Moving banks to bitcoin would require 7 times the global electricity production
Proof of work (PoW) crypto-currencies like Bitcoin are physically non sustainable.
The Bitcoin network currently consumes more electricity than Argentina (130 tWh / year), for 400 000 transactions per day. This is ridiculous : it represents only 0.02% of the global daily digital payment transactions (about 2 billions / day).
If we consider that the network consumption grows linear with the number of transactions (which is wrong as we see later), running all digital transactions over bitcoin would require 5000 times more than that : 5000 x 130 = 650 000 TWh. This is 25 times more than the global electricity production (around 26 000 TWh).
It’s not about the number of transactions, it’s about the funds transferred
Supporters of Bitcoin would argue that the energy spent by the network does not depend on the number of transactions processed : And they are right. The number of transactions is technically limited anyway to the ridiculous amount of 400k tx / day.
We can get a better estimate by coming back to the core principles of the proof of work :
In a decentralized system, all transactions are written on a public book, forever. The actors of the network (the miners) digitally “validate” big chunks (blocks) of this book (1 every 10 minutes) by solving a hard (but stupid) cryptographic problem, proving they have burnt a lot of energy on that. They are rewarded by new coins (inflation), or transaction fees.
This mechanism ensures that it wouldn’t be worth for an attacker to build an alternate truth / blockchain : it would cost far more energy to forge new blocks than the revenues he would get from it.
Hence, to secure a given amount of funds transferred, the network eventually burns a stable fraction of it in energy. If the funds transferred increase and the power spent does not, the overall security drops and the network becomes vulnerable.
In practice, this is what we observe in the history of bitcoin : the cost of mining is a stable fraction of the funds that are transferred. It’s around 1%, as shown is this paper : The cost of Bitcoin mining has never really increased
This is consistent with the perspective that, in order to keep a the Blockchain system secure from double spending attacks, the proof or work must cost a sizable fraction of the value that can be transferred through the network. We estimate that in the Bitcoin network this fraction is of the order of 1%.
1% could seem reasonable at first. In practice, this represents an absolutely insane amount of energy :
The total funds transferred per year by the banking system is estimated to be a few quadrillions $ (10¹⁵). 1% of this is 10 000 billions $ spent on energy. At 5ct / kWh, this represents 200 000 TWh of electricity.
That’s 7 times more than the global electricity production (around 26 000 TWh) : less than the estimate based on number of transactions, but still completely outrageous.
But wait, what about second layers ?
Bitcoin’s performance is so bad that its supporters have been trying for years to cobble together additional layers (L2) that lift some of these limitations (like the number of transactions per second). Second layers centralize the network again, which goes against the core goal of Bitcoin, but whatever …
The most stable of this layer is lighting layer LN. Bitcoin would then be L1 layer and is supposed to act as “settlement system”, like FedWire is currently.
If so, LN fixes the scalability of transactions and high fees, but it does not fix the energy problem :
- In 2020, FedWire secured 840 trillions $
- Bitcoin / proof of work, needs to burn 1% of settled funds in energy to stay secure
- 8,40 trillions $, at 5c / kWh is 16 000 TWh / year
- That’s 4 times the yearly production of electricity in USA
Bitcoin does not scale physically.
The laws of physics are stronger than the market
Currently, Bitcoin is mainly used as a pure speculation asset. Its supporters are still claiming everywhere this could be used as a practical currency. People are starting to show doubts as concerns about the physical and environmental footprint of this giant gambling machine.
Bitcoin will soon reach its physical limits. The financial bubble will then explode, with a real impact on the economy and the loss of savings for millions of naive investors.
