August 2, 2021

Cryptocurrencies, still very energy intensive, in search of a greener future

Officially invested in bitcoin with the treasury of his company Tesla, Elon Musk has cast shame on cryptocurrency last may by announcing that it will no longer accept this means of payment for its cars while its production is “Dependent on carbon-rich fuels […], in particular coal ‘.

Diary of a bitcoin apprentice: “All it took was a tweet from Elon Musk to screw it up”

On May 20, the NGO Greenpeace explained to the Financial Times give up collecting these donations for ecological reasons. Equally concise, Bill Gates did not say anything else to the New York Times last March : “Bitcoin is not terrible for the climate” – which did not prevent Microsoft from simultaneously launching a decentralized digital identity system anchored on the bitcoin blockchain, ION.

  • What is mining?

The initial function of bitcoin is to propagate and secure the transactions of its users, and to anchor them permanently in a public digital ledger, the famous “Blockchain”. A “block chain”, where the blocks would be so many pages of a virtual accounting book, public and identifiable by all, which facilitates between 500 million and 14 billion dollars of transactions per day, according to Blockchain.com.

In the case of the protocol « proof-of-work », or proof of work, implanted by the creator of bitcoin (a developer known by the pseudonym Satoshi Nakomoto), the creation of a new page of this digital ledger is conditioned on the resolution of a cryptographic equation. This work of mathematical resolution is operated by a computer, it is the “minor”. When the latter solves the equation necessary to continue writing the ledger, he is rewarded with 6.25 bitcoins and fees charged on user transactions (themselves conditioned on how quickly the user wants to confirm its payment and network congestion).

  • Why does mining consume energy?

If, at the start, a simple computer was enough to mine bitcoin, its increasing value quickly aroused vocations: however, the difficulty of the calculations required for mining is automatically adjusted according to the number of machines that are candidates for these operations. Thus, the more minors there are, the more complex the calculations. With a price that today exceeds several tens of thousands of euros, it is useless to try to mine bitcoin with a simple desktop computer: the sector is so competitive that chips dedicated to these calculations are marketed: the Asics .

The most recent models, like the Antminer Pro S19 from the Chinese firm Bitmain, are sold between 7,000 and 9,000 euros. Taking into account the power of 32,500 watts indicated by the manufacturer (and moreover, often underestimated), the power consumption of such a device is 28,470 kWh / year if it operates continuously. By way of comparison, the annual consumption of a freezer is estimated between 200 and 500 kWh / year, by the energy supplier Engie.

However, a single copy is hardly useful to achieve its ends: the biggest bitcoin miners have parks of hundreds of machines, carefully maintained and constantly ventilated, to prevent them from overheating: they are mining farms. Some of the largest, like that of Northern Data in Texas, evoke a consumption of 1 GWh / year, or the production of 3.1 million photovoltaic panels, according to an estimate by the Energy.gov site in 2019.

A debauchery of energy justified by the financial windfall represented by bitcoin: “Electricity consumption is correlated with the price of bitcoin”, confirms Marc Bevand, business angel and ex-engineer for Google. A report easily verifiable by observing the logarithmic curves of the price of bitcoin and the total power allocated to its mining.

Bitcoin price logarithmic curves.
Total power allocated to bitcoin mining.
  • What is the annual consumption of bitcoin?

It’s a fact: the bitcoin network consumes electricity, like all cryptocurrencies, each on their own scale. According to the University of Cambridge, which offers an index on its website to assess this impact, the annual consumption of bitcoin is currently estimated at nearly 115 TWh. According to data from the statistical aggregator IndexMundi, co-founded by a former MIT researcher, the United Arab Emirates (113 TWh) or the Netherlands (109 TWh) consumed less in 2020.

“We may prefer to compare this consumption to that of a large city, like Los Angeles”, nuance, from his Californian garden, Marc Bevand, near the World. The latter advised Cambridge, which had noticed its work on the annual consumption of bitcoin, carried out in reaction to another estimate from the Digiconomist site, taken up at the time by many media, such as The Guardian, The Time or Release.

While he acknowledges the pioneering nature of such work, he believes it overestimates the actual consumption of bitcoin from single to double. Skepticism, especially shared with CNBC by other observers, such as Christian Catalini, a professor at MIT, or Jonathan Koomey, a researcher for energy policy at Stanford University.

Note that there are several thousand cryptocurrencies, and hundreds are based on a protocol similar to that of bitcoin. This is, for example, the case of Ethereum, Monero or ZCash, for the best known. Here again, the biggest share of the pie is reserved for the owners of the best electronic chips, generally those of the graphics cards normally devoted to the video game, which explains in part their shortage. According to an estimate by researchers from the University of Munich and MIT published in December 2020, the blockchain Ethereum would consume roughly the equivalent of 16% of bitcoin’s consumption. The Digiconomist site mentions about 40%.

  • Are there less energy-consuming solutions?

Some creators of cryptocurrency have chosen supposedly greener protocols. Ether, the currency of blockchain Ethereum, is still produced by mining, but its developers are working on a transition to the protocol « proof-of-stake », either the “proof of stake”, as opposed to the « proof-of-work » used by bitcoin. A system already inaugurated by cryptocurrencies like Peercoin or Nxt, which have now almost disappeared.

Here, to create additional blocks, a “validator” has to prove possession of a certain amount of currencies and lock them. In exchange for this participation, he receives as a reward an interest proportional to the capital placed under sequestration, like a bank book. For the future version of Ethereum, this fee is estimated at around 6% per year.

In theory, this protocol does not require more than a simple computer, although some implementations penalize a validator that would stay offline for too long. While it looks ideal on paper, critics believe that no implementation has been proven to work when it comes to security. For Pierre Rochard, economist of the American cryptocurrency exchange platform Kraken, this protocol, which he describes as Ploutocracy, does not even present any improvement over the traditional financial system, since it favors larger portfolios. For example, it will be necessary to hold 32 ethers (or nearly 65,000 euros as of June 11, 2021) to become a validator in the next iteration of Ethereum. “Proof of stake consumes much less energy than proof of work, but the flip side is that it generates much more centralization”, insists the economist to the World.

Others, like Tezos or EOS, have turned to “proof of stake delegation” where users delegate their currencies to validators, sorted according to different criteria, and sometimes in such an opaque way that these blockchains are suspected of being governed by “cartels”: validators who conspire and undermine the principle of decentralization. A point raised in particular by the research team of the cryptocurrency exchange platform Binance.

In fact, until today, no alternative protocol has proven to be able to fulfill the same promises of a decentralized, public and secure cryptocurrency with a negligible carbon footprint. The green conversion of Ethereum has also been in the works for more than four years due to technical difficulties. “If we ever discover a proof of stake mechanism without negative compromise, bitcoin users will adopt it”, assures Pierre Rochard, stressing that the “Bitcoin source code is open to all”.

  • Is carbon neutrality possible?

Faced with the legitimate questions implied by the climate emergency, the players in this ecosystem are responding in unison. For Sébastien Gouspillou, co-founder of the company dedicated to BigBlock DataCenter mining, this technology would even encourage people to abandon fossil fuels: “In Kazakhstan, I represent a boon for the operator of the hydropower plant. It produces surplus, I consume it. For him, its cost is zero ”, he relates to World. Like him, many miners aspire to move away from Chinese coal and achieve carbon neutrality: according to a 2019 Coinshares study, this would concern 70% of mined bitcoins, an estimate nevertheless lowered to 40% by Cambridge in 2020 .

The company Square, founded by the creator of Twitter Jack Dorsey, estimates in an article published on April 21 that this cryptocurrency could even become a source of financing for the infrastructures of renewable energies, in particular solar energy. “We are in great demand by electricity producers, wind turbine builders, who realize that we are a godsend for their profitability”, abounds Sébastien Gouspillou.

A week after criticizing bitcoin for its carbon footprint, Elon Musk congratulated himself on having initiated a coalition of North American miners to make this energy transition. More surprisingly, the authoritarian president of El Salvador has just announced the construction of a mining plant powered by water vapor from the country’s volcanoes.

“I asked the chairman of the state-owned geothermal energy company to come up with a plan to create an energy-powered, cheap, 100% clean, 100% renewable and emission-free bitcoin mining center of our volcanoes. “

Open to the energy debate, Frenchman Marc Bevand emphasizes that what bitcoin brings is “A financial system, available twenty-four hours a day, seven days a week, unlike banks”. And to dare one last comparison: “115 TWh per year is only the annual production of the largest hydroelectric power station in the world, the Three Gorges Dam, in China.”

Last may, the firm Galaxy Digital assessed the energy consumption inherent in the banking system and the gold mining industry, two ecosystems that bitcoin aspires to compete with, as being twice that of the digital currency.