Bitcoin, the first and most popular cryptocurrency, is created when a computer solves a specific type of problem. With no central bank, the currency is generated by blocks of users with processors designed specifically for the purpose of currency mining. As more coins are generated, the algorithm that governs bitcoin production increases the difficulty of generating bitcoins, necessitating dedicated machines that exist to create them.
There is ample evidence that Bitcoin is not a sound investment. A single bitcoin is worth over $15,000 USD at the time of this writing. According to CNBC, however, this could be among the largest economic bubbles in history. In fact, it is already poised to outdo the Nasdaq Dot-Com bubble of 1999. Interestingly, there exists an even more immediate problem with Bitcoin; it requires a great deal of power consumption.
Bitcoin mining currently consumes approximately 32.36 terrawatt hours of electricity annually and uses around 250 kilowatt hours per transaction. To put this into perspective, a single Bitcoin transaction is enough to power 8.45 American households for an entire day. According to Digconomist, an online platform for cryptocurrency analysis, this model is unsustainable. The Bitcoin network is primarily powered by coal-fired power plants, known for their immense carbon footprint and contribution to acid rain and air pollution. According to Futurism, bitcoin mining electricity consumption this year exceeds that of 159 countries.
The Proof-of-Work system employed by Bitcoin is meant to prevent the network from being used for various malicious practices. However, because it is becoming so computationally expensive to produce the currency, there now exists a problem of hackers producing malware to siphon computing power from personal computers. A popular BitTorrent website was recently implicated in such an act, allocating large amounts of processing power from the computers of visitors to the website for the purpose of mining cryptocurrency.
As the computational requirements for bitcoin mining increase, so does the power required to keep mining rigs running. These requirements increase at a very high rate; our computers simply cannot keep up. While the first Bitcoins were mined with personal computers, today’s Bitcoins are mined with application-specific instruction set processors, which are optimized for their task. As we dedicate more and more power to a currency not backed by any government and primarily used for black market transactions, we will begin to feel the very real effects of the damage caused by this inefficient process.
Even within the realm of cryptocurrency, Ethereum plans to move to a model that utilizes a proof-of-stake system. This differs from Bitcoin’s Proof-of-Work system, which requires some amount of computing power to validate a transaction, in that it validates block transactions based on how much cryptocurrency one already has. While this does not solve all problems inherent to cryptocurrency, it could potentially ameliorate the process of cryptocurrency mining. If Bitcoin continues operating as it currently does, however, then the results could be disastrous, both in terms of expense and environmental impact.
Eli Udler is a contributor for The Daily Campus. He can be reached via email at firstname.lastname@example.org.