© Provided by The Independent Bitcoin is booming again. It has been three years since the cryptocurrency was at a record high, but in just six months, the price of Bitcoin has gone up from around £7,000 to more than £43,000 per coin. While some may be enjoying a rapid increase in their net worth as a result, there's also a hefty global cost to these gains.
Bitcoin may just be the least efficient currency system ever created, with its insatiable demand for computer hardware and energy, which is pressuring supply chains and even our ability to achieve the goals in the Paris Agreement. The higher the Bitcoin price, the higher the cost to the environment, and the more the lives will be impacted. Drastic action is required to prevent further harm.
Taking a step back, it is important to realise how Bitcoin actually leads to dire environmental consequences. It harms the environment due to a process known as mining, which is now highly profitable and involves a serious amount of tech equipment. No one owns Bitcoin, it was created as a decentralised system, so anyone could 'be the bank' for a period of time. As it's grown, the concept has become more complicated. To avoid corruption or negligence, those who want to update the ledger, or - as it's referred to in Bitcoin world - add new blocks to Bitcoin's underlying blockchain, have to guess a random number. Right now it's possible to earn 6.25 Bitcoins (valued at £230,000) for creating such a block (which happens every 10 minutes on average). However, obtaining these rewards was made purposely difficult by the protocol - the rules outlined by Bitcoin's creator.
The more blocks the more complicated the number, meaning people have created supercomputers to do the trial-and-error work for them. The network currently generates more than 150 quintillion attempts at the number every second of the day. The bigger your share of the network's total computational power, the more you can earn from mining. This, in turn, provides a strong incentive for miners to keep adding more highly specialised, energy-hungry computer hardware to Bitcoin's network.
The combined energy requirement of all machines in Bitcoin's network is already estimated to match the electrical energy consumption of a country like Finland, and may soon be on par with the electrical energy requirement of all data centres globally (corresponding to 1 per cent of global electricity consumption). Historically, a big chunk of this energy has been obtained from regions like Xinjiang, China, as miners also search out the cheapest sources of energy. With Xinjiang's abundance of coal fuelling Bitcoin, the network's carbon footprint will soon match London's.
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Currently, a global shortage of computer chips is the only thing preventing this from happening already. Semiconductor manufacturers Samsung and Taiwan Semiconductor Manufacturing Company (TSMC) are the only companies capable of mass-producing the specific chips Bitcoin mining device manufacturers like Bitmain need, and these companies are already facing significant challenges in meeting chip demand, in addition to the pressure from Bitcoin miners.
The auto industry has been hit hard by the shortage too, as millions of cars simply cannot be finished without the required computer chips. But the fallout of the shortage isn't limited to the auto industry, as also personal electronic devices like phones and gaming consoles, also suffering in this chip crunch. New electronic devices are becoming unobtainable or severely overpriced.
This is all in addition to Bitcoin's already eye-watering demand for energy and goes to show how the negative externalities of Bitcoin are rapidly spiralling out of control as the price climbs higher. The Bitcoin community is theoretically capable of making the Bitcoin software green by replacing the mining part, but so far no one has shown any intention of fixing the issue.
It's time governments around the world start addressing the problem. China's northern province of Inner Mongolia is the first area planning to outright ban Bitcoin mining in order to meet its energy-saving targets, and other governments should follow this example in putting a halt to Bitcoin's insane energy-hunger.