Bitcoin has made plenty of headlines this year for its volatile trading price, but fewer people are talking about the energy crisis that could be about to hit the cryptocurrency’s development.
Bitcoin is an entirely decentralized, digital currency that relies on blockchain technology. The system works without a central bank or single administrator – instead, transactions take place between users directly and are recorded on a digital ledger, aka blockchain. In order for the whole system to work, bitcoins need to be “mined” – work done by computers plugged into the global Bitcoin network that validate transactions by solving complex mathematical problems.
The reward for miners is a small but lucrative amount of Bitcoin, but the cost on the environment is proving to be great. As more people and groups begin mining for the cryptocurrency, more electricity is used to power their computers.
Iceland is facing particular Bitcoin difficulties. The European country has become a hub for data centers that specialize in mining the digital currency due to the low cost of electricity. The amount of electricity used by the Bitcoin data centers is likely to exceed that of all Iceland's homes, according to Johann Snorri Sigurbergsson, a spokesman for Icelandic energy firm HS Orka. And some Icelandic energy companies worry they won’t be able to keep up with the rising demand.
The energy consumption of Bitcoin mining is also taking its toll on the environment. The global power consumed is set to overtake that of New Zealand and Hungary, according to Digiconomist – an amount CO2 equal to roughly one million transatlantic flights.
The solution could be green alternatives to Bitcoin mining. Innovators from Massachusetts Institute of Technology and Cornell University, as well as researchers from tech giants IBM and Intel, less energy consuming methods to process blockchain transactions. And their efforts will not only allow Bitcoin and blockchain technology to scale while reducing CO2 emissions – they could also bring huge wealth to whoever creates a winning blockchain solution.
"The people who come out with the winning algorithms are going to capture a substantial portion of the many billions of dollars that go into back-end systems," said Emin Gun Sirer, co-director of the Cornell’s Initiative for Cryptocurrencies and Smart Contracts, according to CNBC. "We are in a phase where a thousand blockchains will bloom. And the markets will decide on a few winners."