We started the week knowing that Inner Mongolia banned all cryptocurrency miners and farms in the region due to the great impact that this activity has on the electricity grid, and this may be the tip of the iceberg to enter a second burst of the bubble of banning mining of Cryptocurriencies in different countries too.
In recent days, the Center for Alternative Finance (CCAF) at the University of Cambridge issued an advisory on the burgeoning cryptocurrency business, stating that the total energy consumption of Bitcoin is between 40 and 445 terawatt hours (TWh) annualized, with a central estimate of about 130 terawatt hours.
To give us an idea, we have an average of 130 TWh of electricity consumption linked to cryptocurrency. For reference, the whole of the Netherlands or Argentina consumes approximately the same amount of energy annually. If we want another comparison, all the data centers in the world consume 199 TWh, and this is an additional problem when most of the energy consumed comes from polluting sources.
The CCAF team has surveyed the people who run the cryptocurrency mining network around the world about their energy use and found that roughly two-thirds of it comes from fossil fuels.
The design of the blockchain technology on which the cryptocurrency is based includes a huge computing power and, therefore, a large power consumption of 24 hours a day, 7 days a week around the world.
Furthermore, the value of Bitcoin also does not stop growing, so more and more powerful systems are introduced, which consume more energy. The more Bitcoins are extracted, this puzzle of random numbers becomes more difficult, so more time on this calculation is spent to achieve the same purpose, so we enter a vicious circle where energy consumption does not stop at any point of time.
It is estimated that currently 160 quintillion calculations are performed per second, that is, 160,000,000,000,000,000. Alex de Vries, founder of the Digiconomist website and Bitcoin expert, indicates that it would be necessary to double global energy production to support what would happen next.
According to Ken Rogoff, professor of economics at Harvard University in Cambridge, Massachusetts and former chief economist of the International Monetary Fund (IMF), the two essential characteristics of a successful currency are that it is an efficient form of exchange and a deposit of stable value, and says that Bitcoin is neither of both, that is why he anticipates that the bubble will burst, but does not know when it will.
“The fact is, it’s not really used much in the legal economy now. Yes, one rich person sells it to another, but that’s not a final use. And without that it really doesn’t have a long-term future.”
What he is saying is that Bitcoin exists almost exclusively as a vehicle for speculation.
So, I want to know: is the bubble about to burst?
“That’s my guess,” says Prof Rogoff and pauses.
“But I really couldn’t tell you when.”