Bitcoin is currency that can be traded and held electronically. It has some advantage; you can transfer from person to person without involving financial intermediaries which usually charge commissions, you also can use it in every country and you do not need to think about exchange rates. Also, your account cannot be frozen and there are no arbitrary limits.
On 27th November, Bitcoin reached its new high of $10,000, up tenfold in just a year. When everything seems so perfect there should be some danger in this currency. This currency might raise many problems for banks and the financial system as it cannot be regulated; however, in this report I want to look at Bitcoin from another angle – how it affects the consumption of electricity.
Firstly, where does Bitcoin come from? The answer is quite easy, Bitcoin is made by mining. ‘Miners’ use a special platform to mine Bitcoins with mathematical algorithms. Anyone can do mining, and as miners need to secure transactions it means it is a fair, stable and safe network. In the beginning, miners were using computers and processors for these processes, but then they realised that graphic cards used for gaming were much better for this type of work. Graphic cards are faster, but they consume much more electricity and create much more heat than computers.
The popularity of Bitcoin increased so fast that more miners try to join network and use different types of graphic cards to mine. As more people are mining Bitcoin, and demand for it grows, there is a huge amount of electricity used not only for producing Bitcoin but for other cryptocurrencies as well.
According to Digiconomist, the estimated electricity power used for generation and transactions of cryptocurrency is now 30.14 TWh a year; this is 0.13% of total global electricity consumption, and this share is growing rapidly. Each individual Bitcoin transaction uses 300KWh electricity – which is enough to boil 36,000 kettles of full water.
Only in the past month Bitcoin’s electricity consumption increased by 30%. If it continued on this trend, then it will consume all of the world’s electricity by February 2020.
Even though Bitcoin is mined in places with cheap annual electricity costs, with an average cost of around $1.5 billion for electricity. The US average retail price per kilowatt-hour is 10.41 cents, which means using 28.05 TWh would cost $3.02 billion (£2.28 billion).
We need to think about what this means for our future. Consuming more electricity means even more damage from climate change; therefore, there should be new technologies developed for this kind of process, which will affect technological companies.
Bitcoin will affect markets in the future as its price grows. This idea seems very new and many people do not trust it, but this is a process of changing to something new. It could also arguably be described as a new bubble that is doomed to crash as the ‘Dotcom bubble’ did.