Bitcoin (BTC) is weird. Even it’s staunchest supporters would concede that it can be a little hard to get your head around the concept, but it’s only a leap in thinking away from ‘normal’ currencies. A concept that we are completely trusting in, despite the fact that currencies are ostensibly valueless, intrinsically speaking, and only around 10% of it can be folded into your shirt pocket. The rest of it only resides on balance sheets hosted inside printed circuit boards.
Bitcoin, and it’s less well known cohort of rival cryptocurrencies are gaining in traction, rightly or wrongly. Another, stranger, and possibly more worrying trait of theirs is looming over the horizon.
I’m sure you’ve heard of Bitcoin, you might not know how it works, have a Google if you are unsure, this column is way too short to cover it here.
In short it is a digital currency that exists as lines of code, and is held on a blockchain, a ledger distributed over a network of linked computers. It’s central attraction is that nobody, no institution, and no country does, or can own it. Bitcoins are ‘created’ by solving mathematical puzzles with computers, and are distributed in blocks every ten minutes. Those who own the computers, and thereby host the blockchain are called miners, and that is exactly what they do, kind of. They dig up Bitcoins, virtually speaking of course.
Back when all this was new, you could set your home PC running while you went to bed, and when you woke up, you might have one waiting for you in your wallet, when you had 50 of them you might be able to buy yourself a coffee, assuming you could find a hipster enough coffee shop to accept them. Good, clean, harmless fun.
Since then the stakes have got a little higher. Your 50 BTC is now worth getting on for 2.9 Million dollars, and mining them has become big business, but mining them has got more difficult. As more and more people harness their computers to the task of mining, they must effectively out compete each other, solving more and more complex puzzles, and the payoff is getting smaller and smaller. The blocks of bitcoin released are reducing, in 2009 50 were released per block, the payout halves around every four years, and is now at 6.25. This is a self serving idea based on scarcity. The rarer something is, the higher its value, and the more people are willing to invest to mine it.
BTC mining operations have now reached ludicrous levels. Industrial ‘farms’ of thousands of super computers, with specifically designed chips rattle through the calculations at unimaginable volumes to keep the mine going deeper. These computers need electricity to work them, and electricity to cool them. A lot of electricity. One operation alone in Iceland runs up an electricity bill of a million dollars a month, more than all the houses in Iceland combined, and Iceland is renowned for having some of the cheapest electricity in the world thanks to its hydro and geothermal resources, that’s why the mine is there of course. The country’s low temperatures keep the cooling bill a little lower too.
Feeding this beast is now getting a little out of hand. The estimated total electricity appetite for the Bitcoin mining industry globally is equal to the whole of Norway, and as the BTC price increases, it makes it economic to set up more and more of these power hungry mining centres.
The carbon footprint is colossal, on target to match the carbon emissions of Greater London. Just to remind you, at a time where we are edging closer to crossing an environmental rubicon unless we drastically cut our polluting ways, this is all to ‘mine’ an electronic currency by solving mathematical problems that don’t really exist. I told you it was weird.
It gets worse, of course it does. The world is currently having a bit of a problem getting hold of micro chips. A combination of factories being closed due to Covid, and the ever increasing demand as microchips start going into things they never did before, kettles fridges, watches etc. Bitcoin miners need a lot of chips for their server farms, and because mining is a very profitable business they can afford to outbid the regular consumers of chips. This is leaving auto manufacturers short so production is being capped, research into AI, potentially the next industrial revolution is being hamstrung by a lack of chips for prototypes, and you might struggle to find a Playstation for little Jimmy’s birthday.
The mysterious, and possibly fictitious founder of Bitcoin Satoshi Nakamoto decided to cap the total number of coins at 21 million, as it stands when they have all been mined, that’s it, there won’t be any more. At the current rate of mining the last coin will be dragged out of the virtual ground in 2141, so this isn’t going away any time soon. Plenty of time for us to poison our planet, stifle our industry, or, more likely come up with some new, even more unfathomable concepts. I may have to struggle without a fridge I can talk to for a while yet.
Phil D. Coffers
The Islander Economics Correspondent
