Global energy production and Bitcoin

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This article was first published on Dr. Craig Wright’s blog, and we republished with permission from the author.

The topic of energy consumption, as it is associated with digital currency, has been a hotly debated one over the last decade (Greenberg & Bugden, 2019). While digital currencies are transferred in cyberspace, the electricity associated with the transfer and verification of transactions is produced in physical locations and will be associated with energy use in a geographically defined area. In addition, creating data centers requires energy, high-speed network access, and political stability (Shuja et al., 2016). As such, digital currency is a system within virtual geography while also being constrained by the physical world.

Furlong (2021) investigated the topic of energy consumption and the need for data centers associated with virtual systems, including Bitcoin. The research analyzed the energy consumption of Bitcoin, noting how data centers concentrate thousands of ultra-specialized computational units based on “Asics processors that are replaced every 18 months” (2021, p. 194). In analyses of this type, authors generally represent the process of creating valid blocks as waste (De Vries & Stoll, 2021). Yet, such types of analyses generally overlook the long-term benefits of disruptive technology (Denning, 2016), and the long-term possibilities of creating a geographically distributed means of payment.

Other researchers have taken a different approach. For example, Lai and Samers (2021) examined how FinTech incorporates geopolitical themes of economic geography. In particular, Lai and Samers (2021, p. 734) argue that “spatially sensitive… future research” could move “beyond methodological nationalism to develop new spatialities for exploring financial inclusion and poverty reduction, while attending to (emergent) intersectionalities with respect to the consequences of MFS, including but not limited to new forms of fraud, indebtedness and personal and commercial bankruptcies”. While Lai and Samers (2021, p. 722) note that Bitcoin has gained traction through “strong roots in an anti-statist techno-libertarianism,” they have overlooked how the development of systems outside of the traditional control of Western governments could lead to new geopolitical structures and associations.

Importantly, developing financial solutions may deliver solutions to the periphery, changing the nature of marginalized rural areas (Merrell, 2022). The ability to send money outside of the traditional banking system may also open up opportunities for pan-national currencies or systems within Asia (Huang & Mayer, 2022; Wang, 2018). Finally, while such developments could change banking (Martino, 2021), they may also open up new opportunities for international trade.

Central bank digital currencies (CBDCs) will be developed within decentralized systems to enable scaling. The scaling of blockchain systems has been limited, but the scenario is changing with the development of high-throughput systems. While existing implementations are pushing 50,000 transactions per second, the ability to scale through larger block sizes and distribute resources across multiple systems will increase throughput (Covaci et al., 2020). Despite claims of only limited numbers of transactions, the increasing block size will enable blockchain networks to handle millions, if not billions, of transactions per second (Wright, 2017).

Each of these points is critically important in understanding the energy distributions of data centers and digital cash systems. The energy associated with a system such as Bitcoin is directly attributable to a combination of the number of transactions verified. As the system becomes more efficient in energy distribution, the efficiency measurement should not be rated as the total amount of energy consumed but rather as the economic cost and energy input associated with processing each transaction (Poess & Nambiar, 2008).

Comparisons in energy cost need to be made against the comparative nature of goods supplied. A blockchain network that produces millions of transactions per second may do so at a total consumption level lower than existing financial systems. The consequence of such a change will be integrating energy systems to produce transactions in localities such as the United States or Europe. Importantly, this will occur as the control of the network is distributed, while leaving distribution to politically sensitive regions will lead to future problems (Calvert, 2016).

While the security of energy supply (Jamasb & Pollitt, 2008) has been a concern for some time, with academic discussions on the geographical positioning of power plants, the integration of network systems and validation associated with a global monetary system would extend this issue. More importantly, concepts of sustainable power used in blockchain networks must be investigated more thoroughly (Vranken, 2017). While the distribution of Bitcoin occurs over cyberspace, creating and distributing digital assets through cyberspace requires data centers. As such, even the virtual world cannot escape the geopolitical controls over energy.

References

Calvert, K. (2016). From ‘energy geography’ to ‘energy geographies’: Perspectives on a fertile academic borderland. Progress in Human Geography, 40(1), 105–125. https://doi.org/10.1177/0309132514566343

Covaci, A., Madeo, S., Motylinski, P., & Vincent, S. (2020). System and method for authenticating off-chain data based on proof verification (United States Patent No. US20200322132A1). https://patents.google.com/patent/US20200322132A1/en?q=(data+accuracy)&assignee=nchain&oq=nchain+data+accuracy

De Vries, A., & Stoll, C. (2021). Bitcoin’s growing e-waste problem. Resources, Conservation and Recycling, 175, 105901. https://doi.org/10.1016/j.resconrec.2021.105901

Denning, S. (2016). Christensen updates disruption theory. Strategy & Leadership, 44(2), 10–16. https://doi.org/10.1108/SL-01-2016-0005

Furlong, K. (2021). Geographies of infrastructure II: Concrete, cloud and layered (in)visibilities. Progress in Human Geography, 45(1), 190–198. https://doi.org/10.1177/0309132520923098

Greenberg, P., & Bugden, D. (2019). Energy consumption boomtowns in the United States: Community responses to a cryptocurrency boom. Energy Research & Social Science, 50, 162–167. https://doi.org/10.1016/j.erss.2018.12.005

Huang, Y., & Mayer, M. (2022). Digital currencies, monetary sovereignty, and U.S.–China power competition. Policy & Internet, 14(2), 324–347. https://doi.org/10.1002/poi3.302

Jamasb, T., & Pollitt, M. (2008). Security of supply and regulation of energy networks. Energy Policy, 36(12), 4584–4589. https://doi.org/10.1016/j.enpol.2008.09.007

Lai, K. P. Y., & Samers, M. (2021). Towards an economic geography of FinTech. Progress in Human Geography, 45(4), 720–739. https://doi.org/10.1177/0309132520938461

Martino, P. (2021). Blockchain and Banking: How Technological Innovations Are Shaping the Banking Industry. Springer Nature.

Merrell, I. (2022). Blockchain for decentralised rural development and governance. Blockchain: Research and Applications, 3(3), 100086. https://doi.org/10.1016/j.bcra.2022.100086

Poess, M., & Nambiar, R. O. (2008). Energy cost, the key challenge of today’s data centers: A power consumption analysis of TPC-C results. Proceedings of the VLDB Endowment, 1(2), 1229–1240. https://doi.org/10.14778/1454159.1454162

Shuja, J., Gani, A., Shamshirband, S., Ahmad, R. W., & Bilal, K. (2016). Sustainable Cloud Data Centers: A survey of enabling techniques and technologies. Renewable and Sustainable Energy Reviews, 62, 195–214. https://doi.org/10.1016/j.rser.2016.04.034

Vranken, H. (2017). Sustainability of bitcoin and blockchains. Current Opinion in Environmental Sustainability, 28, 1–9. https://doi.org/10.1016/j.cosust.2017.04.011

Wang, A. W. (2018). Crypto Economy: How Blockchain, Cryptocurrency, and Token-Economy Are Disrupting the Financial World. Simon and Schuster.

Wright, C. S. (2017). Investigation of the Potential for Using the Bitcoin Blockchain as the World’s Primary Infrastructure for Internet Commerce. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3065857

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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