In my December column, I wrote about the exponential growth in trading cryptocurrencies like Bitcoin. Not so much regarding the value per unit. But instead concentrating upon the enormous amount of electricity that each purchase or sale transaction requires.
I have been challenged that my concern about this profligacy – which has subsequently been increasingly repeated elsewhere – may be over-stated. Not so.
Let us try some simple comparisons. You wish to buy foreign currency. You visit a money exchange outlet. A calculation is made regarding exchange rates. You hand over paper currency. You receive the foreign notes. That electronic calculation requires at most the equivalent of just under 1-watt of electricity.
If you do the same transaction using plastic currency, the electricity consumption increases. A credit card transaction uses about 7 watt-hours per transaction. So, about eight times more energy than the cash transaction. Now, get ready for it.
A single Bitcoin transaction is estimated to use 215,000 watt-hours per transaction. That is 215kWh, so about the equivalent of 225,000 cash transactions. Easy to see why the annual Bitcoin-related electricity consumption is already surpassing that of a developed country like Switzerland or the Netherlands, and, by some estimates, is on track to exceed that of the entire US by mid 2019.
If we take a median figure for external costs from electricity consumption of 6 pence per kWh, we are assuming a freerider ecological impact from Bitcoin transactions already costing well over £5bn each year. This is a conservative number, with the true number potentially much higher. And because Bitcoin transactions only take place online, under the Paris Agreement not attributable to any specific country.
So, what on earth are we doing? We are destroying the environment in order to subsidise an untraceable currency that enables and encourages tax evasion and other illicit behaviours.