost a lot of energy. This process, making the virtual currency, happens on large computers that consume energy. Mining is mainly done in countries where energy costs are low, as in China. The energy that is used in this process comes from non-renewable sources, which contributes to a lot of CO2 emissions. The energy consumption is now so high that the Chinese government intervenes. But even if the value of Bitcoin halves, making it remains lucrative.
How Bitcoin works?
During the year 2017, the Bitcoin course flares by more than 1000%…before diving in early 2018. Nowadays, everyone has heard about Bitcoin and cryptocurrencies. The “Digital gold” is the subject of intense speculation that irritates some states. But how does this cryptocurrency work?
A currency allowing almost instantaneous anonymous exchanges via the Internet: this was the goal of the developers who, in the mid-2000s, created bitcoin. Their approach was underpinned by the philosophy of a currency that would not be backed by any state, bank or central authority – and that, to overcome it, would be generated through algorithms and distributed via a gigantic network ” peer-to-peer “(P2P). If other virtual currencies came into existence in the late 1990s, the innovation of bitcoin and its mysterious creator, Satoshi Nakamoto, was to offer a complex encryption system to secure transactions. Today you can buy almost everything with bitcoins: cars, plane tickets, online casino bets. Bitcoins enables a completely new form of betting such as betting on sports.
An alternative financial system. And what’s next?
Entrepreneurs are now seizing virtual currencies to raise funds. Engineers find concrete applications to the blockchain. But the network still has to get rid of all its polluters: speculators, scammers, drug traffickers, web hackers or other organized criminals who have rushed into the breach.
How many people have actually invested in bitcoin? Hard to say thanks to the anonymity of transactions. However, it is known that a large part of the trade is in dollars (40%) and yen (33%), much less in euros (5%). In Asia, especially in Japan and South Korea, hundreds of thousands of individuals began to buy bitcoin. The fascination of the population for this speculation is not without worrying the authorities. In the United States, the New Currency Exchange, Coinbase, already has 13 million investors, nearly 4% of the US population.
The Bitcoin popularity has accelerated throughout the year 2017, along with its stock market price.
Professional investors are currently more measured. They are still struggling to understand this asset: money or raw material? They are divided on the fact that it can serve as a safe haven like gold, and many are frightened by its very strong variations. However, some players such as hedge funds are having a lot of fun. About a hundred hedge funds specializing in new cryptographic currencies have embarked to take advantage of the exuberant volatility of these currencies.
But what about the energy that Bitcoin consumes?
With 1,800 new bitcoins per day and 25 TWh per year, the ‘production process’ of each new bitcoin represents an electricity consumption of 38,000-kilowatt hours (kWh). The energy needed for one bitcoin transaction to take place is comparable to the monthly electricity consumption of a household.
Why so much energy?
Verifying a bitcoin transaction is not done by one central bank, but by many computers at the same time. Because all computers control each other, the system is reliable even without authority. But verifying a transaction is accompanied by very complicated calculations, which require an extremely high computing power from a computer.
Because the processors have to run at full speed, a transaction costs a lot of energy. You will be rewarded for that if you make your computing power available. For every verification you get a very small bitcoin, that is called mines. Whether the mines outweighs the costs depends strongly on the bitcoin price and the price you pay for your electricity. Maintaining the blockchain currently costs 2200 megawatts.
The energy consumption of the blockchain is currently best compared with the energy consumption of Azerbaijan. All in all, a bitcoin transaction costs around 20,000 times more energy than a simple credit card transaction.