"Bitcoin now uses as much energy as Ireland" was a recent headline in the Telegraph and across many other news sites. This follows analysis by PwC that the bitcoin network now uses 2.55GW of electricity and that could triple by the end of 2018.
Why does bitcoin use so?
The simple answer is that a lot of computing power goes in to mining bitcoins and all these computers require electricity.
To Kai's comment of "Because of all the computing power" while, yes that is correct the next question should be "Why does bitcoin need all that computing power?". This, to the surprise of many, is that it doesn't need it. For bitcoin to function it needs just one computer, However this would make it a centralised system, it needs more to be decentralised. but nowhere near as much as it has.
So, why does it have all this computing power if it doesn't need it?
Miners compete every 10 minutes for 12.5 bitcoins. Or at $7,000 a bitcoin. $87,500 every 10 minutes. or $4.6 BILLION in a year.
Estimates suggest currently around 10% of this is spent by bitcoin miners on the equipment, assuming 5% is required for man power / profits that means 85% of this can be spent on electricity costs and mining remains profitable.
Basically Bitcoin makes it profitable to spend around $4Bn on electricity
What can be done about it?
Every ~4 years the number of bitcoins rewarded to miners halve until it will eventually (another 200 years) hit zero. As the reward reduces there will be less to be spent on electricity. This of course all depends on the value of bitcoin, Should its price double every 4 years, electricity usage will remain constant.
With the greening of the electricity mix there will be less CO2 produced through this electricity use, but no less electricity used. In fact, if this were to reduce electricity costs, it will increase use, increasing the cost would reduce it.
These calculations are specific only to Bitcoin, other cryptocurrencies have different reward structures and electricity usage will be based around that. One clear result you get from these calculation is, unlike many claim, cryptocurrencies don't have 'real' value because of the electricity it costs to generate bitcoins, the electricity used to generate a bitcoin is tied directly to what they already cost.
A fully centralized cryptocurrency that doesn't need to offer rewards at all would not have these energy costs.
N.B. These calculations assume energy parity is always met, obviously mining power does not and cannot react instantaneously to bitcoin prices.
I have also attached below my calculations I had previously done to inform myself of bitcoin energy use, where I had specific interest in CO2 per bitcoin transaction. These transactional costs are fixed in many other cryptocurrencies by just allowing more transactions per block.
Bitcoin transaction fees etc.
Bitcoin Reward (every 10 mins) = 12.5BTC
Bitcoin Value = $7,000 / £5,250
Reward Value = $87,500, £65,625
Bitcoin block = 1,000,000 Bytes
Avg Transaction size = 495 Bytes
Avg Transactions/block = 2020
Reward Value/ Transaction = $43.32/£32.49
Profit = 5%
Equipment = 10%
Energy = 85%
Energy Value/ Transaction = $36.82/£27.61
Energy Costs = 14.37p/kWh
kWh / Transaction = 192kWh
2017 GB avg Carbon intensity = 292 g/kWh
gCO2 / Transaction = 56,064g