U.S. Treasury Secretary, Janet Yellen, warns investors that Bitcoin is “extremely inefficient.”
In an interview on Monday, February 22, Treasury Secretary, Janet Yellen was asked about her stance on the cryptocurrency giant Bitcoin. Her response was anything but positive and raises serious questions for the world’s leading crypto.
“It’s an extremely inefficient way of conducting transactions. And the amount of energy that’s consumed in processing those transactions is staggering. ”
As a result of these comments, Bitcoin’s (BTC-USD) price, which was at an all-time high of $58,000, fell to $45,500 during the next trading day. It remained between $45,000-$50,000 throughout the week.
Bitcoin energy consumption and carbon footprint
Bitcoin’s energy consumption comes from the process of bitcoin mining. Mining is the operation of using high-powered computers to solve complex mathematical problems which verify transaction information, making the payment network trustworthy and secure. As a reward for mining bitcoin, miners receive small amounts of the cryptocurrency, making the mining process very lucrative if successful.
This process requires high amounts of electricity consumption, however. Researchers at the University of Cambridge estimate that Bitcoin currently consumes around 130 terawatt-hours (TWh). This is greater than the entire annual energy consumption of Argentina, putting it in the top 30 energy users worldwide. They Cambridge researchers say that this number is unlikely to decrease unless the value of the currency drops.
The problem with the Bitcoin mining process is not necessarily that it requires so much energy but rather that the majority of the energy it consumes comes from nonrenewable resources. This is because nearly half of all mining takes place in China which utilizes coal as its primary energy source.
According to Digiconomist, Bitcoin produces 36.95 megatons of CO2 annually, which is similar to the country of New Zealand. Comparably, one Bitcoin transaction equates to 700,000 swipes of a Visa credit card in terms of CO2 generated.
What does this mean for Bitcoin?
If Bitcoin plans to be a globally accepted currency and disrupt the current banking system, its energy consumption is a serious concern. This concern, however, may just be a token for a much larger problem. As technology continues to advance, the need for computing power will only increase, putting even more stress on the world’s energy sources.
“We’re largely powering 21st-century technology with 19th-century energy sources.” – Andrew Hatton, head of IT at Greenpeace U.K.
Criticism from U.S. Treasury Secretary Yellen, who is responsible for advising the president on economic issues, puts serious pressure on these concerns. Despite this, some major companies are beginning to expose themselves to crypto. Companies like Square (NYSE: $SQ) and Tesla (NYSE: $TSLA) have added it to their balance sheets, while PayPal (NYSE: $PYPL) allows users to buy and sell it.
Being such a highly speculative asset, the question of efficiency may make or break the future for Bitcoin.