Lately, there have been many allegations about how harmful Bitcoin is to the climate due to its high energy consumption. It is a fact that Bitcoin mining uses a lot of energy, but how does it compare to fiat money?
It should always be remembered that all things in our lives are connected to energy consumption. Furthermore, individually viewed numbers often appear far too dramatic without comparisons and provide a distorted picture of reality. Now let’s take a closer look.
The key factor in bitcoin’s energy consumption is bitcoin mining. Why Bitcoin mining?
To make the network as secure as possible, the system must be under decentralized management. This is the only way to create an independent structure that is protected from manipulation. The more participants manage and check the blockchain, the safer it is. A single attacker would have to use at least 51 percent of the total processing power to make a lasting change to the data.
To prevent this, the decision-making power rests with all users. Thus a single individual in the network is less important and needs the confirmation of many other users. They continuously check all transactions for their validity and confirm them. The validators, called miners receive a certain amount of Bitcoin as compensation for adding a new block to the blockchain. It is given to the participant, who solves a complex mathematical problem the fastest. The more computing power a participant feeds into the network, the greater their chances of receiving the bitcoins. The necessary technology is causing energy consumption to explode. Nowadays all serious Bitcoin mining is performed on dedicated Bitcoin mining hardware, usually in thermally regulated data centers with cheap electricity.
Let’s take a closer look at energy consumption.
The entire Bitcoin network currently uses about 75 TWh per year and consumes more energy than several countries. For example, Colombia, Austria, or Bangladesh. That seems like a lot at first, however comparing it to the current banking system makes things look different.
The energy use linked to the current banking system is estimated to use twice as much energy as the entire Bitcoin network. Various articles and statistics show it uses over 140 TWh a year. The reason is that there is no need for Bitcoin to have commercial banks, ATMs, a huge amount of employees, cash that needs to be produced, and so on. Transactions and servers in the classic banking system also consume energy, even if it is less. It cannot be denied that Bitcoin uses a lot of energy in mining, but overall it is way more efficient than fiat money.
Does energy consumption increase with increasing Bitcoin transactions?
For sure as the number of Bitcoin users increases, so will the energy consumption, but there are a few points that need to be considered and which also can slightly slow down this development. The energy spent in mining is per block, which can have a varying number of transactions. More transactions do not mean more energy consumption. As more money is going into Bitcoin, each unit of energy is securing exponentially more and more economic value. Furthermore, the Bitcoin system is also becoming more and more efficient and work is being done to reduce energy consumption.
What should the reduction in energy consumption focus on?
It is important to reduce the energy consumption of Bitcoin, but it is also important to reduce it in government-run currency systems, or generally in all areas of life. It is absurd when government officials say that bitcoin is so bad even though their system is no better at all. Most likely this is just an attempt to bad talk Bitcoin, as they see it as a serious threat to the classic monetary system.
What are your thoughts about the critique of Bitcoin´s energy consumption? Let me know in the comments below.