The mysterious cryptocurrency Bitcoin reached a value of over $16,000 this week, and has been generating a lot of interest from investors over the years. To acquire one, you must either purchase one from online exchanges or use specialized hardware to “mine” it.
Bitcoin mining operations use tons of power, and power is expensive. In China, power is inexpensive because it is mainly based on coal-fired power plants, so this is where the majority of miners have set up shop.
This results in an extreme carbon footprint for each Bitcoin transaction because the cheapest highest-density energy comes from climate-changing fossil fuels.
In the beginning when the mining was relatively simple, a personal computer could perform the calculations required to acquire the cryptocurrency, but the calculations are designed to get more complicated every second. Now in order to successfully mine the cryptocurrency, large networks of power hungry hardware are literally burning through electricity at an alarming clip.
Cryptocurrency website Digiconomics reported last week that the worldwide mining operations are now consuming more electricity that all of Serbia. If it continues to grow at the rate the trend suggests, some calculations predict that by 2019 these Bitcoin mining operations could consume as much power as the USA.
Bitcoin is free from any regulatory agency and exists only in the digital world. This is made possible because it is based on a “blockchain” or a ledger of transactions. Miners add new blocks, or sets of transitions, to the blockchain about every 10 minutes.
The difficulty of forming these blocks is controlled by the protocol and rules inherent to the code that runs Bitcoin, and is regularly adjusted to ensure that all miners in the network can only produce a valid block every 10 minutes on average.
“If you described the model and said, ‘not only is nobody in charge but nodes can join or leave the network at any time, yet everyone establishes a consensus view on the blockchain.’ it wasn't something computer scientists thought was possible,” said Joseph Bonneau, a computer scientist at NYU, in an interview with Wired.
That's where the ledger and history of transactions comes in. Every miner on the network is racing to prepare the next set of transactions to make the next block in the chain. Only one of the blocks submitted by miners will be added to the chain, at random; and only once it has passed a proof-of-work provided by the fastest miner that produces a valid one.
If the other miners agree it adheres to all the rules and protocols, the block is added and other miners discard whatever block they were working on. The lucky miner gets rewarded with a fixed number of coins and the cycle starts over again.
Every four years the reward gets cut in half. The current reward is 12.5 bitcoins per block set to drop again in 2020. Logically that means there is a cap on the total number of Bitcoins that will exist, which is 21 million coins expected to be completely mined out by 2032.
Because the calculations are so complex it takes banks of powerful equipment running 24/7 to work through billions of brute force attempts as it searches for a block that fits the bill. As stated before this uses a lot of electricity, so miners looked for a place to set-up shop where power bills would eat into their profits as little as possible.
Emin Gun Sirer co-director of the initiative for Cryptocurrencies and smart contracts at Cornell University says the energy consumption actually acts as a security measure and is a good thing because you can't trick your way into solving the math.
The calculations are based on the SHA-256 algorithm which is designed intentionally to be so difficult it requires brute force computing to crack it. “The cost is that it uses proof-of-work, and the point of that is to make the blockchain expensive to add to,” stated Bonneau.
Already other cryptocurrencies have arisen that try and eliminate this exhaustive and time consuming proof-of-work model in part to address the problem of energy consumption.
Other solutions have tried to add purpose and value to the somewhat frivolous task of computing large numbers of calculations all day long. The hardware generates a lot of heat as it runs, and this heat can be used in place of traditional heaters in homes. Curbed has an interesting article on a pair of Russian entrepreneurs experimenting with heating their homes and mining bitcoin in the process.