What is the Energy Consumption of Bitcoin?
Bitcoin (BTC) has seen its fair share of criticisms ranging from its feasibility as an everyday currency to how it should be regulated (if at all), but one of its most common and hotly-discussed critiques is that of its energy consumption and subsequent contribution to global warming and climate change.
So just how much energy does Bitcoin actually consume, and how did it get to be so energy intensive?
As it turns out, a recent study by Moneysupermarket.com found that a single Bitcoin transaction consumes an average of 1,173 kilowatt hours of electricity, which is enough to power a typical American home for six weeks. And the monetary cost of each transaction? Based on an average worldwide cost of 9 cents per kWh in the last year, roughly $176. Of course, that’s for just one transaction. In early 2021, the Bitcoin network was processing upwards of 400,000 transactions daily, though in the last few months this number has decreased to a range between about 215,000 to 300,000.
All that energy adds up, and Bitcoin’s yearly energy consumption is far from ideal. According to the New York Times, “[t]he process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million”. This number has increased by about ten times in the last five years due to the growing popularity of Bitcoin. In fact, the Bitcoin network as a whole uses more than seven times as much electricity as all of Google’s operations around the world.
So why is bitcoin so energy intensive?
Much of it has to do with the computing power required to mine and transact bitcoin. Any transaction needs to first be validated by the Bitcoin network before it can proceed and be added to the public blockchain ledger. This is known as the Proof-of-Work (PoW) consensus mechanism. Much of the energy required for bitcoin’s use is consumed while maintaining the network’s blockchain, which advances with new blocks of data roughly every 10 minutes.
The Bitcoin network is made up of participants known as miners who work to validate each transaction. These miners utilize powerful computer setups to compete with other miners all around the world to be the first to solve complex mathematical equations, which validates a transaction and adds it to the blockchain, thus netting the winner newly generated Bitcoin as a reward. The more powerful a miner’s computer, and the more of them under one collective, the better the chance of completing the validation first and receiving Bitcoin. As of November 2021, the reward for successfully mining a block is 6.25 BTC, which at this time of writing is approximately $317,611.59.
But it wasn’t always this difficult nor energy intensive to mine. Back in 2011, anyone could mine Bitcoin with a typical home computer and have a negligible energy output. However, the backend of Bitcoin was written in such a way that it’s to become more difficult to mine a block of data for rewards as time goes on. Fast-forward ten years later to 2021, and as more and more miners have joined the network, it’s become increasingly competitive and more difficult for individual computers to solve the complex mathematical equations required to validate each transaction. This is why Bitcoin mining has evolved from single computers in a household to massive warehouses filled with hundreds of specialized mining rigs, as the more computers you have working for you, the better your chances of verifying the network’s transactions and receiving your new Bitcoin. In May of 2021, the level of difficulty to mine new bitcoins peaked, requiring the equivalent of 13 years of typical household electricity usage to be consumed for every new coin that’s mined.
Can bitcoin mining be greener?
It’s clear the Bitcoin network wasn’t made with the impact of its power consumption in mind. It’s far from perfect, though that isn’t to say there aren’t some changes that can be made to help mitigate or remedy the effects of its carbon footprint.
Greener renewable energy solutions such as wind, hydro, solar, and even geothermal power offer alternatives for mining without burning more fossil fuels. Others have suggested updating mining machine setups to be made with more eco-friendly materials that can be recycled to reduce electronic waste. Some believe regulation may help out too, with proposals such as a carbon tax or carbon credits for miners to keep their energy output in check propagating eco-conscious crypto news circles.
Though it would be a more complicated and somewhat drastic move, Bitcoin could also have its validation method changed from Proof-of-Work (PoW) to Proof-of-Stake (PoS), therefore drastically cutting down the amount of computational work required to validate transactions. In a PoS consensus mechanism, validators are randomly selected to verify blocks and are required to stake, or lock up, a certain amount of crypto as collateral, which negates the need for competing against other miners. The second most popular cryptocurrency, Ether (ETH) is currently in the process of being migrated to PoS in this same manner, which its parent foundation says will decrease the Ethereum network’s energy usage by 99%.
Whatever happens with Bitcoin, its energy output is sure to be a point of contention for some time. New solutions will need to be gradually conceived and implemented to best suit the needs of miners as well as the future of our shared planet.
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