How Much Energy Does Bitcoin Use?
14 Giugno 2022 - 12:06PM
Finscreener.org
When Satoshi Nakamoto introduced Bitcoin
(BTC)
to the world in 2009, he had in mind a peer-to-peer cash system that would re-shape the traditional financial
landscape. However, the
crypto development took a different route from the
original vision. It has become an attractive speculative asset and
a precious store of value, with a leading, gold-like role in the
virtual realm.
However, that’s not the main reason experts say
Bitcoin is an expensive and energy-consuming business. Yes, the BTC
price keeps reaching jaw-dropping heights, but the buy-and-sell
process is pretty cheap and flexible nowadays. There is a myriad of
user-friendly crypto exchanges like Coinbase (NASDAQ:
COIN) that enable you to
make a USD-to-BTC transaction directly from your iPhone
(NASDAQ: AAPL).
Instead, the
energy-consuming nature of Bitcoin lies in its decentralized
technology that maintains the lifecycle of the coin and prevents
any type of double-spending manipulation.
How Does Bitcoin Consume
Energy?
Despite the mainstream narrative, Bitcoin is a
virtual-only currency that spends its “life” on a public,
independent ledger or what we call the blockchain. The Bitcoin blockchain utilizes a
Proof-of-Work (PoW) consensus mechanism that operates in a
trustless way by allowing all network participants to verify the
transaction legacy. The verification is synchronized with the
process of minting new bitcoins, popularly called
Bitcoin
mining.
As
Bitcoin’s value grew over time, the BTC mining fever gripped the
world and became the most lucrative crypto field. You don’t have to
meet any eligibility criteria to join the blockchain — but here’s
the catch. The PoW system doesn’t increase the production of new
coins in proportion to the demand but raises the minting difficulty
instead. And, the criterion-measure for producing new coins
is electricity. The more power you can provide, the higher the
chances of earning coins.
Bitcoin
Mining
Miners get a certain amount of bitcoins for
every block
of transactions they verify and add
to the blockchain. The block is labeled with unique data and
converted into a 256-bit string. The first miner to un-convert the
block data into its initial format earns the right to verify the
transaction, so there is quite fierce competition. Since the
SHA-256 hash function is irreversible, the only way for miners to
solve this equation is through guessing. Each attempt or
hash requires a certain amount of computing power
and, by extension, energy.
For
illustration, the first Bitcoin was mined in 2009 by Nakamoto
himself from a computer for personal use. After 2010, when BTC got
a monetary value, first-gen miners started using GPU-enhanced
computers for a better competitive edge. Soon afterward, the
original Canaan (NASDAQ: CAN) ASIC
mining rigs appeared and placed Bitcoin mining on an
industrial level. For instance, a mining farm in Kazakhstan
runs 50,000 mining
rigs.
How Much Energy Does
Bitcoin Use?
Now, let’s convert the transaction units into
kilowatt-hours. On average, the blockchain needs 707 KWh to process
a Bitcoin transaction, with a strictly defined capacity of 2.58
transactions per second. Thus, we can calculate that the annual
rate of Bitcoin electricity use is nearly
127 TWh.
If
you’re wondering whether this is a high or a low rate, let’s put it
this way — the annual electricity consumption of Bitcoin exceeds
the entire consumption of Argentina. Compared to other industries, Bitcoin ranks
in
energy consumption
after banks (650 TWh) and gold
mining (200 TWh).
Does the Bitcoin
Electricity Consumption Affect the Environment?
While we can easily calculate the electricity
consumption rate, the environmental impact depends on multiple
inconsistent parameters like local power distribution, energy
sources, etc. Experts’ opinions and data analysis also vary to a
great extent on whether Bitcoin mining is an
environmentally-unsustainable industry. For example, the Cambridge
Centre for Alternative Finance (CCAF) estimated that
39% of the BTC energy consumption
was carbon neutral in
2020, while the CoinShare research of 2019 suggests a
much higher number —
73%, based on the fact
that the largest mining plants rely on
hydropower.
Final Words — The
Electricity Consumption Future of Bitcoin
Bitcoin (BTC) has
gone quite a way ahead of itself in a single decade. When it comes
to electricity consumption, numbers are high but not necessarily
concerning because:
-
Unlike many other
industries, you can mine Bitcoin everywhere and hence, adjust the
production to all existing energy sources.
-
Bitcoin has a
limited supply, which is getting closer to its endpoint of 21
million units
-
Bitcoin can
replace the current PoW mechanism with a more sustainable one
— Proof-of-Stake (PoS).
Finally, in the
same CCAF study, avid crypto miners claim that asset profitability,
not electricity costs, is the deciding factor when choosing a
mining arena.
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