If there are two things people are likely to know about Bitcoin they’re volatility and energy consumption.
While Bitcoin is becoming more and more mainstream, criticism of its environmental impact continues to grow. So, why is Bitcoin energy consumption so high, and what can be done about it?
What Is Crypto Mining?
Different cryptocurrencies function slightly differently, but many, including Bitcoin, rely on what’s known as a proof-of-work model. This model is an intrinsic part of the system, helping to verify transactions and bring new coins into the system.
In a proof-of-work model, lots of transactions are packaged into a block which is encrypted with a complex puzzle. Once a block is formed (roughly once every ten minutes), miners then compete to solve the puzzle and verify the transactions. The miner who wins the race to solve the puzzle is then rewarded with freshly minted cryptocurrency, in the case of Bitcoin, 6.25 Bitcoins.
At Bitcoin’s current value, that reward currently works out to $408,000, so it’s little wonder that many people are intrigued by the prospect of crypto mining.
The thing is, mining may have started off as some tech-savvy people solving complex equations from their bedrooms, but today, it functions on an industrial scale. This has seen Bitcoin energy consumption go through the roof and it’s an issue that’s received a lot of attention.
Bitcoin Energy Consumption in Numbers
Given that cryptocurrencies aren’t tangible things, you may be thinking “how bad can it be?” Well, the headline numbers are pretty bad. When an industry consumes more energy than countries like the Netherlands and Argentina, it’s going to get some attention.
In fact, Bitcoin’s energy consumption would put it in the top 30 for world nations.
- Bitcoin consumes roughly 121.36 TWh a year
- In 2017, Bitcoin consumed 6.6 TWh a year, rising to 67 TWh in 2020
- One Bitcoin transaction has the same energy footprint as 80,000 Visa transactions.
- It’s estimated that between 40% and 75% of this energy is from renewables.
These figures are certainly eye-catching, but as many people point out, there are a lot of industries that consume vast amounts of energy. Another element is exactly how much of this energy is coming from renewables – 75% is very different from 40%!
Bitcoin is still in its infancy, and it clearly has a lot of room for improvement in this area.
Why Is Bitcoin Energy Consumption so Great?
To understand why Bitcoin energy consumption is so great, we’ve got to look at the system again.
The computers that are used to solve the complex puzzles during the mining process are a bit like a human athlete – you’ve got to feed them to fuel their exertion. The more complex work the computer or athlete needs to do, the more you have to fuel it.
Bitcoin has a network cap of 21 million coins. After this point, no more coins are introduced to the system. To manage supply, coins are designed to be introduced steadily into the system (roughly one block is solved every ten minutes).
The thing is, computers have become much more powerful, so they’re able to solve the puzzles more effectively. As the value of Bitcoin has gone up, more and more people are naturally drawn to mining, so there’s ever more computing power in the network.
Surely this means that the puzzles get solved faster and Bitcoin is introduced into the system more quickly?
Bitcoin has a simple way of regulating this – the more computing power there is in the network, the harder the puzzles become to solve. This keeps a steady flow of new coins coming into the system, but it also means the computers have to work harder to verify the transactions.
The more miners there are competing, the more computer power there is in the network, the harder the computers work to solve the problems, the more energy they consume.
It’s a Bitcoin energy consumption circle, and the worst part is, only one of those computers wins the race to solve the puzzle – the other 99.9% of energy consumption was essentially for nothing.
What Solutions Are There?
When Satoshi Nakamoto (whoever they might be) dreamt up Bitcoin, they probably couldn’t have imagined where it would be now.
The idea was a way to make financial transactions without relying on a third party to facilitate them, but at the moment, that’s not what it’s used for. Instead, Bitcoin has become an investment in much the same way gold has been for so long. It’s drawn a huge amount of interest which has seen its value increase exponentially.
As the value of Bitcoin has gone up, this has brought more and more people into mining, turning the system into a huge energy consumer. So, what solutions are there to Bitcoin’s energy use?
A Change of System
The proof-of-work mining system isn’t the only one out there. There’s also proof-of-stake and pre-mining that other cryptocurrencies use. Both of these systems are more energy-efficient than proof-of-work, but they pose their own problems.
Bitcoin was created with an overarching philosophy of minimizing interference from third parties. The proof-of-work system is an effective means of ensuring this happens.
It all gets very complicated when it comes to how the systems work, but essentially, it would be very difficult for Bitcoin to change course and move away from the proof-of-work system.
Bitcoin has only been around since 2009. It’s incredibly young and the technology it uses still has many stages of development to come.
Rather than seeing Bitcoin’s problem with energy consumption as a terminal one, you can approach it as a call to innovation. The system can’t continue on with its increasing levels of energy consumption, so innovators will have to fill the gaps.
The rewards are there if miners can find new ways to become more efficient. If 25% of your expenses are electricity costs, then you’ve got a pretty good incentive to become more efficient!
This is why so much effort is being put into improving the infrastructure and hardware in crypto mining. Yes, more needs to be done, but products like BLOQPODs are the beginning of this journey.
Conclusion: Bitcoin Energy
Bitcoin’s energy consumption is undoubtedly a problem but it’s also a source of opportunity. It needs to find answers to its huge consumption, and the public will be putting pressure on the industry to do so.
It’s important to remember that this technology is still very young though and there are still many opportunities to optimize processes. Behind the scenes, there are many innovative companies working on this, and the rewards for success should drive the quick adoption of new energy-saving technology.