Creating a new Bitcoin requires electricity. A lot of it. In the virtual currency world the process is called “mining”.
There is no physical digging, since Bitcoins are digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.
The network of computers plugged into the Bitcoin network consumes as much energy each day as some medium-size countries - which country depends on whose estimates you believe. And the network supporting Ethereum, the second-most valuable virtual currency, gobbles up another country’s worth of electricity each day.
The energy consumption of the systems has risen as the prices of virtual currencies have rocketed, leading to a debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.
The creator of Ethereum, Vitalik Buterin, is leading an experiment with a more energy-efficient way to create tokens.
“I would feel very unhappy if my main contribution to the world was adding Cyprus’s worth of electricity consumption to global warming,” Buterin said.
But many virtual currency aficionados argue that the energy consumption is worth it for the grander cause of securing the Bitcoin and Ethereum networks and making a new kind of financial infrastructure, free from the meddling of banks or governments.
“The electricity usage is essential,” said Peter van Valkenburgh, the director of research at Coin Center, a group that advocates for virtual currency technology. “Because of the costs, we know the only people participating are serious, that they are economically invested. That creates the incentives for co-operation.”
This dispute has its foundations in the complex systems that produce tokens like Bitcoin; Ether, the currency on the Ethereum network; and many other virtual currencies.
All the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a maths algorithm.
The algorithm is so complicated that the only way to get the answer is to make lots of guesses. The more guesses, the better a computer’s chances.
But each time the computers try new guesses, they use computational power and electricity. The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer.
The mining race is meant to be hard so that no one can dominate the accounting and fudge the records. The rules have kept attackers at bay in the nine years since the network got going. Without the process, most computer scientists agree, Bitcoin would not work.
But there is disagreement over the real value of Bitcoin and the network that supports it.
For people who consider Bitcoin nothing more than a speculative bubble, any contribution towards global warming is not worth it.
But Bitcoin aficionados counter that it has allowed for the creation of the first financial network with no government or company in charge. In countries like Zimbabwe and Argentina, Bitcoin has sometimes provided a more stable place to park money than the local currency.
And in countries with more stable economies, Bitcoin has led to a flurry of new investments, jobs and start-up companies.
“Labelling Bitcoin mining as a ‘waste’ is a failure to look at the big picture,” Marc Bevand, a miner and analyst, wrote on his blog. The jobs alone, he added, “are a direct, measurable and positive impact that Bitcoin made on the economy”.
But even some people who are interested in all the innovation have worried about the electricity use.
De Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction required 80000 times more electricity to process than each Visa credit card transaction, for example.
The figures De Vries published have been criticised by Bevand and other Bitcoin fans, who say they overstate the energy costs by a factor of about three.
Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.
Van Valkenburgh, of the Coin Center, has argued that Bitcoin miners, who can do the work anywhere, have an incentive to situate themselves near cheap, often green energy sources.
But the concerns about electricity use have still hit home. The virtual currencies known as Ripple and Stellar, which were created after Bitcoin, were designed not to require electrically demanding mining.
Perhaps the biggest change could come from the new mining process proposed by Buterin for Ethereum, a process that some smaller currencies are using. Known as “proof of stake”, it distributes new coins to people who are able to prove their ownership of existing coins.
Buterin also believes that the new method, which will probably be rolled out over the next year, will allow for a less centralised network of computers overseeing the
system.
The New York Times
* Popper covers finance and
technology from San Francisco for The New York Times.