How would a global recession affect cryptocurrencies

This money is already being born dirty

The crypto currency Bitcoin devours gigantic amounts of electricity. Anyone who wants to get rich with the new money accepts that. Excursions to those who believe the big promises.

By Benjamin von Wyl, Florian Wüstholz (text) and Florian Bachmann (photos)

It's loud as hell. Dozens of fans and hundreds of computers rattle. The electricity generated by the power plant below is consumed under the roof. A fire escape at the back of an Aargau hydropower plant leads into the semi-darkness of one of the last Swiss Bitcoin mines. The paint is peeling off the ceiling, but the computers are new. They “mine” cryptocurrencies such as Bitcoin and Ethereum around the clock. In the next room, empty white plastic packaging piles up to the ceiling.

“It's fascinating that I can plug in a computer and it prints money,” says Yves Hörler. All that is needed is the internet, electricity and fresh air. This “Bitcoin farm” works almost completely automatically. If there is a problem, Hörler receives a message on his cell phone. The last time he was here was six weeks ago.

Bitcoin mining is a sideline for the 32-year-old. In view of the absurd fluctuations in the price of cryptocurrencies, he would “sleep very badly” if it were his main job. Sometimes a daily profit of 100,000 francs beckons, sometimes losses of the same amount. The computers do not belong to him, but to the investors in his company. One person invested two million francs, most of them less. Even if someone wants to mine a single device for 10,000 francs, Hörler comes from Eastern Switzerland to show the system. The personal, the exchange is important to him.

The hydropower plant could supply almost 20,000 single-family homes with electricity. Hörler's company branches off about a tenth of that. Hörler is proud that he can rely “one hundred percent on hydropower”. He accepts the power consumption. The mining of diamonds and gold also destroys the environment. Oil and coal as well. «Everything is somehow a business model. Somebody is doing it anyway, why shouldn't I do it as ecologically as possible? ”Says the entrepreneur.

No profit without cheap electricity

Bitcoin's electricity consumption is gigantic, the system global: Bitcoins are mined in relevant quantities in over sixty countries. How efficient are the devices? Do they run on coal or water? According to an estimate by the Center for Alternative Finance at the University of Cambridge at the end of March 2021, Bitcoin currently consumes around 140 terawatt hours (TWh) annually. That is comparable to the electricity consumption of Malaysia with its 30 million inhabitants; it is far more than double the consumption in Switzerland. And it is increasing at breakneck speed: In December 2020, the Center for Alternative Finance estimated the annual consumption to be a good 100 TWh.

Most of the electricity is consumed by mining, Hörler's business: many computers that solve arithmetic problems until the Bitcoin system spits out another digital coin. Hörler's eco-Bitcoins flow into a system that is kept running to a large extent by cheap coal-fired electricity from Kazakhstan, Russia and China. Because the cheaper the electricity and the higher the Bitcoin rate, the more profitable the prospecting. Two thirds of the computers rattling for Bitcoin are in China; within China, most of them are in the Uyghur province of Xinjiang. There, electricity production is based on coal and gas - as in Kazakhstan, where there are also many farms. After all, 39 percent of the electricity used for Bitcoin is renewable - according to the estimate of the 3rd Global Cryptoasset Benchmarking Study by the University of Cambridge from September 2020.

In the year 2140 the 21 millionth and last Bitcoin will be "mined". This is how the mysterious Bitcoin inventor programmed the crypto currency with the pseudonym Satoshi Nakamoto. A handful of new bitcoins are fed into the system about every ten minutes - every four years the reward that miners receive is halved. As long as all of this is financially worthwhile, electricity consumption will continue to rise.

The widespread power outages in Iran at the beginning of the year illustrated how devastating the power hunger of Bitcoin farms can have. A Bitcoin farm in the southeast of the country probably caused several blackouts in Tehran, Mashhad and Tabriz due to a sudden increase in power consumption. As a result, the state electricity company stopped all Bitcoin prospecting for the time being; The government offered a reward for information on unauthorized Bitcoin farms. In 2018, the Canadian province of Québec introduced a moratorium on new farms. And the Chinese province of Inner Mongolia has been banning prospecting since April - for fear that the Chinese CO2- Missing reduction targets.

According to the “Bitcoin Energy Consumption Index” by the Dutch economist Alex de Vries, a single Bitcoin transfer currently generates a CO2-Emissions of almost 400 kilograms - as much as a flight from Zurich to Moscow. Recently, de Vries even came to the conclusion that in the current hype, Bitcoin farms consume almost as much electricity as all other data centers in the world combined. Bitcoin fans deny this and refer to the “Bitcoin Mining Network Report” published by the crypto-affine group Coin Shares Research at the end of 2019: Almost three quarters of the electricity for Bitcoin comes from renewable sources - and a large part of the energy used would otherwise go unused.

Whether that is true is more than questionable. Lena Klaassen has been doing her doctorate at ETH Zurich in the Climate Finance and Policy group since February. Before that, she worked on several international studies dealing with the development of power consumption and the climate impact of Bitcoin. Klaassen says: "If sustainable electricity is used for mining, this energy may be missing elsewhere in many cases." In order for Bitcoin farms to become more ecological in the future, the entire electricity sector would have to be "decarbonised quickly and comprehensively," she says. “Miners are primarily looking for cheap electricity, not renewable electricity per se. They want to keep their hardware running constantly for economic reasons. "

The calculation of the electricity consumption is not an easy undertaking - comparable to the attempt to calculate the CO2-Calculate the balance sheet of banks. One of the most important starting points for research approaches like that of Klaassen is the computing power of the Bitcoin network. «This is relatively well documented. We can calculate the minimum consumption if we optimistically assume that everyone is using the most efficient hardware. ” Alternatively, the current market price could serve as a starting point. "For mining to be profitable, local electricity costs must be covered."

The problem: Nobody has an overview of exactly where the farms are and what they are paying for their electricity. The operators are not exactly cooperative. “Obtaining reliable data is not easy. The miners are keeping a low profile, ”says Klaassen. Even Hörler did not want to reveal to the WOZ the preferential price at which he converts electricity into money. And he insisted that the exact location of the hydropower plant could not be given "for insurance reasons".

Bitcoin donation for the climate?

Bitcoin leads a shadowy existence as a means of payment. In the uncertain situation due to Corona, however, many people invest part of their savings in Bitcoin. That increases the demand. You can now change francs into bitcoins at every SBB machine. 1500 people do this per month, according to the Federal Railways. Soon you should be able to buy Bitcoin vouchers at every kiosk and in the manor. The online mail order giant Digitec Galaxus also accepts Bitcoins. Customers push Bitcoins over the digital counter about 200 times a week. And on the crowdfunding platform Wemakeit, climate protection projects can be supported with Bitcoins. The SOS Kinderdorf charity accepts donations in Bitcoin and other crypto currencies. As of this year, taxes of up to CHF 100,000 can be paid in Bitcoin in the canton of Zug. The first payments have already been received.

Anyone who paves the way for Bitcoin is certain that something big is coming: when asked, the Valora kiosk company is convinced that “the demand for Bitcoin products will rise sharply in the coming years”. Manor answers almost word for word. SOS Children's Villages sees “an interesting new donor target group”; As a “first mover”, the charity hopes for advantages: crypto donations are expected above all from the scene of “young investors and e-athletes” who “like to invest their profits in a good cause”. Digitec Galaxus expects that Bitcoin will “become a relevant means of payment in the future”. And the state-run SBB had confirmed the demand in a “market test”.

Companies are concerned about the waste of electricity. The SBB is hoping for “great efforts worldwide” to reduce energy consumption. "We are not enthusiastic about the high energy consumption of Bitcoin and other crypto currencies," writes Digitec Galaxus. According to the sustainability report, Valora also wants to “reduce its own impact on the environment”. The kiosk company is aware of the "tightrope walk" with the Bitcoin vouchers. At SOS Children's Villages, anyone who wants a “livable future for all children” also thinks about a healthy environment. Most of the crypto donations are made in the currency Ethereum - which, however, is almost as harmful. At Wemakeit, within ten days and despite inquiries, nobody found time to answer the question of how the commitment to climate protection goes together with Bitcoin as a means of payment.

The canton of Zug, which has long positioned itself as the “Crypto Valley”, is different. "We in Zug are a pioneer of blockchain technology and have made it our task to continuously promote and simplify the use of crypto currencies in everyday life," said Zug SVP Finance Director Heinz Tännler to WOZ. With the new companies and jobs, the "common good" should also be increased. Bitcoin and other cryptocurrencies are a kind of reason of state here. For Tännler, who also presides over the Blockchain Federation, the energy balance is “a topic that needs to be carefully analyzed”. He, too, refers to the idealizing report by Coin Shares Research and raves about the “highly mobile” miners who made up superfluous energy around the world and built their farms there.

The dream of free currency

For many who trade, save or mine Bitcoin, the deeply rooted anarcho-capitalist narrative plays a role: Bitcoin is a currency without a central bank or state. It is regulated on a decentralized basis by supposedly free individuals in the market. "Today this fairy tale is practically over," believes the history professor Monika Dommann, who has dealt with the scene. Big players dominate. In February, Tesla invested $ 1.5 billion in Bitcoin. There are always transactions over several hundred million dollars. Nevertheless, the “cultural aspect” of this libertarian character is still important for the self-image, says Dommann. "You feel part of a great change in the world." Anti-centralist regions in particular, such as central Switzerland or the Valais, may be particularly suitable for such theories and narratives.

A few years ago, Gondo was hoping for a second gold rush on the Simplon Pass with a cryptocurrency farm like the one Hörler runs. There is hardly anything left of the hype today. Two years ago, the municipality of Zermatt installed a Bitcoin exchange machine in the village and has been accepting tax payments in Bitcoin ever since. With little success. "The proportion of the tax payments is negligibly small," says the city council president Romy Biner-Hauser. Specifically: there were three transfers. Not even Bitcoin fans from Valais move to Zermatt because of this.

Not even Samuel Hirschi from the Bitcoin office in Goms. His “office” in the Upper Valais village of Münster is supposed to be a meeting point - and looks more like an in-between space in which someone only lives temporarily. Hirschi serves syrup. Shoes and clothes are piled in one corner, and the handwritten notes for his idea of ​​a mobile phone app are piled up in another. In between there are stacks of trading cards from the Japanese Yu-Gi-Oh! Game. "End was - buy Bitcoin" is on one of many Bitcoin advertising stickers: End war, buy Bitcoin. In the absence of chairs, the 26-year-old sits on the edge of the window while he tells what Bitcoin means to him: everything.

He just gives visitors “ideas on how to invest,” says Hirschi. He is not a financial advisor. His idea is simple: invest in Bitcoin. What is he hoping for? «Be free», that is, financial independence. Hirschi would like to establish “a community” in Bern or Greece - with “young inventors who want to create something great”. Until then, he works on the ski lift in the village and puts everything he can wrest from his wages into Bitcoin.

Hirschi exudes missionary zeal and dreamy friendliness in equal measure. In the run-up to the interview, he sends the “best video” on Bitcoin: “Ten Million Dollar Bitcoin End Game”. In it, a voice explains why Bitcoin means the future. Because central banks create money out of nothing, there is national debt, hyperinflation, financial crises and recession. In between, Twitter founder Jack Dorsey and the right-wing investor Peter Thiel explain why Bitcoin will turn the financial system upside down. The contents are selectively combined and support a narrative of salvation: like the Internet thirty years ago, Bitcoin is currently underestimated and the “final state of innovation” is misunderstood.

Hirschi describes himself as "politically moderate". He does not want to overthrow the government or abolish all central bank currencies. At least he likes the Swiss franc. "But what about countries like Venezuela, Argentina or Iran, where you have inflation of one hundred percent or more per year?" Unlike the money we use in everyday life, the amount of bitcoins is strictly limited.

That is why believers like Hirschi consider Bitcoin to be an instrument that creates justice: In the current monetary system, the rich who invest in companies or real estate would stay rich. Everyone else would lose money constantly because of inflation. Bitcoin take it from the rich and give it to everyone. Hirschi ignores the fact that Elon Musk and hedge funds are involved in Bitcoin speculation. He doesn't seem to know that Bitcoin is also a means of the rich, especially in Venezuela, to send money abroad and circumvent international sanctions. The extreme price fluctuations hardly worry him. In the long term, the price must rise. «Bitcoin is Gold 2.0. All the good qualities of gold have been taken and the bad ones have been eradicated. By 2030, Bitcoin will be bigger than gold, ”believes Hirschi.

Hirschi hopes that his Bitcoins will soon be valuable enough that he can use them to buy a house and make a living from the profits from his investments. “I don't see anything bad about this goal. In the end, Bitcoin simply doesn't harm anyone. " What about all the electricity? "The banking system and gold mining are consuming a lot more," he replies. At the end of the meeting, Hirschi reminded of privileges in his own way: "It's easy to criticize other people when we have a roof over our heads here and enjoy a stable currency." So for Hirschi, environmental concerns are a privilege. He thinks it is “not fair” to ban Bitcoin “just because it uses a little electricity”.

Home savings with the Bitcoin

The 27-year-old Lino Imhof from Brig has a more analytical look at Bitcoin. The trained cabinet maker started online currency trading a few years ago with a few friends. "You play against bankers who have billions," says Imhof. “One trades in oil and raw materials, the other in futures. I trade in currencies and work in the crypto sector. " The Trader-Freundeskreis moved into this office recently, and the most important thing has been set up: four screens per workstation. The worst trade of the week is listed on a whiteboard.

The craftsman from left-wing alternative parents cannot really explain how he got into currency and Bitcoin trading. "I am not a type of gambler," explains Imhof, who also does not make a living from profit from crypto currencies. He earns his living with jobs in agriculture and nature conservation. Perhaps the need for financial independence is inherent in all people - “even if this materialistic stuff sucks. Stupidly, it's not Bitcoin's fault that our society is about capital growth. "

As for Hirschi, the rebellion against the established financial world is a driving force for Imhof: The destruction of the monetary system would be a "nice side effect" of his own prosperity for him."All of our currencies are geared towards inflation, which is anything but sustainable." If the artificially scarce Bitcoin were ever to become a means of payment in everyday life, that would be "very good again" for the environment. Then, "if it were worthwhile for hedge fund managers to keep their money instead of putting it in a Chinese slave company for profit." In the meantime, a few little people could also fulfill their dreams with the Bitcoin. Like Hirschi, Imhof hopes for "a little freedom" through his Bitcoin investments: He wants to be able to travel for a year, one day own a house. In conversation with the young men, Bitcoin looks like the anarcho-capitalist counterpart to the building society contract of the nineties.

Imhof is concerned with the consequences of his actions. He is correspondingly critical of the crypto scene: “You will find tens of thousands of videos on how to get rich with Bitcoin, and such blah blah. But there is hardly anything about the ecological aspects. " Imhof also brings up the high proportion of renewable energy in Bitcoin. He has not flown for six years, he hardly uses his car - apart from the crypto business, he has an “extremely small ecological footprint”. "Until the last bitcoin is mined, energy consumption will hardly go down," he believes. It is clear to Imhof that you cannot wait 120 years.

That's why pressure is needed. SP National Councilor Fabian Molina submitted a postulate in the spring session calling on the Federal Council to prepare a report on the energy consumption of crypto currencies, which are based on the energy-intensive structure of Bitcoin, and to promote alternatives that are less harmful to the climate. What else can you do?

A ban on Bitcoin farms in Switzerland would be of no use. At least one Bitcoin billionaire lives in the country; But there is hardly any mining except in the Aargau hydropower plant. As with the old money, Switzerland is also a stronghold of gray energy with this new money. Regulation is difficult. Ecological requirements are impossible because there is simply no body to which conditions can be imposed. Bitcoin is, even stronger than other cryptocurrencies, an extremely decentralized system: it is determined solely by supply and demand and the promise of scarcity - it is the pure market of neoliberal wet dreams.

So if the liberal promise that problems will be solved by the market would have to be proven somewhere under laboratory conditions, it would be with Bitcoin. But here too, environmental degradation affects everyone; few enjoy the profits. Unfortunately, the experiment takes place on the planet and not in a test tube.

Why the Bitcoin eats up so much electricity

Bitcoin is a decentrally organized cryptocurrency that is based on the blockchain. Every ten minutes new transactions are executed and verified by prospectors - the compensation for this currently amounts to several hundred thousand dollars.

Around a million of these computers are in competition with each other worldwide, because the transactions are only ever allowed to be carried out by the first to solve a labor-intensive mathematical problem. The more computing power is invested, the greater the chance of winning this race regularly and thus making a profit.

This system is called “Proof of Work” and ensures that no one can manipulate transactions. However, it also means that the Bitcoin network consumes a lot of electricity: the higher the Bitcoin rate, the more profitable mining becomes and the more computers are connected to the network. Other of the more than 8000 cryptocurrencies protect themselves against manipulation in a less power-guzzling way (see WOZ No. 5/2018).

This article was made possible by the research fund of the ProWOZ association. This fund supports research and reports that exceed the financial possibilities of the WOZ. It is fed by donations from WOZ readers.

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