A new online tool from the University of Cambridge shows that the energy consumed by Bitcoins equals the total energy consumption of all of Switzerland. The tool simplifies the visualization of the comparison between the energy consumption of the crypto currency network and other entities. Currently, the tool estimates that Bitcoins are using around seven gigawatts of electricity, equivalent to 0,21% of world consumption. This is the same power that would be generated by seven Dungeness (England) nuclear power plants simultaneously. Over the course of a year, this equates to the same energy consumption as Switzerland.
How does it work?
To “extract” Bitcoins, computers known as mining machines are connected to the crypto currency network.
They are responsible for verifying the transactions made by people who send or receive Bitcoin. This process involves solving puzzles.
Puzzles are not an integral part of Bitcoin's movement verification, but they simply provide an obstacle to ensuring that no one fraudulently changes the global record of all transactions. As a reward for launching this system, miners occasionally receive small amounts of Bitcoin.
To earn as much money as possible from this process, people often connect large numbers of miners to the network, even entire warehouses full of them. This uses a lot of electricity because the miners work more or less constantly.
The Cambridge University tool creates a model of the economic life of Bitcoin miners around the world. It uses an average electricity price per kilowatt hour ($ 0,05, £ 0,04) and the energy needs of the Bitcoin network. Finally, the model assumes that all Bitcoin mining machines around the world operate with various efficiencies. In this way it is therefore possible to estimate the amount of electricity consumed at any time.
What does Alex de Vries think?
Bitcoin energy expert Alex de Vries of the PwC created a similar tool to estimate Bitcoin's energy consumption last year.
He says the most important thing was the carbon footprint of Bitcoin's energy use. That is, the emissions associated with the electrical resources used to power crypto currencies. This varies from place to place, depending on the energy supplies.
De Vries said that despite its numerous supporters, the Bitcoin network has an energy consumption problem. It uses a lot of energy despite processing less than 100 million financial transactions per year.
He added that the number was "completely insignificant" in global terms. The traditional financial sector processes 500 billion transactions per year, he added.
De Vries said that Bitcoin still seems to use far more energy per transaction than all the banks in the world put together, considering the amount of energy used by data centers.
According to a study conducted in the scientific journal Joule, the electricity used by Bitcoins produces about 22 megatons of CO2 every year. This is as much as a city like Kansas City in the United States. We can be sure that these = numbers will continue to increase.
