Bitcoin inventor was aware of currency’s power demands

• Bitcoin designed to replace traditional finance and gold mining.
• Court documents say Nakamoto aware of energy consumption issue.
• Time to divest for the benefit of future generations.

A court case currently underway in London, UK, has made several emails more widely known, that were purportedly written by the inventor of Bitcoin, Satoshi Nakamoto. In them, they considered the energy use of the Bitcoin network.

The legal case centers on Craig Wright’s claims that he is Nakamoto. The real identity of the inventor of the cryptocurrency is not known for certain, and Wright’s claims, if validated, will mean that he has a significant say in the future development of Bitcoin projects.

Published in Wired last week, Satoshi’s emails contained several comments about the network’s energy consumption.

“If [Bitcoin] did grow to consume significant energy, I think it would still be less wasteful than the labor and resources of intensive conventional banking activity it would replace,” Satoshi said in a message to Martii Malmi, one of the early developers of the technology.

Bitcoin’s energy use

The actual levels of power consumption by Bitcoin are uncertain: miners operate in a highly competitive market and so are not inclined to be particularly transparent as to the details of their operations.

Energy consumption comes largely from two activities in the Bitcoin network that consume electricity – throwing massive computational power at the process to ‘solve for coins,’ and the processing required to handle individual transactions when cryptocurrency changes hands.

A well-accepted metric by the Bitcoin industry on energy consumption is the Cambridge Bitcoin Electricity Consumption Index (CBECI), published by the University of Cambridge’s Judge Business School. The School revised its model in August of last year to take account of the changes in the underpinning technologies and hardware at the heart of the Bitcoin network since 2019. The update is, in part, a “response to evidence indicating a periodic overestimation of electricity consumption.”

The figure representing the total energy consumption by the Bitcoin network was revised down by 9.8TWh (terawatt hours) for 2022 to 95.5TWh. That places the global system’s consumption alongside nation-states like Belgium and the Netherlands. The paper publishing the Index’s revision details also notes that, overall, the efficiency of Bitcoin mining has increased as hardware advances and refines (albeit now at a slower rate than in the currency’s hayday).

Bitcoin’s environmental impact

The environmental impact of Bitcoin operations is even more complex to estimate than their total energy consumption. Renewable energy is said to power a sizeable proportion of mining operations, with estimates varying [paywall] from around 40% to 75% of the total power consumption. Bitcoin mining operations tend to congregate where energy is plentiful from renewable sources, such as hydroelectric power. In these locations, like certain areas of the US, China, and Scandinavia, such hydroelectric power tends to be cheaper than fossil-derived alternatives.

But environmental damage is said also to come from e-waste comprising of discarded mining rigs, which are superseded by faster, more efficient hardware in generational upgrades. Processing a single Bitcoin transaction is said to produce over 700 pounds of carbon, plus there are additional emissions from data center cooling systems and water usage, to name just a couple of other factors.

The two human activities that Bitcoin’s creator thought might be replaced by Bitcoin, conventional banking and gold mining, still create significantly more negative environmental effects than the entire Bitcoin apparatus, with conventional finance systems alone estimated to produce double the carbon emissions of Bitcoin.

But the slow rate at which Bitcoin transactions can be achieved effectively makes the currency unviable as an everyday means of exchange (there are other networks, such as Ethereum, which are capable of the type of scale required, and which do not use the power-intensive proof-of-work model to mine new coins).

The fact that Bitcoin exists in addition to the activities it was supposed to replace raises the question of its viability. Clearly, the technology cannot be uninvented, and attempts by governments to limit its use have been mostly unsuccessful, with most adopting the accept-and-tax approach to cyrptocurrencies. No governmental control over the Bitcoin was, it has to be said, part of its design remit.

But like renewable energy, which exists as a supplement to fossil-derived power, not as a replacement, Bitcoin and its ecological effects exist in addition to all the consequences of fiat finance.

Grist to the extinction mill

The Bitcoin network’s activities are said to consume the equivalent of around 2%-3% of the US’s annual power usage. Lowering power consumption worldwide, year-on-year, is the most important way to downgrade the status of environmental deterioration from an extinction event to merely a chance of survival for the generation that will live at the end of this century. (NB experiencing survival will still be deeply unpleasant.)

Given that Bitcoin’s purpose at present is just a different flavor of market speculation, and it will not replace conventional finance or gold mining, now might be the time to consider its net utility.