A recent breakthrough moment for Bitcoin marks the start of a new era for the cryptocurrency, but analyst Ben Hertz-Shargel warns that its staggering energy demands risk destabilising power grids and wiping out green energy gains.

The US Securities and Exchange Commission this month approved the first US-listed exchange traded funds to track Bitcoin, making it much easier to trade and opening the door to a whole new class of prospective investors.

This is all very exciting for Bitcoin enthusiasts, says Ben Hertz-Shargel, global head of grid edge at energy consultancy Wood Mackenzie, but it comes with a problem: the news will likely spark a boom in the staggeringly energy-intensive mining process that underlies the cryptocurrency.

Bitcoin requires so much energy because the decentralised blockchain structure it uses employs a system where to verify transactions computers must guess at a 64-digit string of numbers and letters, with trillions of possible options. Computers all over the world race to guess the string and the fastest not only certifies the transaction but is also rewarded in Bitcoin – hence, ‘mining’ it.

For context, cryptocurrency mining, which Bitcoin represents the vast majority of, used a fifth as much electricity in 2022 as global centralised data computing and data transmission combined.

“That is stunning,” said Hertz-Shargel, as it means that cryptocurrency mining is using a fifth of “all of the fruits of the internet revolution, industrial revolution, the cloud and AI industrial revolution.”

Put another way, “it is consuming at a level that is on par with everything else that has come out of modern technology,” he said. “And that is to me a completely incommensurate cost.”

What’s more, Hertz-Shargel said that Bitcoin mining now uses up to 75% more electricity than it did back then.

One of the most recent estimates is that Bitcoin mining uses around 127TWh of electricity annually – around the same as Norway.

Much like tech giants, Bitcoin miners often develop their own data centres to run their operations, and many have flooded to Texas to set up facilities due to the US state's abundant wind and solar farms.

However, Hertz-Shargel said that while Bitcoin miners often site their operations next to renewables facilities – claiming they are ‘sustainable’ as a result – this is very different to data centres run by Big Tech companies that run off renewables.

The “critical difference” is that Big Tech companies such as Amazon and Microsoft sign power purchase agreements with renewables developers, prompting new wind and solar farms to get built.

“No Bitcoin mines are doing that,” he said.

'Chequered past'

Part of the problem is that the modern Bitcoin mining industry has been around for less time than the duration of many green power offtake agreements, he said.

Combine that with the volatile price of cryptocurrency and the “chequered past” of many Bitcoin miners and Hertz-Shargel said it is “very doubtful” that renewables developers will want to get into bed with the industry as a partner.

Instead, Bitcoin data centres are syphoning off green energy that could be used elsewhere, he said. “The direct effect is causing high cost, high emissions generators to be run much more often.”

Hertz-Shargel said that, despite popular belief that Bitcoin miners stop operations at periods of peak demand, many run almost constantly, and are at times pushing the grid “closer to a brownout.”

In a global context, this could mean that the boom in the rollout of renewables risks being in some part cancelled out by a parallel boom in the energy demands of Bitcoin.

“The energy transition is all about tradeoffs,” said Hertz-Shargel “We have a finite grid, a finite amount of clean energy that we can deploy in a realistic period of time.” The question “you have to ask yourself” is therefore “what can we afford to power via the grid?”

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