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  • In mid-May 2021, billionaire Elon Musk sent a tweet that crashed the cryptocurrency market.

  • 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.

In mid-May 2021, billionaire Elon Musk sent a tweet that crashed the cryptocurrency market.

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Why does bitcoin use so much energy? | CNBC Explains

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    Summer posted on 2021/06/16
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