Cryptocurrencies are hot. In our last post we talked about Bitcoin: it has the potential to change our world in many useful ways, but at a price. To keep its blockchain secure, Bitcoin requires as much energy to run as entire countries. In a world where climate change is a growing concern, people may start to ask questions.
In fact, there are a number of alternative technologies in development. An interesting example is IOTA, which is envisioned as a distributed ledger for the Internet of Things. It’s not based on a blockchain, but instead uses a Directed Acyclic Graph called the Tangle. So, what exacly is the Tangle, how will it allow payments between smart devices, and how is it different from a blockchain?
As a reader of this blog, you’re probably familiar with Bitcoin. You may have even invested in some, in hopes of becoming the next Bitcoin billionaire. In fact Bitcoin and the underlying Blockchain technology are probably the most exciting new application of networked technology that we’ve seen in quite a while. We’ve talked before about how Blockchain is not just a new way to make payments, but can be used to record all kinds of transactions. It could potentially improve many parts of life, from preventing slave labour to having sex…
These good things, however, come at a price. The security of Bitcoin depends on so-called miners. These miners are a decentralised network of computer systems that create new Bitcoin while verifying previous transactions. Their work consists of performing some quite intensive calculations and to be rewarded for that (they can receive an amount of Bitcoin), they need to be the first among the miners to finish these calculations, and also correctly find a random number.
It’s a bit like trying to win the lottery: just like you could improve your chances of hitting the jackpot by buying more tickets, in this case you increase your chances of being rewarded with precious Bitcoin by purchasing more and more processing power. This has led to people creating ‘mining farms’, consisting of large numbers of machines with specialised hardware, trying to crunch numbers faster and faster.
As you can imagine, these mining farms consume huge amounts of power. How much exactly is hard to say, but studies by the Cambridge centre for alternative finance estimate it may take as much as 130 terawatt hours a year to keep Bitcoin running, which is comparable to the yearly electricity consumption of a country like Argentina or the Netherlands! To make matters worse, many large mining farms are placed in countries where energy is cheapest, and those are not necessary places that invest much in green energy or have strong environmental regulations.
At a time when global warming and climate change are major concerns, this vast energy consumption may turn out to be Bitcoin’s undoing. Time will tell if Bitcoin can overcome these environmental concerns, or if attention will slowly shift to alternative technologies.
It seems that everybody is buying Bitcoins and planning to make – or lose – lots of money. Will we all be paying with Bitcoins (or other cryptocurrencies) in 5 years time? It’s hard to tell… However, the technology underlying Bitcoin holds the promise to change our world even more: we’re talking about the Blockchain.