Bitcoin – a sustainable investment?

Raiffeisen Bank International’s chief analyst Peter Brezinschek about his view on the current Bitcoin boom:

The name Bitcoin is on everyone’s lips. It represents more than 1,000 other digital currencies that have been developed over the past decade or so as a private response to the loss of confidence in the money system as a result of the financial and sovereign debt crisis. These cryptocurrencies are payment systems that make transfers without the intervention of a commercial bank or central bank using complex mathematical algorithms.

It is amazing that despite the rapid growth of Bitcoin and Co, the attention paid to the topic is far greater than its practical significance. All cryptocurrencies together have a market value of approximately $ 200 billion, Bitcoin about half of them. However, global cash and demand deposits are currently over $ 25,000 billion in circulation, apart from savings and time deposits altogether.

Spectacular price gains by Bitcoin and Co, however, have diverted attention away from the crypto-currency payment function to the investment medium Bitcoin and Co. The ECB, with its negative interest rate policy, also has a share in the increased interest in Bitcoin as a form of investment.

Especially in 2017, Bitcoin has broken several thousand-marks in relation to the US dollar more than once. Breaking the USD for the first time in January 2017, Bitcoin has already surpassed the USD 7,000 mark in November. A miracle, would desirable glances on the Bitcoin charts not arouse investment mood. In addition to Bitcoin marketplaces, certificates, funds and, soon, futures for cryptocurrency investments are available. But do they also comply with the responsible claim for sustainability?

In order for the respective system to be safe from criminal attacks, you need complex mathematical equations, which are solved by so-called “miners”. Worldwide enormous computer capacities are needed. And this really consumes a lot of energy. Two years ago, a single Bitcoin transaction consumed the power of 1.57 US households for a whole day! This has improved slightly but not significantly.

And these figures only refer to the more “economical” transactions of currency exchange and allocation of miner bitcoins. Power consumption rises even more in transactions to purchase goods and services due to the more complex cryptographic processes. Recently, on average close to 300,000 transactions take place a day. As a result, energy consumption of the Bitcoin network has already caught up with that of Slovakia, which ranks 64th in terms of country energy consumption.

For the past twelve months, 27.3 billion kWh of bitcoin energy demand is estimated, which accounts for 5 percent of Germany’s total energy consumption. A month earlier, it was only 21 billion kWh. The environmental impact of the Bitcoin network alone with around 8 million tons of CO2 emissions per year corresponds to 43.6 billion (!) car kilometers. Overall, relatively few players already require 0.12 percent of global energy consumption.

As fascinating as the technology behind the cryptocurrency is, it still has to work on its energy efficiency. Sustainable investment looks somewhat different!

Peter Brezinschek, Chief Analyst at Raiffeisen Bank International

Posted in:

Leave a Reply

Your email address will not be published. Required fields are marked *

*