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Will Bitcoin’s energy consumption require governments to rethink energy policy?

The most excited and well-covered story in the financial media in the last year has been the meteoric rise of Bitcoin. Then came the volatility. Then came the futures. Now, maybe the ETFs. But the real news is that it soon will take ALL the energy on the entire planet to mine the cryptocurrency. Please continue reading.

A website called Digiconomist publishes the Bitcoin Energy Consumption Index (BECI) which reports daily on how much energy Bitcoin miners use worldwide. As of yesterday, the BECI is at 39.44TWh (terawatt hour, used in industrial production and power generation).

Yes, that is a lot of power.

Below is a screenshot of the BECI on today’s date.

It is important to note that the graph is not accretive. Meaning the estimate on yesterday’s date (39.44) is what the BECI projects for the year, not the amount of power that is used on that day added to all the other points on the graph. But it is still a lot of power.

In fact, if Bitcoin miners were a country they would use more power than a lot of third world countries. They would sit right between the Democratic Republic of the Congo (40.73) and El Salvador (36.92) at number 123 out of the 195 countries in the world, which makes a lot of sense given the volatility and potential for complete meltdown in all three of them.

And take note that the graph is on a pretty steep incline. But it does not tell the whole story.

In November, the website ZeroHedge wrote an article about this phenomenon that included the following graph and projections:

While it is highly doubtful that Bitcoin mining will consume all the world’s power two years from now, there is a computational arms race occurring with more machines and more powerful machines that can mine more Bitcoin.

Furthermore, the Bitcoin mining algorithm continues to increase in difficulty to compensate for the increase in computational power. It is adjusted every two weeks and the difficulty keeps increasing.

Therefore, the logic is as more people mine for Bitcoin and the blocks become more difficult to create, energy consumption will grow exponentially to keep up with the demand.

At some point, high energy demand will create electricity price inflation as governments with artificially low energy prices will be forced to make adjustments. After all, places where electricity is nthe ot floated in the market and subsidized by the government will start to question why they are allowing this technology which adds zero value to their local economies drain all of their energy sources. This has certainly been the case for China. The country has built massive hydro dams to provide check and renewable energy for economic development as it tries to wean itself off of dirty coal. If the country realizes that the subsidized electricity is preventing them from doing so, they will be forced to either charge higher prices to miners, or in the case of a centralized command structure that you find in China ban, confiscate, and prosecute the miners. 

Transportation is currently the number one emitter of CO2, surpassing electricity production. But if crypto mining increases power consumption exponentially, it will become the biggest party responsible..  

All of this brings up an interesting point that must be considered- if countries and society wants cleaner transportation choices, why would they subsequently subsidize non-transportation sources to suck all the juice? 

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