Bitcoin mining, Chinese Power and the Law of Unsustainable Increase - Part 1

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Bitcoin. Most people have heard the term. Now as common as Starbucks or George Clooney. Bitcoin is at once a system for payments and a digital money. And most Bitcoins are produced using a natural resource which is one of the worst cause of pollution worldwide. The next time you are thinking about investing some of your money into it, read this and think about the actual overall cost, just for a moment.

The entire system or architecture which allows bitcoins to come into existence and be exchanged is made possible by an entire army of machines, specially-designed computers or more aptly called, computing machines, and those computing machines run on power, usually, electricity. But this power carries a cost, both financial and environmental.

Because most of the power used in order to sustain the Bitcoin market is derived from one of the worst cause of worldwide pollution, we can ask ourselves if the fact that the world is falling in love with Bitcoin and all its relatives (other cryptocurrencies) is a good thing in the end. At the very least, we need to be aware that the disruptive technologies such as blockchain, which are making Bitcoin possible, are having side effects and these might affect an entire planet.

Many individuals have gone into high-stakes business ventures, whose goal is to obtain as many bitcoins as possible. They acquire thousands of bitcoin mining machines, specialized computers, and line them up into rows and aisles and one building after another, and they install their bitcoin farms in areas where the cost of electricity is low or lower than most places. The cheaper the cost of electricity, the cheaper the overall cost of production.

China is a country which has enjoyed for many years a low cost of electricity. This is made possible by the fact that China has an abundant (and relatively inexpensive) source of coal, which is used to produce relatively inexpensive electricity. China produces three times more coal than the second-biggest producer, the U.S.

Even though coal has disastrous effects on the environment worldwide, it is critical for the energy needs of developed and developing countries. As economies grow and increase domestic production of goods, as is the case in China, the need for energy in general and coal in particular is only increasing monthly. The worldwide reserves of coal are astronomical but not nearly enough for the insatiable appetite of the economic superpowers.

China has tried to limit the production of coal in order to diminish the environmental nightmare it is causing in China, and those production cuts caused a greater alarm: coal prices doubled quickly, which means that everything needing electricity in order to be produced in China saw its cost of production rise dramatically, making China not more competitive but much less, to the benefit of other superpowers. A situation clearly unacceptable for the Chinese government.

Main producers, mostly based on China’s western regions such as Inner Mongolia and Xinjiang, are expected instead to boost supplies.

As a result, the NDRC expects total coal output to increase to around 3.9 billion tonnes by 2020, compared to 3.75 billion tonnes in 2015.

It also anticipates that the country will burn around 4.1 billion tonnes compared to 3.96 billion tonnes last year — quite a modest growth rate.

http://www.mining.com/china-steps-up-efforts-to-cut-coal-capacity/

Coal use in China also produces more emissions than all the oil, coal and gas consumed in the United States. And in spite of lethal levels of air pollution and rising sea levels, coal production is reaching new highs year after year.

The next time you hear about Bitcoin in the news or you are watching various Bitcoin markets on charts, wondering if this would be a sound investment, and this propels you into thinking that maybe you should invest a bit more money and build your own Bitcoin farm, in China perhaps, where you are employing thousands of specialized computers and a dozen local workers, remember that even though Bitcoin is flaunted as the currency of the future and might even save the world, according to some people, there is a hidden cost associated to Bitcoin and the entire new field of cryptocurrencies…

If the energy used in order to make those digital currencies comes mostly from coal, it is likely that as we are trying to save the world, we are choking it a little bit more, with each new Bitcoin produced.

If you’d like a technical overview and summary of what Bitcoin is, and how bitcoins are obtained, you can read this condensed version on https://bitcoin.org/en/faq.

 

François Normandeau

 

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