Bitcoin mining consumes as much electricity as UAE

• The large amount of electricity needed to mine cryptocurrencies will likely exclude them from investors that need to comply with ESG guidelines.

Cryptocurrencies have been some of the most trending assets in recent months, with bitcoin and ether prices reaching record highs. These gains were driven by a flurry of announcements, including increased adoption by businesses men like Elon Musk and other institutions.

DUBAI: Bitcoin mining uses as much electricity as the entire UAE, S&P estimates. The huge amount of electricity needed to mine cryptocurrencies will likely exclude them from investors that need to comply with ESG guidelines, the rating agency said.

It comes as the sector attracts increased attention from investors and regulators after a year of rampant volatility.
“Among the many flaws that cryptocurrencies face is their excessive consumption of electricity,” Mohamed Damak, a senior director at S&P said during an online seminar on Sunday. “Today the number of investors with ESG considerations is just growing and growing every day.”

He said the immense amount of waste and power consumption required could lead to a change in the way digital coins are mined.
“This is probably related to the validation method. There are two of these — the ‘proof of stake’ where you have certain super users who can validate transactions and have ‘proof of work’ where everyone on the network can validate transactions as long as they can solve certain mathematical challenges. That requires a lot of computing power and that is why the network consumes a lot of energy,” he said.
The comparatively short life span of bitcoin mining machines also adds to the waste created by the sector.
China’s State Council, last month, ordered a crackdown on bitcoin mining and trading because of intensive energy consumption.

Bitcoin’s total annual energy consumption surpassed that of the UAE just days after the cryptocurrency hit an all-time high of $64,869.Electricity is a primary input of Bitcoin and other cryptocurrencies. The coins are mined by computers that process complex algorithms in halls that span the area of several football pitches. As the market for cryptocurrency grows, so does Bitcoin’s demand on energy grids.

Cryptocurrencies have emerged as an alternative investment for the past decade, but have been characterised by volatility. But in the last year Bitcoin’s value has increased more than seven-fold on hype from the support of Elon Musk and increasing support from large institutional investors.