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Originally published at Pacific Standard

According to most observers, the speculative bubble-of-the-year award for 2017—had there been one—would have gone to Bitcoin, the value of which soared from under $800 in January of last year to almost $20,000 by mid-December. In fact, though, Ripple (a lesser-known cryptocurrency) racked up an even more astounding achievement, with a 35,000 percent value increase for 2017. Clearly, investors who passed up cryptocurrencies last year missed the boat of all boats.

Still, not everyone is a Bitcoin booster these days. Researchers at Digiconomist and elsewhere have recently attempted to curb our collective crypto-enthusiasm by calculating Bitcoin’s energy footprint, showing that the Bitcoin system currently uses more electricity than the nation of Denmark. The current algorithm for creating, or “mining,” a Bitcoin is based on computing a supermassive number of hash functions. That undoubtedly takes a lot of energy—yet, owing to the secrecy of the process, no one knows exactly how much. Bitcoin trades, which employ blockchain technology (more about that below), also use a lot of energy: Trading a Bitcoin uses at least 77 kilowatt hours (kWh), according to one estimate—enough to power a large American house for a week. At that rate, if all Visa transactions were denominated in Bitcoin, they would use as much electricity as the entire world currently does for all purposes. (Digiconomist estimates that the transaction energy cost is over three times higher, at 250 kWh/transaction.)

Total energy usage for the Bitcoin system (mining plus transactions) is also a slippery figure. Digiconomist estimates 24 terawatt hours (TWh) per year for the energy use in mining the current year’s supply of Bitcoins, as well as for all the transactions of the 16.8 Bitcoins currently in existence. Taking this consumption estimate and dividing by the total number of Bitcoins yields 1,430 kWh per Bitcoin. At the same time, Mark Bevand, an entrepreneur specializing in digital currencies, has used his blog to walk readers through an agonizingly detailed estimate of electricity consumption and comes up with a much smaller figure of 6.78 TWh/year (as of early 2017). Even at that modest estimate, a single Bitcoin represents 404 kWh of current consumption. I’ll use that number for subsequent calculations.

That’s a lot of energy—but compared to what? Traditional currencies also require energy, though estimating how much again requires a little guesswork, as well as basic math. On the high side of energy usage is gold, which still fulfills one of the functions of money—as a store of value—even though almost nobody uses it anymore in ordinary daily commerce. Gold, whose current value is about $1,300 per ounce, costs approximately $1,000 per ounce to mine, according to one estimate. It’s possible to convert that $1,000 to energy in a rough sort of way by using the energy intensity of the global economy, which is presently about 1.75 kWh per 2005 U.S. dollar (the energy intensity of gross domestic product varies a lot by nation and by industry, and overall has tended to fall slowly in recent decades). By this method, the rough current energy footprint of an ounce of gold would be 1,750 kWh. One effort to more directly calculate the energy cost of gold cites 8.5 gigajoules per ounce for two large Australian gold mines, which would translate to about 2,360 kWh/ounce. Since the two figures are within shouting distance, let’s use the lower one. Dollar-for-dollar, at approximate current values, that makes gold roughly four times as energy intensive as Bitcoin (though, as should be clear by now, all of these calculations are only approximate, and making apples-to-apples comparisons is difficult). The high cost of mining gold is one of the practical reasons we don’t use it for all our monetary transactions these days—that, and the fact there’s nowhere near enough of the stuff to account for more than a tiny sliver of global financial transactions.

Paper money understandably has a much lower energy footprint. A $100 bill reportedly costs 12-and-a-half cents to produce, with a rough equivalent energy cost of 220 watt hours, or 0.005 that of a Bitcoin, dollar-for-dollar.

The lowest direct energy cost for money is likely achieved by dollars the Federal Reserve called into existence through its quantitative easing program: Over the past decade, the Fed created about 25 trillion dollars with negligible energy usage by its staff and computers (though it’s hard to access the Fed’s electricity bills in order to confirm this).

Historically, people have tended to want their tokens of value—shells, beads, coins, and so on—to be intrinsically rare or hard to make for fear of inflation and counterfeiting. Paper and ordinary digital currencies have broken with that tendency. These days when a commercial bank makes a loan, it effectively creates the money by way of computerized bookkeeping entries. The energy consumed in the process is in the form of electricity, as well as human metabolic energy used in the activities of negotiating, verifying, managing, and typing.

According to Modern Monetary Theory, governments should be able to create as much money as needed, with minimal public debt or energy cost. But MMT acknowledges that, if money creation exceeds biophysical resources, inflation is inevitable. As a way of stabilizing the value of money, some theorists have advocated resource-backed currencies; an energy-backed currency (once favored by Thomas Edison and Henry Ford), for example, could also prevent overuse of resources if it functioned as the key element of a national energy-rationing program.

But Bitcoin is not an energy-backed currency; it’s just an energy-intensive currency. Having a Bitcoin doesn’t entitle anyone to exchange it directly for 404 kWh of energy; in fact, at current ballpark retail values ($0.10 per kWh for electricity, $10,000 per Bitcoin), a single Bitcoin could buy 100,000 kWh of electricity. The point is that there are less energy-intensive currencies, and a more widespread use of Bitcoin therefore implies more energy demand for society as a whole, which uses an enormous amount of currency to do its business.

This is a problem because delivering energy requires infrastructure and fuel. If the world is to avert catastrophic climate change, we will have to reduce consumption of fuel (coal, oil, and natural gas) and build vast new infrastructure (solar panels, wind turbines, and energy storage) very quickly. Our only realistic pathways for doing this entail reducing overall energy usage as much as we can without wrecking the economy. Therefore, the 21st century happens to be a terrible time to introduce a new fast-growing currency that could dramatically increase society’s energy needs…

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Originally published at Pacific Standard