Holding Bitcoins mined from the 2020s when electricity prices are subdued relative to what they might be in a decade or two could be very lucrative, writes Vaughan Gunson. Photo / Getty Images
Holding Bitcoins mined from the 2020s when electricity prices are subdued relative to what they might be in a decade or two could be very lucrative, writes Vaughan Gunson. Photo / Getty Images
LIFE AND POLITICS
Cryptocurrencies. I've always associated the word with kryptonite, the mythical material from Superman's home planet that weakened his powers on Earth.
I wonder whether the inventors (and marketers) of cryptocurrencies like Bitcoin were making that connection when they began using the term.
Cryptocurrencies emerged from a desire by tech pioneersto create a new currency "of the people" free of control by Governments or banks.
They wanted to undermine the existing monetary system dominated by the United States. In this narrative, cryptocurrencies are to the Federal Reserve Bank of America as kryptonite was to Superman.
Today, Bitcoin and other cryptocurrencies are big money, in the conventional sense. One Bitcoin was worth NZ$50,478.40 as of May 31.
Until recently, I'd spent little time figuring out how cryptocurrencies worked. It all seemed like a giant Ponzi scheme that would fall over eventually.
To have a chance of "unlocking" Bitcoins, you need a lot of computing power and a lot of electricity to run the computers. Photo / NZME
That study calculated that Bitcoin used 121.36 terawatt-hours (TWh) of electricity a year. That's nearly three times more than New Zealand's total electricity usage of 43TWh.
If Bitcoin were a country, its electricity use would rank 29th in the world.
All the world's data centres combined currently use 205TWh of electricity annually.
Since the Cambridge study, estimates of Bitcoin's electricity usage have increased. How is it possible that Bitcoin uses so much electricity?
It has to do with how Bitcoins are created through what's called "mining" (not inaccurately, given the energy used).
For Bitcoins to have users' trust, creating the "money supply" had to be independent of control by any person or group of persons. And forgery had to be impossible.
Special computers work at speed on complex mathematical problems that are part of the process of verifying Bitcoin transactions.
Owners of these computers, whose main cost is the electricity they use, compete with other "miners" to solve the mathematical problems and are rewarded with Bitcoin if successful. Some have likened it to a lottery.
Not being a computer boffin, the finer workings of it all remains somewhat murky to me. The easily understood upshot is that to have a chance of "unlocking" Bitcoins, you need a lot of computing power and a lot of electricity to run the computers.
Logically, Bitcoin data mining sites try to access the cheapest possible electricity. They're not fussed how the electricity is generated — price rules.
The Cambridge study calculated that 61 per cent of the electricity used in cryptomining came from fossil fuels.
Defenders of Bitcoin, however, point to mining sites being set up close to hydro dams with excess power in wet seasons.
They also point to the potential for Bitcoin mining sites to utilise solar power at non-peak times.
Tesla charging stations at the Forum North carpark in Whangārei. Photo / Michael Cunningham
Critics argue that it doesn't matter if Bitcoin accesses its power from renewable sources. That power — in an energy-constrained world — could be used for better things.
Those invested in Bitcoin obviously don't want the industry shut down.
Despite uncertainty about Bitcoin's future, the cryptocurrency is heavily traded, including in New Zealand. Your KiwiSaver funds may be invested.
Some investors are gambling on Bitcoin becoming a widely used global currency.
That's part of it, but I think what investors are also banking on is electricity becoming more expensive in the future.
If Bitcoin is allowed to keep going, then in 2030, 2040, 2050, investors are hoping that mining Bitcoins will cost much more.
If there's a worldwide shift to electric cars, for example, Bitcoin investors foresee electricity prices going through the roof.
Holding Bitcoins mined from the 2020s when electricity prices are subdued relative to what they might be in a decade or two could be very lucrative.
This conventional speculative behaviour, buy low and aim to sell high.
The question remains, though, is it ethical to allow Bitcoin mining to continue?
Do we want Bitcoin millionaires driving around in Teslas while families in New Zealand struggle to pay their household power bill?
It's not just Bitcoin. In a world with increasing electricity demands, should individuals, business and whole industries be allowed to do whatever they want with electricity, as long as they can pay the price?
It's not hard to foresee electricity access, like water, being a political battleground of the future.
• Northern Advocate columnist Vaughan Gunson writes about life and politics.
