Not a day goes by without Bitcoin and its fellow cryptocurrencies appearing in the headlines. Despite massive daily price moves, Bitcoin is still up 400% over the past year. Few understand how it actually works, but its promise as ‘the currency of the future’ and ‘store of value’ fuels the speculative mania. It has been sharply criticized as a black market means of exchange, to avoid taxes and evade money laundering laws. That said, you can now use a Bitcoin debit card, though Tesla just revoked its practice of accepting Bitcoin as payment for its cars.
Bitcoin is held and traded by Bitcoin owners through a decentralized and publicly verified ledger system called a blockchain. While Bitcoin’s immutable and decentralized nature is appealing, it has no fundamentals or inherent return. Bitcoin has first mover advantage, but there are a hundred other cryptocurrencies just like it. On the other hand, the blockchain technology that underlies Bitcoin, and some other crypto coins, has enormous potential to automate and encrypt data and make transactions of all types more transparent, efficient, and enforceable. Entrepreneurs and other cryptocurrencies are racing to develop blockchain technologies for countless applications in the commercial world.
The Achilles heel for Bitcoin is its carbon footprint. It takes a massive amount of electricity to ‘mine’ the tokens on computer servers – estimated at 150 TWh per year – more electricity than the Netherlands uses in a year. When the price of Bitcoin rises, more miners join the Bitcoin network causing an exponential increase in power consumption.
A study by the University of Cambridge estimates roughly 61% of Bitcoin is powered by non-renewable sources. Writing in the journal Nature, scientists warned in 2018 that Bitcoin alone could increase global temperatures by 2 degrees Celsius by 2048!
Bitcoin is unlikely to change its core protocol to decrease its energy inefficiency. Ninety-five percent of the notoriously fractious miners would have to agree, and thereby cut their profits. Moreover, China just evicted crypto miners from its energy rich provinces as a massive heat wave has led to brown outs from air-conditioning power demand. Miners are supposedly migrating to Texas even as the Lone Star State faces pressure to reduce power consumption amid our own early heat wave across the southern and western states. There isn’t enough electrical power to go around – renewable or not – so using it to power a highly speculative and inefficient electronic currency just doesn’t make sense.
