The secretive industry is notoriously hard to track, but an economics-based model could help researchers and policymakers estimate just how much electricity the cryptocurrency requires.

According to a new estimate, the Bitcoin network could be using at least as much energy as all of Ireland. (Photo: Marko Ahtisaari/Flickr)

Last year, as the price of Bitcoin surged above $17,000, environmentalists began to take note that the cryptocurrency's energy consumption was likely to skyrocket as well. That's because Bitcoin mining—the process by which Bitcoins are created and transactions tracked in a public ledger known as the blockchain—requires electricity. But no one knows exactly how much energy the secretive industry consumes.

To help fill this gap, Alex De Vries, a blockchain specialist at PwC's Experience Center in the Netherlands, outlines a methodology to calculate just how much electricity the Bitcoin network uses in a year in a commentary in the journal Joule. His initial estimate is jarring: At minimum, De Vries found, the network could be using 2.55 gigawatts a year, on par with the energy consumption of the entire country of Ireland.

That number comes from estimating the number of devices connected to the Bitcoin network—which is estimated to have at least 10,000 nodes, but those nodes can be either single devices or a group of machines in a mining facility—and the processing efficiency of those machines. However, this approach can only ever provide researchers with a minimum estimate, De Vries writes, "first of all because the network doesn't contain a single type of machine, but also because it doesn't take cooling requirements into account."

As machines mine for Bitcoin, they can produce as much heat as a space heater. Case in point: Circa 2010, I briefly had a roommate in college who built a computer that mined Bitcoin and heated the living room of a small apartment through a Boston winter. Large-scale mining operations have to counter all that excess heat with cooling technology, which requires additional electricity. But Bitcoin mining companies are usually no more transparent about energy expenditures for cooling than they are about mining.

So De Vries turned to economics. More computational power means more Bitcoins, but also greater energy requirements, which cost mining operations money. Naturally, if the costs equal or outweigh the profits, mining Bitcoin no longer makes sense. De Vries used data on the cost and lifespan of mining machines from the manufacturer Bitmain, and electricity use estimates for the machines, to estimate when that equilibrium will be reached and how much electricity the Bitcoin network might be using at that point—a whopping 7.67 gigawatts, it turns out.

The economic model could provide policymakers with important insights into a growing industry—especially as countries around the world attempt to scale back energy consumption to meet the goals of the Paris Agreement. But it still has its limitations. For one thing, Bitcoin mining machine manufacturers like Bitmain are pretty secretive with their data as well, which means De Vries estimates are still just best guesses. For another, an economic model assumes that actors will behave rationally and get out of the game when the costs exceed profits, but that's not always how it works in the real world.

There are many reasons why a person or a company would want to mine Bitcoin at a loss, De Vries notes: the anonymity that Bitcoin provides appeals to some; the fact that the decentralized currency lives up to the libertarian ideal of freedom from a central authority to others; and the high-risk/high-reward nature of the Bitcoin market attracts speculators, to name a few.

Of course, all of this also depends on the price of Bitcoin, which is notoriously unstable. Today Bitcoin goes for about $8,500—less than half of its peak value in December of last year. Depending on who you ask, Bitcoin is either spiraling or poised to re-bound, but it's also not the only cryptocurrency on the market anymore.