The Tesla CEO announced the electric vehicle company would no longer be accepting bitcoin

for purchases due to its environmental impact.

People have long been warning about the insane amount of energy that's required to mine Bitcoin.

So why does bitcoin use so much energy?

And do other cryptocurrencies have the same problem?

Most of the money we use today has been issued by a central bank.

You're familiar with them; the U.S. Federal Reserve, the European Central Bank

or the Bank of Japan, for example.

What made bitcoin and other cryptocurrencies revolutionary was cutting these institutions

out of the picture and using a decentralized ledger, known as blockchain, instead.

To learn more, I called in one of CNBC's resident crypto experts, Ryan Browne.

Hi, Ryan.

Hi, Nessa.

People around CNBC were saying that you were one of the main guys to go to when we're

talking about cryptocurrencies.

Having been covering this space for I think four years now, it's definitely been

a learning experience.

What was one of the early big hurdles for this kind of digital currency?

One of the big problems with cryptocurrency was the question around double spending.

And this is essentially the idea that a coin virtually could be used more than once.

And that would essentially be theft and if that were to happen, confidence would be completely

lost in the Bitcoin network.

So how did they solve this issue?

Well, this is where bitcoin-mining comes in.

Now, every computer in the network has a full list of bitcoin transactions to make sure

that they're valid.

If one single participant in the network doesn't have the same list, everything falls apart.

This is how they prevent theft from happening.

So if Person A is sending Bitcoin to Person B, that transaction needs to be verified by miners.

Once verified, each part of the blockchain needs to be updated with that transaction.

Miners are then rewarded in some bitcoin.

Okay, I know that's a lot, but stick with me.

Mining was this ingenious solution to a big problem, but it also has problems of its own.

The whole point of cryptocurrency mining, and what makes it so secure is this proof

of work mechanism that underpins everything.

Miners effectively have to solve these very complex math puzzles that are generated every

10 minutes.

The point of this is to make sure that the blockchain is cryptographically secured, so

that we don't have any of those security issues that we've mentioned.

Now the result of that, you then have more computers being logged on to the network essentially.

Right, and this process takes up a lot of energy.

That's correct.

And as the price goes up, more and more miners will want to reap the rewards.

Because it can be potentially very lucrative, right?

We've seen the price of Bitcoin rise wildly this year.

Sometimes, they will combine into these mining pools which pool together computing resources

to effectively improve their chances of cracking that puzzle, so you're just going to get

more and more energy being consumed all over the world.

Large-scale electricity consumption is measured in terawatt-hour, which is equal to one trillion watts.

A report by Cambridge University says that the bitcoin network alone consumes more than

116 TWh per year, about 0.5% of total electricity in the world.

Bitcoin's annual electricity consumption is higher than countries like the Netherlands,

Philippines and Singapore.

In fact, if bitcoin were a country, it'd be number 33 on the list of top energy consumers.

So how is that possible?

There is a direct correlation people have been noticing between the rising price of Bitcoin,

and the level of network difficulty and competitiveness of all these miners trying

to participate in the network over time, and so it gets higher and higher.

And is this just a bitcoin problem? What about other crypto?

It's definitely not just a Bitcoin problem.

Those other cryptocurrencies, some of them are using the same protocol that Bitcoin uses,

which requires you to use all of this computing power to figure out those puzzles.

So where is this mining taking place?

The U.S., Russia, Kazakhstan and Malaysia are all big players, but the vast majority,

some 65%, is happening in China..

A lot of miners will migrate to southwestern provinces in China, which are rich in hydropower.

Which obviously, is a renewable source of energy.

Now on the flip side, if the cheapest source of energy is fossil fuels, that is where

Bitcoin mining gets a little dirtier.

In Iran, when it comes to bitcoin mining, one of the big concerns there was, it started

leading to blackouts, power outages, in parts of the cities.

And that really speaks to just the amount of energy that is required to mine cryptocurrency.

China, United States, they all have carbon neutral targets.

But they're countries with noteworthy mining facilities or at least, mining habits, right.

So how are these governments responding?

We have already seen signs of increased regulation from the U.S. on cryptocurrencies at the moment.

In China, the Inner Mongolia region has effectively cracked down on mining by shutting down

Bitcoin mining completely.

Cryptocurrency advocates, however, argue all this energy use is worth it, if it means crypto

can democratize the world's financial system.

Crypto advocates also say they are making efforts to use renewable energy, and that

it's not just them consuming energy.

Online banking platforms and data centers use a lot of energy too.

Global data center electricity demand was about 200 TWh in 2019, which makes up 0.8%

of global electricity demand.

We need to look at the entire Internet and how it is powered, and at the moment

it is, by and large, quite dirty.

The effort going forward will be making sure that the Internet is powered by renewables,

and you've got massive tech companies, mind you, like Amazon, Microsoft and others, they

are trying to do exactly this.

The only counterpoint that critics of Bitcoin will have is how much is Bitcoin used, as

opposed to all of these online platforms and services that we use every single day.

The general consensus is it's fractionally much lower.

Now, an interesting thing about Ethereum is that it's trying to become a bit more energy

efficient, so it's actually in the process of upgrading its network.

I'm finding it hard to understand how is that possible, if they're using the same

technology, using the same blockchain technology?

I don't blame you at all, Nessa, this topic, it is almost intentionally difficult to understand.

What the Ethereum network is essentially proposing is that it upgrades itself to a new protocol.

And this is very significant because it will move Ethereum into a new mechanism which essentially

validates transactions, and the validators of those transactions, they don't have to

do all those complex competing puzzles that we've been discussing.

I had to ask Ryan: Is there any cryptocurrency available out there that's actually worth

it to mine, or at least able to break even?

If you're a believer in crypto, you certainly think it's worth the massive computational

effort to mine cryptocurrencies, because believers in cryptocurrency will say well, it is a decentralised

currency, it's outside of government control.

I mean, the remarkable thing about cryptocurrency is that it has survived so long, through all

the hacks and scandals and questions about money laundering and illegal activities.

They're still seeing lots and lots of money flowing into them.

And right now, it's a trillion-dollar market at least.

And that certainly says something about the potential staying power of these cryptocurrencies.

Now, whether all of them will exist in their current form in several years' time,

that's obviously up for debate.

I have a joke. Do you want to hear the joke?

Absolutely.

How many crypto-miners does it take to change a light bulb?

How many?

A million.

1 to do it, and the rest to determine who gets the credit.

That's good.

I'm gonna use that one.