Here are a few things you might not know about bitcoin, the cryptocurrency that has captivated the financial world after skyrocketing about 2,000 percent in a year to more than $19,000 per coin at one point.
The computer process that generates each coin is said to be on pace to require more electricity than the United States consumes in a year. This bitcoin "mining" allegedly consumes more power than most countries use each year, and its electricity usage is roughly equivalent to Bulgaria's consumption.
But here's another thing you might want to know: All of that analysis is based on a single estimate of bitcoin's power consumption that is highly questionable, according to some long-time energy and IT researchers. Despite their skepticism, this power-consumption estimate from the website Digiconomist has quickly been accepted as gospel by many journalists, research analysts and even billionaire investors.
"Companies who make big investment decisions based on numbers that are highly uncertain are almost always going to get burned. It's just a mistake to jump to conclusions."
That model is also the basis for forecasts of bitcoin's future energy use that remind some experts of wild projections about internet data traffic in the mid-1990s that contributed back then to companies spending far too much for capacity they would eventually not need.
"Doing these wild extrapolations can have real-world consequences," said Jonathan Koomey, a Stanford University lecturer who pioneered studies of electricity usage from IT equipment and helped debunk faulty forecasts in the 1990s. "I would not bet anything on the bitcoin thing driving total electricity demand. It is a tiny, tiny part of all data center electricity use."
There is no doubt that bitcoin has an energy efficiency problem. New units of digital currency are created by solving equations, a process known as bitcoin mining that was designed to reward participants with bitcoins roughly every 10 minutes.
That design controls supply and provides security. However, as more computing power works to solve the equations, the problems become harder to crack. This has led miners to apply even more processing power to the problem, which will presumably require an ever-growing amount of energy.
This is a theme that media outlets such as Bloomberg News, CBS, CNN — as well as CNBC — and others have echoed in articles citing the Digiconomist data. It has also been cited in research reports and financial newsletters and by closely followed investors like Stanley Druckenmiller in an interview on CNBC last week. But we are learning now that this energy-gobbling estimate, which has also been cited in bearish cases about bitcoin, may be flawed and has been used to make an extreme extrapolation assumption seen in the past when new technologies emerge.
Mysterious bitcoin 'mining'
Bitcoin mining is now being done at dedicated data centers that have sprouted up from Iceland to Inner Mongolia, where electricity prices are cheap. Much of the mining takes place in China, which generates most of its electric power from coal, prompting warnings that bitcoin threatens to wreck the environment and supersize the world's carbon footprint.
Several energy experts caution that there is currently no reliable, verifiable way to measure just how much electric power is consumed in the process of minting the cryptocurrency. They say the first step is gathering hard data from the data centers, and no one has done that work yet.
"Many of those calculations that you see today I think are based on very weak assumptions," said Christian Catalini, an assistant professor at the MIT Sloan School of Management who studies blockchain technology and cryptocurrencies.
"I don't think anybody can make a credible claim about the current" electric power use for bitcoin mining "without actually having data from the miners."
In the absence of hard data, the market is turning to other sources to comprehend bitcoin's impacts on global energy demand.
Just this week, Nomura speculated that bitcoin could start influencing energy markets in 2018.
"So perhaps the grey swan of next year is not Bitcoin's bubble bursting, as so many commentators tend to suggest, but instead it's [sic] continued rise and a surging demand for coal," Nomura analyst Jordan Rochester wrote.
Nomura noted that power used to mine bitcoin is estimated at 33.2 terawatt hours. That figure came from the bitcoin energy consumption index, which is updated daily on the cryptocurrency website Digiconomist.
Digiconomist's index has emerged as something of an authority recently. The index was developed by Alex de Vries, a 28-year-old consultant for PwC with a background in data and risk analysis who now specializes in blockchain, the technology that underpins bitcoin. He founded Digiconomist as a hobby in 2014 and acknowledges he has no previous experience in energy economics.