Mining is the processing of transactions in the digital currency system, in which the records of current bitcoin transactions, known as a block, are added to the record of past transactions, known as the blockchain.
Speaking at the World Economic Forum in Davos, the International Monetary Fund boss said: “The bitcoin’s mining, which is this accelerated and augmented use of computers to actually determine the value and incentive the functioning of the mechanism, is energy angry.
“And we figure that in 2018, if it continues, that system will actually consume as much electricity as Argentina.”
Research conducted by Bloomberg discovered cryptocurrency miners used more than 37 gigawatt-hours a day, equivalent to 30 1.2-gigawatt nuclear reactors running at full capacity.
Digiconomist’s Bitcoin Energy Consumption Index said the energy used for bitcoin mining could power 4,124,115 US households.
It also uses the same amount of energy as Iraq’s electricity consumption.
It is far from an environmentally friendly process either as most of the world’s mining takes place in China, where the cryptocurrency network is powered by coal-fired plants.
Mrs Lagarde said: “In times of climate change and when we look at how much coal is being used in some Chinese provinces to actually mine bitcoin, it’s a big concern.”
China is trying to clampdown on bitcoin mining but mining in China has become so profitable that even if the value of the cryptocurrency dropped by 50 per cent, miners would still make money.
The mining procedure uses vast amounts of electricity, but even as China experiences its highest ever regulated electricity price of $0.13 per kilowatt-hour, miners are still in a position where the process is profitable.