The digital currency Bitcoin consumes more electricity per year than New Zealand. Yes, the entire country. That's the current estimate from the site Digiconomist, which puts the Bitcoin network's annual power-guzzling at a staggering 42 terrawatt hours (TWh).
Here's another way of looking at it. Each Bitcoin transaction consumes 346 kilowatt hours of electricity, which, in my suburb of north-east Melbourne, is enough to power 25 typical four-person households for a whole day.
Crazy, isn't it? These figures, updated in real time, were calculated by Alex de Vries, a blockchain analyst at big accountancy firm PricewaterhouseCoopers. He takes an economic approach, assuming that Bitcoin miners operate at their marginal costs, mostly electricity to run powerful computer processors. As the price of Bitcoin has soared, so has the amount of electricity that data centres are willing to burn in pursuit of this virtual bounty.
The result is a transaction system many thousands of times more energy-intensive than a conventional platform like Visa. Other calculation methods have come up with lower estimates, but they're still several orders of magnitude higher than existing platforms.
Bitcoin boosters dispute these comparisons, and I'll get to their counterarguments in a second. But first, here's a rather simplified overview of Bitcoin and how it is 'mined'. As you'll soon see, high energy costs were a deliberate design choice of the currency.
First proposed in a paper by an anonymous author in November 2008, Bitcoin is a decentralised digital currency. It aims to remove the middleman in financial transactions. Individuals can send coins directly to each other, even across international borders, without going through a third-party intermediary like a bank.
The underlying technology is a distributed ledger. All the computer processors in the network have a copy, allowing them to verify it against each other. (To get the gist, imagine a Google Doc spreadsheet shared for group-editing with millions of other users.) Computer processors on the network verify the transactions by applying a mathematical formula to create a 'hash', which is a unique string of letters and numbers.
"We should be building renewables to shut down coal, not to keep up with additional demand created by Bitcoin."
When a computer successfully generates a hash, it receives Bitcoins as a reward. This is referred to as 'mining' because, like mining for gold, you're expending resources to recover something unique from a finite supply (the protocol dictates only 21 million Bitcoins will ever be created). In this case,