The sustainability of Bitcoin (BTC) and similar crypto-assets has been under immense scrutiny of late, with Tesla CEO Elon Musk having made this a key talking point during the summer.
More specifically, Musk (who had previously invested heavily in BTC) spoke negatively about the asset’s lack of sustainability, announcing that Tesla would stop accepting the digital currency as payment for vehicles until “here’s confirmation of reasonable (~50%) clean energy usage by miners” with a positive future trend.
But just how sustainable is BTC’s mining process, and have miners already started to meet Musk’s demands? Here’s a breakdown of the current situation:
What Sustainability Issues Affect Crypto Assets?
The mining process associated with BTC and similar crypto-assets is central to their decentralised nature, with secure and immutable transactions verified by “miners” who trying to solve mathematically complex problems.
This represents a tangible reward for the miner’s efforts, while the process itself is how new tokens are generated and introduced into circulation. At present, there are 18,821,387.00 BTC tokens currently in circulation, from a maximum supply of 21,000,000.
However, the complexity of each individual mathematical puzzle is incredibly high, requiring miners to invest in expensive hardware and consume large amounts of electricity when verifying blocks.
According to estimates from the University of Cambridge Bitcoin Electricity Consumption Index, the global BTC network currently consumes around 89 terawatt-hours of electricity annually.
This equates to the annual output of 23 coal-fired power plants, or close to what is consumed by the citizens of Finland on an annual basis.
Just How Sustainable are Cryptocurrencies?
These statistics make for stark reading, and they seem to highlight an inherent lack of sustainability in the crypto space while supporting Elon Musk’s demand for less energy-intensive mining processes.
However, many people have countered Musk’s claim, particularly his call for a greater emphasis on so-called “clean energy”.
More specifically, the Cambridge Centre for Alternative Finance estimates that 76% of all miners now use renewable energy sources as part of their mix. What’s more, CoinShares suggests that the total share of renewables in crypto mining is as high as 73%, while this percentage continues to inch higher on an annual basis.
Not only this, but second and third-generation blockchains have also introduced “Proof-of-Stake” (PoS) consensus algorithms to verify transactions and introduce new blocks.
This is diametrically opposed to BTC’s “Proof-of-Work” (PoW) model, which requires far higher levels of energy and is less sustainable over time.
So, there’s no doubt that people misunderstand just how sustainable crypto mining has become in recent times, and the consensus algorithms that are now widely used to minimise energy consumption.
In many ways, the cryptocurrency market is a bundle of contradictions, with this borne out by the space’s current and historical capitalisation values.
More specifically, while the current crypto market capitalisation value of $1.39 trillion may appear impressive at first glance, we should remember that this number peaked above $2 trillion as recently as Bitcoin’s (BTC’s) price broke through the $60,000 barrier in mid-April.
This highlights the innate volatility that underpins the crypto space, but what causes this and how will this impact on the asset class going forward?
What are Cryptocurrency Assets so Volatile?
A further examination of Bitcoin’s recent price trajectory further highlights the volatility of the crypto space, particularly with BTC having achieved a record high valuation of $63,246.79 on April 16th, 2021.
To provide further context, a single BTC token was priced at just $29,333.61 on New Years’ Day, while it has subsequently fallen back to $33,117.75 as of July 24th.
So, having seen its price increase by more than 100% during Q1 of this year, BTC has shelved nearly 50% of its value in the three months since April 16th.
But what exactly is behind this volatility? Well, the main factor here is market sentiment and the varying perceptions of cryptocurrency (and especially BTC) as a viable store of value, while price points are also impacted by Bitcoin’s reputation as a method of value transfer.
In terms of the former, this refers to the ease with which an underlying asset can be useful in the future, either as a sellable item or a method of exchange.
These factors have played a key role in BTC’s rise and fall recently, as demand soared and cryptocurrencies emerged as potential safe-haven assets (which were largely immune from macroeconomic pressures) against the backdrop of the Covid pandemic in 2020.
Similarly, its decline has come as regulators have begun to crack down in China and Europe, while the often unfavourable opinions of influencers like Bill Gates and Elon Musk have undermined the perception of BTC as a store of value.
Is the Future Bright for the Crypto Market?
Of course, it can be argued that the recent crypto bear run simply represents a market correction, while the viability of BTC as an asset class can also be supported by its overall rise in value during the last 12 months.
For example, a BTC token was worth just $9,708.95 on July 26th, 2020, while it’s now priced at $34,014.62. So, despite its wild fluctuation in the intervening period, Bitcoin is now nearly four times more valuable than it was just one year ago.
What’s more, the wider demand remains high for crypto and BTC, especially with forex brokers like Tickmill now introducing digital assets for trading. Given this and the fact that Bitcoin retains a finite supply of 18.77 million, it’s clearly capable of maintaining an inflated price well in excess of $30,000 going forward.
This also increases liquidity and the ease with which BTC can be bought and sold, establishing it as an increasingly mainstream method of value transfer.
On a final note, we should consider the emergence of third-generation blockchains and how they continue to change the crypto marketplace.
More specifically, such networks are tackling long-standing issues like scalability and inflated transaction fees, increasing the likelihood of mainstream adoption rates and potentially minimising volatility in the longer term.
The cashless society is economic model that removes physical money from our wallets and replaces it with fully digital transactions. So, we no longer carry banknotes and coins, instead we carry our traditional bank cards or mobile devices. These transactions can be made in our home currencies (in my case Pound Sterling), an international currency or even a digital currency such as Bitcoin or Ethereum. When using our traditional currency, we can completely remove a ‘standard’ bank from the equation and use alternatives from Paypal or Amazon.
Apple Pay and Google Pay give us access to our bank accounts to transact contactless payments using our mobile devices and also track our payments using linked cards, thus attempting to give us the best of both worlds. The sting in the tail is the utterly endless opportunities to spend at will which will surely lead to intervention by governments to protect individuals from spending above their means.
Consequently, cashless and contactless systems give us greater power to transact business quickly and painlessly. However, whilst online and large businesses can easily transfer to these systems, there is a great danger of smaller businesses being completely crowded out either by lack of infrastructure or lack of funds.
Yesterday, I was interviewed by Tony Gillham at BBC Guernsey about the cashless society and how businesses in remoter islands in the Bailiwick, such as Alderney, can continue to transact business in a rapidly cashless world.
Listen in by clicking the link above. If you have a comment, please feel free to add your opinions below. Don’t forget to like and subscribe and I look forward to hearing from you soon.
So, I have been experimenting with crypto currency for the last month, it has been an interesting experience from buying (investing) in crypto currency to actually mining currency itself.
In the first instance, I decided to ‘invest’ in £50 worth of Bitcoin. This had followed a frantic year, which had seen the crypto-currency rocket in value by over 9400%. Being a realist (or a cynic), I was fairly sure the warnings of a burst bubble (or at the very least a plateau) was fairly real, so my investment of £50 was based on the assumption that it was as much as I was prepared to lose if it went pear shaped.
After a little bit of investigation, I opened a free wallet with a company called Blockchain in Luxembourg. This is where my Bitcoins reside. It appears to be legitimate and logins require two factor authentication to gain access. After registering the wallet, I was now ready to purchase by Bitcoin. Now at the time of purchase, a Bitcoin was valued at around £12500, so I would need to but a fraction of a Bitcoin with my £50. Fortunately, Bitcoin has smaller divisible units called Satoshi’s, with 100,000,000 Satoshi’s in a Bitcoin. Thus my £50 bought be 402.749 Satoshi… Well actually it didn’t, my £50 turned into £44.69 (after fees!). I was down a fiver already!
As expected, the Porter Curse reared itself and instantaneously Bitcoin stopped rising.
After five days of grumbling to anyone that would listen and deciding that Bitcoin was actually not a great idea, I decided to look at other currencies.
As I was using Blockchain for my wallet, it seemed worthwhile to use that same service to diversify into another currency that would be supported and seamless. In the case of my wallet, the other supported currency was Ether (or Ethereum). This is another cryptocurrency which is traded in the same way as other currencies. I therefore decided after less than a week of investing that it was time to ‘chop’ in some Bitcoin in return for Ether.
After a badly thought out calculation in my head where I was half expecting to split my investment 50/50 I attempted to transact £38.06 of Ether. Now, when transacting any digital currency, you should take notice of the warnings that say “Please note the Bitcoin network is under extreme load, transaction fees are likely to be higher than normal”. Having conveniently ignored this warning, I pressed on and watched as my £38.06 of Bitcoin turned into £21.75 of Ether (after fees). Giving me a wallet value of about £34.00.
So, after less than a week, I was now £16.00 down! Good Start!
At this point, I came to the assumption that the miners were making the money here. Miners (in the sense of a crypto-currency) are the people or machines that run very complex mathematic equations which in turn are used to confirm transactions within the system. Because there is no central bank as such, the network itself if self-governing, thus the people or computers that take part in this job are rewarded with currency of their own. Generally, this is a VERY small amount, but with enormous computing power, these amounts can add up to large amounts.
Having decided that it was perhaps better to leave my ‘investments’ alone, I began looking into mining. Now Bitcoin and Ether are well established ecosystems and thus the computational power needed to mine their currencies has become very large. In fact, so large, that most Bitcoin and Ether mining is now carried out in large data-centres with thousands of custom built systems (or Asics), these have been constructed specifically to mine both Bitcoin or Ether. These data-centres generally exist in Iceland, China or other operations running from very cheap renewable energy sources such as geo-thermal or hydro-electric sources. This effectively puts the mining of both Bitcoin and Ether out of the hands of ‘Joe Public’.
This is not to say that you couldn’t build your own mining ‘rig’ or buy a pre-configured rig, but the cost of constructing it and the low return would mean that simply buying the currency would be a better bet.
Fortunately, there are thousands of other crypto-currencies available for mining. With this in mind, I began looking at CPU based mining. CPU based mining basically means that you run a program on your computer which does the mining calculations for you, you generally don’t need specialist equipment, but the returns are sure to be much lower that using an Asic.
After some more investigations, I discovered a crypto-currency called Monero. This was a currency that supported CPU mining, so by simply installing the software on a spare computer, I could be well away. It also seemed sensible to join a mining ‘pool’, this means that rather than mining alone, I would be mining as a collective in a large group of other miners, which speeds up the process and you share the rewards within the group.
I setup an account with Minergate, installed the software on my home iMac and away I went using 3 of the available 4 CPU cores. Now, mining speeds are measured in ‘hash rates’, my iMac was indicating a hash rate of 100h/s (hash calculations per second). In layman’s terms, 100h/s is terrible. Even without including the electricity usage to mine, I was looking at a profit of $9 per month in Monero. Now Monero has a fluctuating exchange rate as do all the other crypto-currencies, so I might be lucky and the currency might rocket like Bitcoin and Ether, more likely it wouldn’t, but the notion of printing digital currency was very appealing.
With this in mind, I began installing the mining software on other devices in my home and work. After a couple of days, I had turned everything into Monero mining systems. My 100h/s iMac was joined by another iMac running at 110h/s and a Macbook Pro running at 200h/s. I then started looking at mobile devices, thus a Sony Xperia XZ1 (39h/s), a Xperia XZ Premium (39h/s) and a HTC One M9 (26h/s) joined the fray. Finally (and inexplicably), I decided to see if a Raspberry Pi2 could manage to mine Monero? Yes, it could, but at a lowly 6.3h/s.
Thus, my mining rate is around 500h/s, but has displayed at 1200h/s a couple of times. Every day or so, my mined balance is confirmed, this then allows me to draw down this currency to another Monero compatible wallet which again is two factor authenticated.
So, what about my original ‘investment’ of £50? Well, although Bitcoin has only increased 1.5% (at time of writing) since my initial investment, conveniently Ether has increased by 149% and so I have clawed back my losses and now have a wallet with £51.50 in crypto-currency and of course I have the $9 dollars in Monero. However, if I decide to convert this back to Sterling, I will be sure to lose a substantial amount in ‘fees’, so for now I am happy for these funds to stay where they are.
It may be sensible to note that I have actually not made any profit at all so far. Only when I start drawing down a larger amount that I have invested that I will begin to turn a profit and that is a long way off for now.
If you find this article interesting and would like to investigate the world of Monero mining using your computers processor when you aren’t, you can visit Minergate using this link