BITCOIN HAS gained many admirers since its launch in 2009. Once the domain of anarchists and Redditors, the digital currency has since piqued the interest of hedge-fund managers and tech entrepreneurs—most notably Elon Musk, the eccentric founder of Tesla and SpaceX. In February Tesla announced that it had invested $1.5bn in the cryptocurrency and would begin accepting the tokens as payment for its electric cars. Overnight, bitcoin’s price shot to a record-shattering $46,000. The total value of bitcoins in circulation, at more than $900bn, now exceeds Facebook’s market capitalisation.
But as the price of bitcoin has soared, so has its thirst for energy. According to the Cambridge Bitcoin Electricity Consumption Index, a tool created by researchers at the British university, in the week ending May 13th bitcoin mining used electricity at a rate equivalent to 150 terawatt-hours per year (see chart), more than the entire annual energy consumption of the Netherlands. Other studies have yielded similar results. In March Alex de Vries, a Dutch economist and the creator of another popular measure of bitcoin energy use, estimated that the cryptocurrency may gobble up as much energy as all the data centres in the world combined.
Bitcoin’s intensive use of energy comes down to the way it is put into circulation. Creating new coins and verifying transactions requires using computers to carry out complex calculations, a process called “mining”. Crypto miners compete to register the latest “block” of bitcoin transactions by solving cryptographic puzzles, an extremely energy-intensive process. As more bitcoins are produced, the difficulty of these puzzles increases to keep the rate of block production stable. This in turn demands more powerful computers using more energy.
Governments have begun to take note. In China, where 70% of mining takes place, regulators are investigating data centres involved in mining to better gauge their impact on energy consumption. In April the Beijing Municipal Bureau of Economy and Information Technology sent an “emergency notice” to the city’s data-centre operators to report whether they were involved in bitcoin or other crypto mining, and the share of power consumed in their operations. Regulations are likely to follow.
On May 13th Mr Musk took to Twitter to renounce Tesla’s previous position on bitcoin payments, citing the cryptocurrency’s “insane” energy demands. The price of the cryptocurrency promptly tumbled by nearly 17%. Mr Musk clarified that the electric-car maker would accept bitcoin once mining “transitions to more sustainable energy”. Bitcoin boosters say the digital currency will be instrumental in accelerating the transition to renewables. As with most things, there are two sides to the coin.