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The Financial Express

Bitcoin's murky image poses policy dilemma


Bitcoin's murky image poses policy dilemma

Among many benefits, digitisation thrives from the green image. One of the emerging digital technologies has been blockchain. However, unlike other digital technologies, it is dirty. This distributed ledger technology (DLT) has the potential to eliminate huge amount of record-keeping tasks. It is believed that blockchain technology will power innovations in causing a disruptive effect in many areas, including currency and financial transactions. One of the well-known innovations of blockchain has been Bitcoin, the cryptocurrency. In Bitcoin's case, blockchain is used in a decentralised way as opposed to a central agency so that all users collectively retain control. It is immutable, which means that the data entered is irreversible, resulting in the permanent recording of transactions and viewable to anyone. But the verification of transactions through computationally complex algorithms is highly energy-hungry. The reward of verification is through awarding bitcoin. There has been a race to win bitcoin by participating in the globally distributed verification process. Hence, along with the accelerating value of Bitcoin reaching $50,000, the energy consumption has skyrocketed - ringing the alarm bell that Bitcoin consumes more energy than Argentina.   

Unlike a typical database, a blockchain collects information together in groups, known as blocks, that hold sets of information, like transaction records. Hence, for Bitcoin, we need a collection of computers to store its blockchain for storing every Bitcoin transaction made. And the length of the chain keeps increasing with each transaction. For example, as of November 2020, the block's height of Bitcoin had reached 656,197 blocks. Upon verification, once a block is added, it is very difficult to go back and alter the contents of the block unless the majority reached a consensus to do so. Therefore, it's claimed to be secure or immutable. So far, it sounds very simple. But why is it dirty?

The process of verifying each transaction involves solving computationally complex puzzles. As a reward, puzzle solvers or miners occasionally receive small amounts of Bitcoin-often linked to a lottery. Hence, miners keep solving puzzles by connecting their specialised computers as nodes to the cryptocurrency network. These puzzles are increasingly being made complex for providing a hurdle to ensure no-one fraudulently edits the global record of all transactions. According to some estimates, as high as 50,000 computer nodes continuously burn energy while verifying transactions in a race of winning Bitcoins. Some are now buying tens of thousands of specialised chips at once to power their crypto farms. But how much energy do they burn? Is it a matter of concern?

The recent assessment by Cambridge University researchers has released a shocking picture of energy consumption by the global cryptocurrency network. The research finds that it consumes around 121.36 terawatt-hours (TWh) a year. This amount is more than the energy consumed by Argentina over a whole year. More alarming is that energy consumption will keep growing with the rising demand for Bitcoins. According to some estimates, one Bitcoin transaction would generate the CO2 equivalent to 706,765 swipes of a Visa credit card. As energy burning is the main cost input, Bitcoin miners are getting concentrated in low costly energy supplying areas. For example, some research suggests that southwest China's cheap power has attracted almost half of the world's Bitcoin mining capacity. Not only hydropower but coal is also a major source of energy to run cryptocurrency nodes. According to the Cambridge Center for Alternative Finance estimates, coal accounts for 38 percent of miner power. Hence, it's making the Climate Change effect worse.

Despite the grave concern about energy-burning, some countries, including developing ones, have been moving with the formation of national-level strategy for adopting Blockchain technology. For example, like India and Germany, Bangladesh has recently released the national Blockchain strategy. Although these strategies have been targeting to harness innovation potential, the energy consumption effect on verifying transactions in distributed ledger has not taken much priority. Some of the envisioned applications are in healthcare, cybersecurity, Governance, media, logistics & hospitality, education, legal, energy, smart cities, and so on.

So far, the common impression is that digital technologies are a greener alternative. But in reality, these technologies' environmental effect is very high, often reaching an unsustainable level. It happens to be that Bitcoin has been showing its extreme energy-burning footprint. Of course, we all know that digital devices are consuming energy.  But how much and what could it be its likely implication at the national and global level is not very clear. For example, it's quite difficult to imagine that digital technology is the culprit for the recent blackout in Tehran. In fact, Bitcoin was found to be liable. Thousands of processing centers, which require immense amounts of electricity to power their specialized computers and to keep them cool - burdened Iran's power grid to the point of failure.

However, Bitcoin is not alone responsible for causing massive pollution. All its digital cousins have been aggravating the environmental and sustainability concerns. For example, we all are appreciative with mobile phones. They do not appear to be much concern to carbon emission, worsening environmental and climate change situation. Although the production of a single mobile handset causes emission of little more than 50 kg carbon, let's estimates how much carbon emission took place for the production of 1.9 billion mobile phones, projected sale in 2018.

Bitcoin's energy hunger is simply pointing to the fact that the higher the digitisation, the more is the benefit. There is a cost on energy, infrastructure, environment, health and climate change. The situation has already reached an alarming level. For example, ICT networks used about 5 per cent of the world's electricity in 2012. But this number is predicted to grow as high as 20 per cent by 2025. Among others, along with the faster speed of data transfer over the cellular network, we should also take into consideration their negative effects. For example, 5G promises faster speed and lower latency. But it's going to need far more towers, base stations, and energy. It is time to take into consideration  the effects of digitisation possibilities like smart cities, blockchain, or the Internet of Things on recurring cost and sustainability issues. As the exploitation of digital possibilities is not benign, there should be an in-depth investigation, leading to widespread public debate as to the kind of future we wish to create. The challenge is not only limited to public policies alone. We should also focus on creating the awareness for improving responsible usages of digital gadgets - like, creating more importance on repair as opposed to replace. Time is running out. We no longer can afford to wait to draw a line for optimum exploitation of digital possibilities.

 

M Rokonuzzaman, PhD, is academic and researcher on technology, society and policy.

[email protected]

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