“Four Questions About Bitcoin” Part Two: How Energy-Consuming Is Mining?

Editor's note: In May, the "currency circle" attracted countless attention. On May 18, the China Internet Finance Association and other three associations issued an announcement stating that the exchange of legal currency and virtual currency and the exchange of virtual currency between virtual currencies violated relevant laws and regulations and was suspected of being a crime. On May 21, the Financial Committee of the State Council made a heavy statement, once again clarifying the strict regulatory attitude of the financial regulatory authorities towards Bitcoin: "Crack down on Bitcoin mining and trading, and resolutely prevent individual risks from being transmitted to the social field."
Where does the cryptocurrency craze come from? What is the chaos in the cryptocurrency circle? How does mining consume energy? How can blockchain develop healthily? With these questions, the "Strong Observation" column of People's Daily Online has launched a series of reports on "Four Questions About Bitcoin". Please pay attention.

"Without any policy intervention, China's Bitcoin blockchain's annual energy consumption will peak at 296.59 terawatt-hours in 2024, generating 130.5 million metric tons of carbon emissions." On April 6, the internationally renowned journal Nature Communications published a research paper titled Policy assessments for the carbon emission flows and sustainability of Bitcoin blockchain operation in China.

Research paper titled "Bitcoin's operational sustainability and carbon emission policy assessment". Source: Nature Communications

Wang Shouyang, director of the Center for Forecasting Science Research at the Chinese Academy of Sciences and one of the corresponding authors of this paper, said in an interview with a reporter from the "Strong Observation" column of People's Daily Online that the research team has developed a Bitcoin blockchain carbon emission model - BBCE (including Bitcoin blockchain mining and transaction subsystems, energy consumption subsystems and carbon emission subsystems). Through research, it is found that Bitcoin not only consumes a lot of electricity, but also exacerbates carbon dioxide emissions. From an environmental protection perspective, it is necessary to crack down on wanton "mining".

Bitcoin blockchain carbon emission model - BBCE. Source: Nature Communications

How are coins mined?

Before answering this question, we need to start with how the "coin" is mined. "Bitcoin is a virtual cryptocurrency that is generated through a large number of calculations using a specific algorithm. This calculation process is also called 'mining'," Wang Shouyang told reporters.

Wang Shouyang said that in recent years, Bitcoin has attracted more and more "miners" to "mine" due to its high profits. "Mining" requires the use of computers as "mining machines" to execute specific algorithms for calculations and compete for the right to broadcast blocks. Miners who obtain the right to broadcast can receive Bitcoin as a reward. In the process of calculation, the entire Bitcoin network consumes a lot of electricity and computing power.

"If the same energy and computing power are used to build urban edge data centers and provide basic services for industries such as smart cities and smart transportation, it should be able to generate greater economic and social value," said Wang Shouyang.

Professor Zhang Jun from the School of Electrical Engineering and Automation at Wuhan University pointed out that the Bitcoin algorithm is to solve the hash function, that is, you give a string of code, and it will generate another string of random code. All computers on the Internet can search for this code. Whoever finds this code will generate a block and then get a Bitcoin. This process is what people often call "mining."

"The Bitcoin network generates a math problem every 10 minutes, which is given to the computers involved in processing blocks (i.e., 'mining machines') to solve. The 'mining machine' that solves the answer first will receive a certain amount of Bitcoin as a reward." Zhang Jun gave an example, saying that if one computer and 100 computers "mine", the former calculates one random code at a time, while the latter calculates 100 random codes at a time, then the more parallel operations, the more Bitcoins can be mined. For the sake of profit, speculators will buy a large number of mining machines for large-scale "mining", which will naturally result in a huge waste of energy.

In fact, the high energy consumption of Bitcoin has attracted the attention of countries around the world, not just China. The European Central Bank said that crypto assets have a "worryingly high carbon footprint." Bill Gates previously said during a guest appearance on the voice social platform Clubhouse that Bitcoin consumes more electricity in each transaction than any other payment method known to mankind.

“Mining” affects the realization of “carbon neutrality”

At the same time, the reporter also noticed that although it is difficult to make a quantitative conclusion on the electricity consumption or energy consumption of "mining" a virtual currency, some research institutions have tried to present its energy consumption level in total.

According to data from the International Energy Agency (IEA), Bitcoin mining consumed 50 to 70 megawatt hours in 2019, roughly equivalent to the consumption of a country the size of Switzerland. The real-time data from the Cambridge Bitcoin Electricity Consumption Index is even more worrying. As of May 17, Beijing time, Bitcoin's total energy consumption was between 43.89 and 482.43 terawatt hours (TWh), which is about 140.25 TWh. This figure exceeds Sweden's electricity consumption for the whole year of 2019 (131.8 TWh).

What is more noteworthy is that some studies have also shown that "mining" not only generates a lot of energy consumption, but may also offset our efforts in achieving "carbon peak and carbon neutrality".

Wang Shouyang's research team used the Bitcoin blockchain carbon emission model to track the carbon emission flow of China's Bitcoin blockchain operations. Based on the current trend of Bitcoin "mining", they predict that the energy consumption of Bitcoin blockchain operations will reach a peak of about 297 trillion watt-hours in 2024, and will generate about 130.5 million metric tons of carbon emissions. This value exceeds the total annual greenhouse gas emissions of countries such as the Czech Republic and Qatar.

"Bitcoin is a 'high-carbon' industry. This is obviously incompatible with my country's goal of achieving carbon peak by 2030 and carbon neutrality by 2060." Wang Shouyang said that last year, "mining" in China produced 69 million tons of carbon dioxide, accounting for 1% of global carbon dioxide emissions.

China is taking action to combat mining

Obviously, some places have noticed the serious damage that "mining" has brought to the local environment and ecology, and have begun to take multiple measures to comprehensively clean up and shut down virtual "mining" projects.

After the Inner Mongolia Autonomous Region made it clear on March 10 this year that it would “fully clean up and shut down virtual currency mining projects, and withdraw all of them by the end of April 2021”, on May 18, the Office of the Emergency Command Center for Energy Consumption Dual Control of the Autonomous Region issued the “Announcement on the Establishment of a Reporting Platform for Virtual Currency “Mining” Enterprises”, which fully accepted letters and reports on problems of virtual currency “mining” enterprises. On May 25, the Development and Reform Commission of the Autonomous Region drafted the “Eight Measures of the Development and Reform Commission of the Inner Mongolia Autonomous Region on Resolutely Cracking Down on and Punishing Virtual Currency “Mining” Behaviors (Draft for Comments)”, including the inclusion of relevant enterprises and relevant personnel involved in virtual currency “mining” into the blacklist of dishonest persons in accordance with relevant regulations.

In addition, in response to the recent rebound in virtual currency trading speculation, the China Internet Finance Association and other relevant associations jointly issued an announcement that conducting legal currency and virtual currency exchange and virtual currency exchange business violates relevant laws and regulations and is suspected of crime. On May 21, the 51st meeting of the State Council Financial Committee clearly proposed to crack down on Bitcoin "mining" and trading.

Zhao Lei, a researcher at the Institute of Law of the Chinese Academy of Social Sciences, suggested that, on the one hand, local governments can use measures such as controlling electricity consumption, raising taxes, and restricting land use to encourage existing "mining" companies to exit as soon as possible; on the other hand, they should intensify the crackdown on illegal virtual currency transactions, increase the illegal costs of institutions and platforms that illegally participate in virtual currency transactions, speculation, or provide support services, and increase the deterrent effect of supervision. At the same time, we should continue to promote risk warnings and risk prevention publicity for virtual currency speculation. (People's Daily Online)