The Dilemma of Energy Consumption: Crypto Mining vs. AI

Exploring the Decentralized world

I’ve been thinking a lot about the energy consumption of emerging technologies, particularly cryptocurrency mining and artificial intelligence (AI). It’s clear that both consume significant amounts of electricity, which raises questions about sustainability and the role of government intervention. This reflection is particularly relevant in light of the recent discussions from the International Monetary Fund (IMF) regarding the need to tax mining to achieve ecological goals.

The Case Against Crypto Mining

Crypto mining has garnered a lot of criticism for its excessive energy use, primarily due to the nature of the process. Miners utilize powerful computers to solve complex mathematical problems, ultimately validating transactions on the blockchain. However, many of these machines are inefficient, often described as “shitty computers” that lack the necessary bandwidth and internal components to operate effectively. The result? A staggering amount of electricity is consumed in the pursuit of finding a small hash, which many argue is a wasteful endeavor.

The situation is exacerbated by large mining companies, particularly those listed on stock exchanges like NASDAQ. These entities continuously invest in more mining machines, driven by a relentless pursuit of profitability. This greed not only contributes to environmental degradation but also raises concerns about the long-term viability of decentralized currencies. The reality is that we don’t need an overwhelming number of mining nodes to maintain a functional decentralized currency. A more sustainable approach could involve a single computer in every city or village, effectively decentralizing the network without the excessive energy consumption currently seen.

Moreover, it’s important to note that a significant portion of all bitcoins are controlled by a small percentage of people holding cryptos, further enriching them. The e-waste from ASIC miners, which are chips that cannot be repurposed, is an ecological disaster that disrupts the global supply chain of other electronic devices.

The current state of cryptocurrency mining is far from the original vision of Satoshi Nakamoto, the creator of Bitcoin. The idea was for the masses to mine Bitcoin on their personal computers, not for large companies to establish massive mining farms. These farms consume hundreds of megawatts of power and contribute significantly to the ecological crisis we face.

Furthermore, the concentration of Bitcoin ownership is concerning. Studies show that 0.04% of people holding cryptos control two-thirds of all bitcoins. This concentration of wealth is reminiscent of a Ponzi scheme, where the majority of the wealth is held by a small group of individuals at the top.

The environmental impact of Bitcoin mining is also alarming. The carbon footprint of a single Bitcoin transaction is equivalent to 2,724,001 VISA transactions or 204,842 hours of watching YouTube. The energy consumption of that same single transaction is equivalent to the power consumption of an average U.S. household over 75.53 days.

While cryptocurrencies and blockchain technology have potential benefits, their current implementation, particularly in the form of large-scale mining operations, raises serious concerns about sustainability and wealth distribution. It’s crucial to consider these issues and work towards more sustainable and equitable solutions.

The Case for AI

On the other hand, the energy consumption associated with AI presents a different narrative. The computational power harnessed by AI can lead to significant advancements in various fields, including weather forecasting, satellite navigation, and scientific research. The bandwidth capabilities of AI systems have dramatically improved, with speeds soon reaching up to 1 terabit per second. This level of efficiency and capability can yield substantial benefits for society, making the energy consumption more justifiable.

On the other hand, the energy consumption associated with AI presents a different narrative. While concerns about the environmental impact of AI are valid, it is essential to recognize the potential benefits that come with its energy use. The computational power harnessed by AI can lead to significant advancements in various fields, ultimately contributing to societal progress.

One of the most notable areas where AI is making a difference is in weather forecasting. By analyzing vast amounts of data, AI systems can improve the accuracy of predictions, helping communities prepare for severe weather events. Additionally, AI plays a crucial role in satellite navigation, enhancing the precision of location services that many people rely on daily.

Moreover, the bandwidth capabilities of computational power for AI systems have dramatically improved, with speeds soon reaching up to 1 terabit per second. This level of efficiency and capability can yield substantial benefits for society, making the energy consumption more justifiable. As AI continues to evolve, its potential to drive innovation and improve quality of life may outweigh the concerns surrounding its energy demands.

The Role of Taxation

The IMF has highlighted that crypto mining and data centers now account for 2 percent of global electricity use and nearly 1 percent of global emissions, with their footprint growing. For instance, one Bitcoin transaction requires roughly the same amount of electricity as the average person in Ghana or Pakistan consumes in three years. Similarly, ChatGPT queries consume ten times more electricity than a Google search. The climate impact of these activities — irrespective of their social and economic benefits — is cause for concern.

In light of these contrasting scenarios, the question arises: should governments impose taxes on these industries? While some may view taxation as a hindrance to growth, it can also serve as a necessary tool to mitigate the absurdity of unchecked energy consumption. According to IMF estimates, a direct tax of $0.047 per kilowatt hour could drive the crypto mining industry to curb its emissions in line with global goals. If considering air pollution’s impact on local health, that tax rate would rise to $0.089, translating into an 85 percent increase in average electricity prices for miners. Such a levy could raise annual government revenue of $5.2 billion globally and reduce annual emissions by 100 million tons.

Taxation can act as a deterrent, slowing down the pace of excessive consumption without resorting to heavy-handed law enforcement. It allows for a more measured approach to addressing the environmental impact of these technologies while still fostering innovation in areas like AI, which has the potential to drive significant societal advancements.

The conversation surrounding energy consumption in crypto mining and AI is complex and multifaceted. While crypto mining often exemplifies wastefulness driven by greed, AI represents a more constructive use of computational power. As we navigate this landscape, it is crucial for governments to consider the implications of taxation as a means to promote sustainability and responsible innovation. Ultimately, finding a balance between fostering technological growth and protecting our planet is essential for a sustainable future.

« while cryptocurrency mining exemplifies wastefulness driven by greed, AI harnesses power for meaningful advancements. Taxation could be a vital tool for promoting sustainability and ensuring that technological growth benefits both society and the planet. »

Patrick Tamba Widmer, Zug, October 13th 2024.

 Medium Blog Post

Links

Here are some great stuff to read:

1. Carbon emissions from AI and crypto are surging, and tax policy can help |  PDF version
2. Surprise: One-third of all Bitcoin is owned by 10,000 individuals |  PDF version
3. NBER Paper on Cryptocurrency |  PDF version
4. Top 100 Richest Bitcoin Addresses |  PDF version
5. The environmental impact of Bitcoin mining |  PDF version
6. Scientific Article on Cryptocurrency |  PDF version
7. MHPS J-Series Gas Turbine Fleet Achieves One Million Commercial Operating Hours |  PDF version