Politicians, environmentalists, economists, and energy executives are all puzzled over a compounding conundrum: what’s to be done about Bitcoin? Just this week, El Salvador became the first country in the world to validate Bitcoin as a legal tender, to initially disastrous results. The once-fringe cryptocurrency and its acolytes have the potential to massively disrupt commerce as we know it -- and they could very well disrupt the global campaign against catastrophic climate change while they’re at it.
While much of the public scrutiny of Bitcoin and other cryptocurrencies and cryptoassets such as Ethereum, Cardano and Dogecoin has to do with their enormous market caps (over $856 billion in the case of Bitcoin), decentralized power and distaste for regulation, and their extreme price volatility (not to mention laughable sensitivity to Elon Musk’s twitter feed), Bitcoin is increasingly coming under fire for its massive and growing energy consumption, which is larger than many entire countries. Right now, Bitcoin's annual energy consumption is higher than that of the Philippines, a nation of 108 million people.
This hasn’t always been the case. Bitcoin works using a public ledger powered by the blockchain. In order for Bitcoin transactions to remain anonymous, secure, and authenticatable to prevent fraud and hacking, each entry to the ledger requires complex computational problem-solving known as “proof of work.” The person who solves this puzzle first, known as a Bitcoin “miner” is rewarded with freshly minted Bitcoin, which is currently worth a whole lot of USD equivalent.
Because of the lucrative nature of Bitcoin mining, more and more people are joining the quest to solve proof-of-work puzzles and add to the blockchain. These puzzles are solved by guesswork -- plugging in random solutions and seeing if it fits, meaning that high power super-computers which can make more calculations in a shorter time have an advantage. But instead of allowing these puzzles to be solved much faster now that so many more players have entered the game, Bitcoin is designed so that solving for proof of work gets harder and harder, so that it always takes about 10 minutes regardless of how much computing power you have. This means that in order to mine for Bitcoin, you constantly have to use more computing power, which sucks up more and more electricity. That’s why, in 2009, you could mine Bitcoin using just a few seconds’ worth of household electricity, whereas in 2021 you have to use about 9 years’ worth.
As Bitcoin’s energy demand -- and associated carbon footprint -- have rapidly expanded, so has public scrutiny of this model’s outsized environmental impact. Bill Gates has come out as a vocal Bitcoin skeptic, and even Elon Musk, once the cryptocurrency’s most influential fan, has pledged to stop supporting Bitcoin until it cleans up its carbon footprint. In response, some Bitcoin miners have turned to alternative ways to power their operations, from nuclear energy to setting up shop in oilfields to take advantage of natural gas that would otherwise be vented into the atmosphere.
The latter venture was a major topic of discussion in a meeting of the minds that took place toward the end of August in a Houston warehouse. 200 oil and gas execs and Bitcoin miners “mingled, drank beer, and talked shop,” according to reporting from CNBC. one of the primary topics of discussion was the potential for using ‘stranded’ natural gas to power Bitcoin as a way to make oil and gas execs even richer while offsetting greenhouse gas emissions. Another hot topic was educating and influencing politicians and regulators on the particularities and potential of Bitcoin and other cryptocurrencies.
As Bitcoin mining operations continue to scale up and adoption of Bitcoin continues to balloon, a partnership between oil and gas and cryptocurrencies could provide major benefits to both. Oil and gas is hungry for new market sectors as the world moves into a global clean energy transition and threatens to leave fossil fuels behind. Bitcoin is hungry for energy, period. Together, these influential groups can potentially unite to “vote out the haters” and bring cryptocurrency out of the shadows and into the mainstream.
By Haley Zaremba for Oilprice.com
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