There’s no doubting the fact that Bitcoin is fast becoming mainstream in today’s world. Cryptocurrency adoption is increasing globally, and Bitcoin leads the pack, being the only cryptocurrency with a Market Capitalization above $1 trillion. While Bitcoin has experienced unprecedented growth, it has come at a considerable cost for stakeholders and the planet as a whole.
In May 2021, electric car giant Tesla Motors announced it would no longer accept payments in Bitcoin due to environmental difficulties. Tesla’s decision to halt acceptance of Bitcoin payments came just months after the company bought $1.5 billion worth of Bitcoin.
Bitcoin mining – the process of bringing new bitcoins into circulation – poses a severe threat to the environment, so the cryptocurrency’s critics claim. The argument revolves primarily around the conclusion that Bitcoin squanders electricity, using indiscriminate amounts of power for the benefit of only a few. Aside from producing new coins, bitcoin mining also serves to validate the Bitcoin network, approving transactions, and ensuring true decentralization. In exchange for their work, the miners get rewarded with bitcoins.
The Bitcoin mining endeavor, and the overall maintenance of the network, is a demanding task in terms of tech and energy requirements. The energy consumption and carbon emission have sparked an ongoing debate and raised concerns over Bitcoin’s sustainability. However, it is essential to first understand the concept of Bitcoin mining and why it consumes so much power.
Bitcoin Mining Explained
Satoshi Nakamoto, the pseudo name for Bitcoin’s creator, mined the first Bitcoin block, known as the Genesis block, in 2009. For creating the Genesis Block, Satoshi received a reward of fifty bitcoins. That single event marked the birth of Bitcoin mining.
The decentralization of the Bitcoin network is a bid to solve the centralization challenges of traditional finance. Transacting across borders has its fair share of problems, ranging from transfer limits to regulatory restrictions. Bitcoin’s decentralization hoped to eliminate those issues by removing the central validation requirement and replacing it with a network of physical validators. These validators spread across the world, and they are required to secure the network by confirming and approving transactions. By preserving the network and verifying the authenticity of every transaction, more bitcoins came into existence through the reward for work system.
A Bitcoin mining device.
Bitcoin runs on a Proof of Work (POW) mechanism. The POW technology requires validators of a network to solve mathematical problems and receive rewards after providing the solutions. These mathematical problems, in Bitcoin’s case, were transaction hashes, a unique 64-character hexadecimal number. When a validator correctly guesses the hash of a particular transaction, they receive rewards in the form of new bitcoins. Bitcoin mining has proved profitable over the years.
But, there is a catch.
Instead of confirming separate transactions, all the validators on the Bitcoin network had to compete to complete one mathematical problem.
However, upon completing one math problem and the rewarding of the miner who solves it first, the race begins again.
Bitcoin mining would pose no problems at all if the network did not experience astronomical growth. The number of math problems to be solved has increased tremendously since Satoshi mined the first block. Yet, the network’s growth is not the primary culprit.
The pseudo creator, Nakamoto, made it so that every Bitcoin block contains only 1MB of data. Additionally, he programmed the math problems to become even more difficult as the network grew and more validators joined the fray. The increasing mining difficulty and longer time spent to mine a block (ten minutes) paved the way for more extensive tech and energy demands.
How Much Energy Do Bitcoin Miners Use Up?
The Cambridge Bitcoin Electricity Consumption Index ranks Bitcoin in the top energy consumers globally, with Bitcoin making the top 30. Analysts peg the total energy consumed by miners at 121.36 TWh annually – more energy than Argentina uses in a year. With the Bitcoin price surging, the energy demand is bound to increase, although September’s ban of cryptocurrency mining in China reduced mining activity for a short while.
All statistics show that Bitcoin mining consumes high amounts of energy, mainly due to the increased difficulty and more miners joining the fray. The mining computers – mostly ASICs and GPU devices – also have an average lifespan of 1.29 years. As such, Bitcoin mining also increases tech waste as these devices are disposed of when used up.
Source: University of Cambridge Bitcoin Electricity Consumption Index
Yet, are these statistics sufficient enough to trash Bitcoin or to label it as an energy-wasting endeavor?
Energy Wasting – The Argument
The increased cost of remaining profitable as a bitcoin miner has led to miners searching for alternative power sources for their computers. Power is the crucial provision that these miners need, plus their powerful computers, and energy of the required amount is not exactly cheap to come by. What do the miners do, then?
Bitcoin miners are constantly searching for cheap power sources, leading to power plants notoriously overproducing electricity. Power plants have to give out excess unused electricity, and Bitcoin miners provide the best solution to their dilemma of wasting that much power.
Aside from lapping up excess electricity produced by plants, 39% of Bitcoin miners globally, now make use of renewable energy sources to power their mining rigs. Renewable energy means fewer carbon emissions and less negative environmental impact.
Also, if you take one look at the impact Bitcoin has made globally, you will realize that all that energy use is not in vain. Bitcoin has offered many developing economies a gateway to borderless payments and financial freedom while taking away the challenges of traditional finance. Also, the success of Bitcoin has opened up the subject of blockchain technology for real-world use globally. Nations like China have even launched digital currencies to fast track payments and remittances.
While all these do not take away the flaws from Bitcoin’s POW mechanism, they solve, to an extent, the electricity wastage and carbon emission problem. Bitcoin does not squander electricity, and it remains a source of hope and inspiration for hundreds of millions of people in the world.