According to the Dutch IT expert Alex de Vries, bitcoins are responsible for around 56 million tons of CO2 per year. This is due to the enormous power consumption.
The fact that this crypto currency needs so much energy is mainly due to the basic concept of the bitcoin itself. Countless computers are working to mine bitcoins.
Bitcoin expert Philipp Sandner explains in an interview with Business Insider why Bitcoin will not reduce its immense power consumption and which other cryptocurrency can go green.
When Tesla boss Elon Musk tweeted a few months ago that Bitcoin consumed an “insane” amount of energy, he not only brought the cryptocurrency rate from 50,000 to 30,000 euros, but also put a new topic on the agenda: the high power consumption of Bitcoin.
It is a fact that a Bitcoin consumes a lot of energy. The Cambridge Center for Alternative Finance has been determining the approximate power consumption of the cryptocurrency since 2019. According to the researchers, the Bitcoin computers use around 140 terawatt hours of electricity over a year. That is about a quarter of Germany’s electricity consumption. According to the Dutch IT expert Alex de Vries, bitcoins are responsible for around 56 million tons of CO2 per year. For comparison: Germany consumed around 644 million tons of CO2 in 2020.
The higher the Bitcoin rate, the higher the power consumption
The high power consumption of bitcoin is mainly due to the basic idea of the crypto currency itself. So that there are no middlemen or banks who can control or control the bitcoins, this crypto currency is not centrally managed by an institution, but decentralized by an infinite number of computers around the world managed – and that requires a lot of electricity.
These computers consistently save all transactions in blocks in the blockchain, the so-called database. The respective computers need electricity for this and are also rewarded with new bitcoins for their work, the “mining” (German: Schürfen). Because in order to mine bitcoins, the computers in the network have to solve a cryptographic puzzle. What the mine is to gold mining, technology is to Bitcoin.
So that too many Bitcoins are not generated – since one wants to avoid an inflationary system – the puzzle becomes all the more complicated the more computers take part. The first computer to solve the puzzle receives a bitcoin. This mechanism is called “proof of work”. Also means: the more a Bitcoin is worth, the more you can earn from mining. Simply put, this means that the higher the Bitcoin rate, the higher the electricity consumption, as more and more people want to generate Bitcoins with increasingly powerful computers.
“With Bitcoin, like gold, you need real work to get it,” says Philipp Sandner, Head of the Frankfurt School Blockchain Center and one of the most renowned Bitcoin experts in Germany. Prospecting is exactly what makes Bitcoin scarce and what gives it value. “If you had a system where you press the button the day after tomorrow and then just have – that is, effortlessly – five thousand bitcoins, the system inflates,” explains the expert. In addition, a decision must also be made as to who “pushes the button”. “Then you would immediately have power in the system again and any hierarchies that Bitcoin does not want.”
The enormous power consumption is a “bulwark against attacks from outside”
According to Sandner, the Bitcoin concept would not work without this high power consumption. The Bitcoin network is constructed in such a way that electricity consumption can no longer be changed, explains the crypto connoisseur. Because the trust in the Bitcoin was mainly due to the high network security through the “proof of work” mechanism, in which the power consumption is a very elementary part of it.
Because this makes it almost impossible to damage Bitcoins, for example to reverse transactions. “To do this, you would need exactly the entire computing power as it exists today and the associated power consumption,” explains Sandner. “It is practically impossible to use everything to attack the Bitcoin network.” And with such an enormous consumption of resources for an attack on Bitcoins, you can “just” reverse the last few minutes of transactions. “The costs of such an attack and the possible added value for the attacker are disproportionate. Thus, the power consumption in the crowd is a bulwark against attacks from outside, ”says Sandner.
That is why Ethereum can become a “green cryptocurrency”
In addition to the “proof of work” mechanism, there is also an alternative: “proof of stake”. Computers don’t have to solve a riddle here, just a proof of share is sufficient. Which computer has a certain amount of assets is given the opportunity to generate the next block in the blockchain network. The well-known cryptocurrency Ethereum is currently on the way to converting from the “proof of work” mechanism to “proof of stake” – primarily for reasons of climate protection.
Much less energy is used here, as the power consumption of the countless computers that work on the puzzle but do not solve it is almost completely eliminated. “Ethereum has the potential to become a green cryptocurrency,” says Sandner. This cryptocurrency could “catch up” with Bitcoin, but he does not believe that Ethereum will overtake Bitcoin. “Because the network security with Ethereum has a high risk precisely because of this change, and with Bitcoin it doesn’t.” Because the countless computers are no longer available, Ethereum is more susceptible to manipulation.
Sandner does not believe that Bitcoin will also change its mechanism, because the concept of Bitcoin lies precisely in the high power consumption and the resulting network security. According to Sandner, the most important question is not whether Bitcoin consumes a lot of electricity, but what kind of electricity is used for it – green or brown electricity. “Today it is already the case that more than 50 percent of the electricity consumed by Bitcoin is green, and the trend is rising,” says the crypto researcher. “The problem is not the Bitcoin itself, but the brown electricity that is used for it.”
Climate critics sit on a “relatively high horse”
Sandner can understand the climate protection allegations on Bitcoin, but finds that the critics are “on a relatively high horse”. “We in Europe and America live in a fairly well-functioning economic and banking system,” says Sandner. But there are hundreds of millions of people who do not have this chance. “You have no way of saving money in the account, because it will be devalued at some point due to local inflation.” In other parts of the world there are no banks or people live too far away from a bank.
“And in a world where some countries are attacking or corrupt, there are good reasons to have assets like bitcoins because they make you a free person.” It is precisely these people that can be helped with crypto currencies: “Because the only thing they do for Bitcoin and Ethereum need is internet and a cell phone. Not more.”