The future of Bitcoin and other cryptocurrencies are bright — depending on who you ask. Ask that question of a crypto-trader or investor, and you’ll get a positive response. Ask an environmentalist, however, and you might receive a very different response.
That’s because as Bitcoin’s popularity soars, so does its overall global power consumption. An entirely digital currency requires a significant amount of computing power. The process of creating new Bitcoin (“Bitcoin mining”) also requires a considerable amount of processing power. So much so that Bitcoin allegedly uses more electricity than the countries of Ireland and Denmark.
Is it true? Does Bitcoin really consume more power than an entire nation? Or are there other factors at play that Bitcoin’s detractors are ignoring?
Where Does the Power Go?
Miners create around 3,600 new Bitcoin every day. The Bitcoin mining process requires computers or (dedicated mining hardware) to solve complex mathematical equations that validate the crypto-network. The Bitcoin network produces one block every 10 minutes, with block difficulty adjusting to maintain that timeframe. Higher difficulty means more processing power, in turn requiring more electricity.
The entirety of the Bitcoin network uses electricity in some form. However, mining undoubtedly demands the most power. Cryptocurrency analysis site Digiconomist provide one of the most popular methods of calculating the power consumption of the Bitcoin network.
The Digiconomist formula takes the total Bitcoin mining revenue as a starting point. Next, it estimates operational costs to miners as a percentage of revenue. Finally, costs convert to energy consumption based on average electricity prices. The current estimate puts Bitcoin’s current global electricity consumption at 32.71TWh (terawatt hours).
What does that mean? Well, this means Bitcoin’s energy consumption is more than Denmark (around 32 TWh) but slightly less than Belarus (33 TWh). The 32.71TWh figure isn’t solid. Due to the nature of the Bitcoin network, it is a continually evolving figure. Most estimates see that number increasing in the near future.
How Does That Compare to Other Industries?
Its energy consumption doesn’t look great for Bitcoin. In an age where the overwhelming majority of people accept that human-made pollution exacerbates global warming, consuming energy for a digital currency seems somewhat frivolous. How then does Bitcoin compare to other power-hungry industries around the globe?
Well, all that lovely data we create and consume so much of lives in data centers. Data centers account for over 400TWh of electrical energy per year (over 12 times that of Bitcoin). Solid figures for other industries are more difficult to ascertain. Figures for global industry consumption are given as a percentage of global total energy production, which was around 24,800TWh in 2016. End-use industrial sectors account [PDF] for about 54 percent of total delivered energy. The largest energy consumers, however, are considered to be:
- Steel and iron
- Basic chemical production
- Pulp and paper
- Nonferrous metal production (such as aluminum)
- Nonmetallic minerals (primarily cement)
These industry types account for over half of the total delivered energy. Steel and iron use some 20 percent of that energy, accounting for over 2,500TWh of use. The basic chemical industry accounts for around 33 percent of energy, coming in at over 4,400TWh.
When we compare Bitcoin’s global energy consumption to other global industries, it uses just a fraction of the same energy.
Compared to Other Monetary Systems
Of course, Bitcoin is a currency. The cryptocurrency digressed from its original goal of replacing the global fiat currency hegemony. Instead, we now see Bitcoin as an emerging asset class, more akin to gold. That aside, we can better gauge Bitcoin energy use by looking at how much energy the banking system uses. Writing on Hackernoon, SPiCE VC co-founder Carlos Domingo estimates the global power consumption of the entire VISA banking system.
— Matt Petersen (@mattpetersen_ai) November 30, 2017
He uses rough figures but arrives at a total 97TWh per year — substantially more than the 32TWh consumed by Bitcoin.
Of course, the base argument here is simple: VISA and the global banking system does far more for almost everyone, while Bitcoin is still lagging at around 0.14 percent of global adoption and, as mentioned, has morphed away from the initial vision of creator Satoshi Nakamoto. (Adding to that, VISA processes over 24,000 transactions per second while Bitcoin only manages between 3 to 7 transactions per second.)
Will Bitcoin Energy Consumption Keep Growing?
In the short term, yes, Bitcoin energy consumption will continue to grow. The surging price attracts more and more miners and investors. In turn, this places more stress on the network and consumes more electricity. Bitcoin is on track to consume all of the world’s energy by 2020 — but that won’t happen. Here’s why.
Bitcoin mining is already a thousand miles from its genesis. When Bitcoin mining first arrived, it was possible to solve the complex equations using just a CPU. Now, it takes specialized mining equipment (or you join a cloud mining pool). That equipment, however, is constantly improving. For instance, the popular Bitmain Antminer S9 is 2.5 times more efficient than its predecessor, the S7.
A core Bitcoin feature is mining block rewards. The reward current stands at 12.5 Bitcoins per block, plus any transaction fees. The reward was 50 Bitcoins in 2009, halving to 25 Bitcoins in 2015, and to 12.5 in 2016. In 2020, the block reward will halve to 6.25 Bitcoins. When the mining industries revenues drop by half overnight, so should Bitcoin mining activity. In turn, electrical consumption should also drop.
Block rewards will continue to drop every four years. In theory, energy consumption will continue to drop as Bitcoin mining itself becomes an unprofitable activity.
Alternative Mining Algorithms
Bitcoin’s mining process isn’t enshrined. One of the “easiest” methods is changing the way we mine Bitcoin. Currently, Bitcoin uses a Proof of Work system.
Proof of Work is a piece of data that is difficult to produce but easy to verify. Regarding Bitcoin, Proof of Work verifies the transactions of the network after miners confirm the data in the block. The chance of receiving a block for mining is determined by previous work done. This system heavily favors existing miners.
Some Bitcoin users believe the network should switch to a Proof of Stake system. Proof of Stake compares the amount of Bitcoin a miner holds. If a miner holds 1 percent of all Bitcoin, they can mine 1 percent of all blocks. This is designed to give other miners a chance to increase their stake, as well as spread transaction fees throughout the network. Furthermore, Proof of Stake (in theory) stops the Cold War-style accumulation of better, bigger, and faster Bitcoin mining equipment.
Of course, this is a great idea only if you haven’t already spent tens of thousands of dollars on mining equipment and you don’t stand to lose your Bitcoin mining dominance.
Between 350-500KWh. That’s another widely touted Bitcoin energy figure. The figure is how much power each Bitcoin transaction allegedly uses. It is astronomically high and consumes enough power to keep thousands of houses lit up. But the Bitcoin network itself is the problem. Several upcoming technologies will attempt to address these issues.
For instance, the recent Bitcoin Segwit soft-fork intends to solve Bitcoin block size limitations by splitting the transactions into two sections. The fork also raises the block size from 1MB to 4MB (though that isn’t strictly true — read Bitcoin dev Jimmy Song’s interesting Medium piece Understanding Segwit Block Size for details). The overall idea is that blocks contain more data, process faster, reducing processing time, in turn reducing the transaction fee while increasing the amount available to a miner.
Another emerging Bitcoin technology is the Lightning Network. The Lightning Network will take transaction validation off of the blockchain to process in a separate-but-parallel peer-to-peer network. The Lightning Network allows users to complete transactions directly without publishing their transaction on the blockchain. The switch should greatly reduce the strain of transactions on the mining network, in turn reducing electrical costs.
Fiat is to gold as lightning network is to Bitcoin.
Fiat was effectively a layer 2 solution to scaling gold. It was backed and settled to gold until that backing was removed. Unlike fiat though, LN's settlement to Bitcoin is cryptographically secured and cannot be removed!
— Charlie Lee [LTC] (@SatoshiLite) December 10, 2017
Everyone Switch to Ethereum
The final solution is simply for every single Bitcoin user to make the switch to Ethereum. Ethereum is another cryptocurrency that uses substantially less power than the Bitcoin network while processing a larger number of transactions. The Ethereum network is mooted to switch to the aforementioned Proof of Stake mining system, too.
Don’t get me wrong: Ethereum isn’t electricity free. According to Digiconomist, the Ethereum network consumes around 4TWh of electricity — an eighth of the size of Bitcoin’s power consumption, but still more than Cyprus, or Nepal, or Laos (all around 3.9TWh).
And, as far as cryptocurrencies go, Ethereum has a simply staggering amount of potential and is regularly the base platform for other amazing crypto-startups.
Time to Power Down Bitcoin Mining
The Bitcoin network is the biggest. It consumes more power, holds more value, and attracts more new investors than any other cryptocurrency. It remains the grandfather of cryptocurrency, and that tag alone (let alone the astronomical price of a Bitcoin) means many users hold it in great esteem. Crypto-users, though, know differently.
The inexorable march of Bitcoin isn’t real. There are too many other cryptocurrencies with better features, faster networks, more privacy, excellent security, and more, that will eventually usurp Bitcoin at the top of the pile. Furthermore, Bitcoin cannot continue to rise forever, but all speculative bubbles burst at some point.
A major issue stems from the places where Bitcoin mining is highest. China accounts for over 50 percent of Bitcoin mining power. But the vast majority of that power currently comes from the enormous surplus of Chinese coal-fired plants (though China’s renewable energy program vastly outstrips most other countries, to be fair), and potentially accounts for over a quarter of all Bitcoin-related electricity.
There are other power success stories, though. Just as several major technology companies host their data centers in super-cold locations, Bitcoin mining operations do the same. In Iceland, miners take advantage of ice-cold temperatures and geothermal power to keep costs and resource consumption low. In Austria, Hydrominer-IT Services run their mining operation inside a hydroelectric dam. There are even some hydroelectric mining operations in China, too.
But for the meantime, Bitcoin plows on, undeterred by its astonishing power consumption — and really, there is nothing you can do about it.
Would you prefer a greener Bitcoin? Do other cryptocurrencies with greener credentials interest you? Or is the energy cost minute compared to other climate damaging global industries? Let us know your thoughts below!
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