Elon Musk recently performed a sudden U-turn on Bitcoin over concerns about its energy usage, saying his electric car firm Tesla will no longer accept the cryptocurrency as payment. We’re sure you’ve heard similar concerns before: “Bitcoin burns as much energy as Switzerland, so much that it will accelerate global warming by a few degrees Celsius over the next few years”. Is there any truth to it? In this blog post, we’re discussing whether Bitcoin’s energy consumption is really all that bad.
BITCOIN MINING AND ENERGY CONSUMPTION
To understand why bitcoin is so energy-intensive, you have to look at its underlying technology: mining and the blockchain.
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex mathematical problems.
Individuals, businesses and groups known as miners use specialised hardware to mine Bitcoin. They process vast volumes of transactions by grouping them into blocks and racing against each other to find a random variable that meets the pre-established protocol requirement - solving the algorithm.
Uncovering that variable enables the block to be added to the blockchain, but it also consumes quite a bit of energy in the process. Today, Bitcoin accounts for 0.69% of the world's total electricity consumption.
WHAT KIND OF ENERGY DOES BITCOIN USE?
Yes, Bitcoin mining uses a lot of energy. But what kind of energy does it use?
A 2020 study conducted by the CCAF found that 39% of the total energy used for bitcoin mining came from renewable sources in 2019, up from 28% the year before. The study also found that 76% of miners were using renewable energy sources such as wind, solar, and hydropower as part of their energy mix.
Bitcoin miners have traditionally set up shop in China, where coal supplies 60% of the nation’s electricity. But now, Bitcoin mining is becoming popular in areas with cheap power, such as Washington, US. Power there is cheap due to the massive availability of hydropower, a low-carbon resource. Iceland is also becoming a popular place for Bitcoin mining, which relies on nearly 100% renewable energy for its production.
BITCOIN VS BANKS & GOLD
Amid the ongoing concerns over Bitcoin’s energy consumption, a new study states that the traditional banking system consumes much more energy than the Bitcoin network. The study estimates Bitcoin’s annual electricity consumption to stand at 113.89 terawatts per hour, including energy for miner demand, miner power consumption, pool power consumption and node power consumption. This amount is at least two times lower than the total energy consumed by the banking system as well as the gold industry on an annual basis, according to Galaxy’s estimations.
The truth is, Bitcoin, the Blockchain, and other cryptocurrencies could all do well to lower their energy consumption and reduce their carbon footprints - but we all could: central banks, financial institutions, the mining sector... and you and me.