The fluctuating value of Bitcoin is not the only reason the digital network has been making headlines recently. As the price of the cryptocurrency escalates, so do the network’s power requirements, which are expected to total half a percent of worldwide electric energy consumption by the end of 2018.
While it has been estimated that the system currently consumes as much energy as some medium-sized countries, accurately calculating this number remains a challenge.
Financial economist Alex de Vries has used a new methodology to quantify Bitcoin’s total energy requirements. De Vries works at the Experience Center of PwC in the Netherlands and is the founder of Digiconomist, a blog that aims to better inform cryptocurrency users.
“We’ve seen a lot of back-of-the-envelope calculations, but we need more scientific discussion on where this network is headed,” explains de Vries. “Right now, the information available is pretty poor quality overall, so I’m hoping that people will use this paper as a foundation for more research.”
De Vries has found that the minimum usage of the Bitcoin network is currently at 2.55 gigawatts, which is nearly the amount of electricity used in Ireland. He also determined that a single Bitcoin transaction uses as much electricity as an average household in the Netherlands uses in an entire month.
De Vries predicts the network could be using as much as 7.7 gigawatts – half of a percent of the world’s total consumption – by the end of this year.
“To me, half a percent is already quite shocking. It’s an extreme difference compared to the regular financial system, and this increasing electricity demand is definitely not going to help us reach our climate goals.”
Computers in the Bitcoin network perform continuous calculations in a process known as “mining.”
“You are generating numbers the whole time and the machines you’re using for that use electricity,” explains de Vries. “But if you want to get a bigger slice of the pie, you need to increase your computing power. So there’s a big incentive for people to increase how much they’re spending on electricity and on machines.”
Despite some uncertainty in the process, De Vries feels that it is important to get the very best estimate of hardware and electricity costs generated by Bitcoin so that the sustainability of cryptocurrencies can be assessed, which will help to inform future policies. Restrictions around Bitcoin mining have already been established in some American states.
“But you need to base your policy on something. And I think that my method is important in that regard, because it’s very forward-looking. It’s focused not on the now, but on where we’re headed. And I think that’s something you really need to know if you’re going to draft policy about it.”
De Vries says that there is plenty of room for discussion regarding his method.
“I think everyone agrees on the minimum energy consumption. But the future estimate? That’s actually quite debatable. We don’t really have a common approach to getting to a future estimate of electricity consumption right now, which is why I am hoping to get this conversation started. I’m doing this research, but a lot of people should be doing it.”
De Vries reports that the network could eventually consume five percent of the world’s total electricity if the value of Bitcoin continues to surge.