Why are we subsidising an untraceable currency and destroying the environment?

Every day we are reading new stories about the Bitcoin phenomenon. While there are many regulatory concerns, there are also concerns about the energy required to make this cryptocurrency available. Andrew Warren, chairman of the British Energy Efficiency Federation and a regular contributor to EiD, gives us his views on recent developments. This article was first published in the March issue of Energy in Buildings & Industry.

 

The new mines that are blighting the environment

Throughout this century, the trend is for energy consumption in the developed world to be consistently lower year on year. At the same time, the world’s wealth has kept on growing.

All in all, a cause for celebration. Unless of course you are running an old-fashioned energy company, where your potential profitability is entirely dependent upon selling more and more kilowatts each year.

These are the Neanderthal companies – some still to be found amongst Britain’s Big Six providers- who still fail to appreciate that no customer has ever wanted to buy a kilowatt hour per se; rather they are seeking to pay for the services of light, heat or motive power.

However over recent months it has become clear that it is how those services are being paid for which, perversely, is having the most profound impact upon the amount of power consumed.

The phenomenon of cryptocurrencies has hit the headlines primarily for one simple reason: the phenomenal growth in their trading values. Whilst there are a plethora of such currencies around (Ethereum, Ripple, Litecoin, Dash), by far the best known of these is called Bitcoin. Today’s prevailing digital currency was worth just $12 in 2013. Earlier this year, it traded at over $19,000, although now it has fallen to around $10,000.

Cryptocurrencies provide a digital alternative to traditional government-issued fiat currencies (like dollars, euros or pounds). They can be used in online marketplaces to buy everything from chocolate bars to plane tickets to cyber pets.

Initially they were dismissed as an Internet fad, overtly favoured by nefarious wheelers and dealers trying to circumvent taxes or the law. But now with Bitcoin futures set to be traded on the Chicago Mercantile Exchange and the Chicago Board Options Exchange, to be followed by NASDAQ this summer, respectability looms. Bitcoin advocates are hoping the Exchanges can help stabilize the highly volatile currency.

But what Bitcoin pushers are failing entirely to address is the quantum difference in electricity consumption which each such transaction makes. Not so much regarding the value per unit. But instead concentrating upon the enormous amount of electricity that each transaction of whatever value requires.

Let us try some simple comparisons. You wish to buy foreign currency. You visit a money exchange outlet. A calculation is made regarding exchange rates. You hand over paper currency. You receive the foreign notes. That electronic calculation requires at most the equivalent of just under one watt of electricity.

If you do the same transaction using plastic currency, the electricity consumption increases. A credit card transaction uses about 7 watt-hours per transaction. So, about eight times more energy than the cash transaction. Now, get ready for it.

Just one single Bitcoin transaction is estimated to use 215,000 watt-hours per transaction. That is 215kWh, so about the equivalent of 225,000 cash transactions. Or of, in tabloid terms, the entire daily fuel consumption of almost ten British households.

According to the cryptocurrency monitoring website, Digiconomist, last year the “mining” of bitcoins consumed every single day 49,056,938 kWh in 2017. That added up to 32.7TWH of electricity during 2017. Expressed another way, that means that last year the value of the “annualised global mining cost” (e.g. electricity expenditure) servicing Bitcoin alone was worth a staggering U.S.$6,906,460, 988.

If Bitcoin mining made up a single country, it would already rank 62nd in the world by electricity consumption. Huge “mining” farms – warehouses of whirring machinery- have been set up in countries like Iceland and Norway, havens for low-cost electricity and low temperature environments to help cool equipment.

The other major centre for such “mining” is China, where most of the electricity being used is from coal-fired power plants. Thus adding gratuitously 160,000 kilotonnes of carbon dioxide into the atmosphere.

If we take a median figure for external costs from electricity consumption of 6 pence per kWh, we are assuming a freerider ecological impact from Bitcoin transactions already costing well over £5bn each year. This is a conservative number, with the true number potentially much higher. And because Bitcoin transactions only take place online, under the 2016 Paris Agreement to combat climate change, none is attributable to any specific country.

So, what on earth are we doing? By the official financial Exchange organisations legitimising cryptocurrencies, we are deliberately destroying the environment. And we are doing so in order to subsidise an untraceable currency that enables and encourages tax evasion, money laundering and other illicit behaviours. And knowingly reverses this century’s trend towards ever-reducing power consumption.

 

One thought on “Why are we subsidising an untraceable currency and destroying the environment?

  1. Pingback: New UK Centre for Research on Energy Demand announced | Energy in Demand - Sustainable Energy - Rod Janssen

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