Bitcoin’s phenomenal rise this year may be making speculators very rich, but some observers say it’s terrible for the environment.
Once shunned as a murky domain for cranks and criminals, bitcoin has started to attract mainstream investors. Its price has surged from less than $1,000 at the start of the year to above $16,000 on Thursday.
Critics say the cryptocurrency is a “fraud” and they warn of a bubble. Environmentalists worry about another risk — that it’s seriously hurting efforts to combat climate change.
“Bitcoin is slowing the effort to achieve a rapid transition away from fossil fuels,” meteorologist Eric Holthaus wrote in an article on environmental news site Grist this week.
Unlike the dollar or the pound, these virtual “coins” aren’t tied to a central bank. Instead, bitcoins are “mined” by computers in vast data centers that guzzle huge amounts of energy.
Bitcoin uses about 32 terawatts of energy every year, enough to power about three million U.S. households, according to the Bitcoin Energy Consumption Index published by Digiconomist, a website focused on digital currencies.
By comparison, processing the billions of Visa (V) transactions that take place each year consumes the same amount of power as just 50,000 American homes, according to Digiconomist.
More worryingly, Bitcoin’s energy demands are set to explode.
“As bitcoin grows, the math problems computers must solve to make more bitcoin get more and more difficult,” which means more processing power is needed, Holthaus wrote.
And he made a startling forecast: Without a significant change in how transactions are processed, bitcoin could be consuming enough electricity to power the U.S. by the middle of 2019.
Six months later, that demand could equal the world’s power consumption.
The fact that most bitcoin is mined in China is also fueling the environmental concerns.
The country’s hinterlands have proved attractive for the data centers that bitcoin mining requires because “electricity and land are very cheap,” researchers at the University of Cambridge wrote in a recent study.
A lot of the energy in provincial China comes from inefficient, coal-fired power plants that were built in anticipation of big construction projects that never happened, according to the researchers.
What’s the future of virtual currency?
Digiconomist reported that the energy demands of one bitcoin mine it visited in Inner Mongolia were equivalent to those of flying a Boeing 747.
Big bitcoin miners have defended their operations, telling the Cambridge researchers that they believe their environmental impact pales in comparison with that of extracting natural resources such as oil.
And more eco-friendly power sources are being adopted. Vienna-based HydroMiner, for example, uses renewable hydroelectric power for its bitcoin operations
But some experts are very pessimistic about the future.
The Chicago Board of Options and Chicago Mercantile Exchange will allow investors to start betting on the future price of bitcoin later this month.
That is expected to prompt a flurry of interest from the big, professional money managers who have so far stayed on the sidelines of the bitcoin party. More demand for the digital currency is likely to push energy use even higher.
“The CME futures may institutionalize bitcoin, which would be disastrous [for the environment],” said John Quiggin, an economics professor at the University of Queensland.
Quiggin believes policymakers won’t be able to ignore the fallout for much longer.
“Something needs to be done soon,” he said.