Bitcoin surge will exacerbate chip shortages and even threaten international security

On the morning of March 12, Beijing time, Bitcoin rose in the short term, breaking through $58,000 per coin, the first time since February 22, and just one step away from its all-time high. As Bitcoin becomes more and more popular with investors, the cryptocurrency market continues to be busy. In a commentary published on March 11 in Joule, a journal published by Cell Press, financial economist Alex de Vries quantified how the surge in Bitcoin prices has exacerbated energy consumption and global chip shortages, and even threatened international security.
Since falling to a low point of around $43,000 on March 1, Bitcoin has been fluctuating and rising. Based on the current price of $58,000, the rebound has exceeded 30% in more than 10 days. According to data from Bitcoin Home, nearly 159 million yuan of funds were liquidated in the last hour, and more than 4.3 billion yuan was liquidated in the past 24 hours, with more than 91,000 people liquidated.
In theory, any computer with access to the internet and electricity can "mine" Bitcoin, a process that harvests the cryptocurrency by solving a complex mathematical equation. It is estimated that as of January 11, 2021, all "miners" are solving this equation more than 150 million to the fifth power, or 150 followed by 18 zeros, per second. Computing power and electricity costs have become the key to Bitcoin profitability.
“If you’re a bitcoin user doing a transaction, you’re not the one paying the electricity bill directly. It’s a hidden cost from the user’s perspective,” said de Vries, founder of Digiconomist, a blog that focuses on new digital trends such as cryptocurrencies.
The hidden costs mainly come from energy consumption. Based on the price of Bitcoin in January, de Vries estimated that the entire Bitcoin network may consume up to 184 terawatt hours of energy per year, close to the total energy consumed by all data centers in the world. The energy consumed also produces 90.2 million tons of carbon dioxide, which is equivalent to the carbon footprint of London, UK.
“That’s a concerning number,” de Vries said. “These data centers serve most of civilization worldwide, but Bitcoin serves almost no one and still consumes about the same amount of electricity.”
The market price of Bitcoin incentivizes "miners" to invest in hardware and electricity. As its price rises, more people buy and run the hardware needed to mine coins, resulting in increased energy consumption. Vice versa, when the price falls, these investments and consumption will also fall. But currently, due to high demand, hardware equipment manufacturers report that their equipment has been sold out and some customers may not receive their orders until later. This shows that energy consumption is "locked in" at the time of purchase.
“The price of Bitcoin could drop by 25% to 30%, but the final energy consumption may not change because of the energy lock-in effect,” de Vries said. “The main point of my article is to explain what a surge in the price of Bitcoin would mean, not only for the environment, but also for other externalities.”
The short shelf life of bitcoin mining machines could mean a lot of electronic waste will be generated in the coming years. Moreover, these devices compete for the same chips as personal electronics and electric vehicles, which play an important role in combating climate change, which also exacerbates the current global chip shortage. However, countries with low electricity prices, such as Iran, can introduce new sources of income through bitcoin mining.
"You can do a lot of things. Mining facilities are often centralized and easy targets," de Vries said. Policymakers could intervene by raising electricity prices or confiscating equipment. Taxing bitcoin mining equipment manufacturers or restricting their use of chips are also strategies to consider. Although bitcoin is a decentralized currency, government agencies can regulate trading platforms to prevent transactions from affecting its value.
De Vries pointed out: "We currently have limited information." Moreover, he warned about the prediction of Bitcoin's future trend. "Who knows what will happen in 2024? Maybe everyone is using Bitcoin, maybe no one, maybe everyone has forgotten it." He said. (Techweb)