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What is the Energy Consumption of Bitcoin?

As more miners enter the fight and the Bitcoin network expands, so does its energy consumption.

It's all too simple to read the headlines and conclude that bitcoin, like every other cryptocurrency, is contributing substantially to climate change. “Cryptocurrency is a wonderful concept on many levels... but this cannot come at a huge cost to the environment,” Tesla CEO Elon Musk tweeted in May. Bitcoin's value plummeted by 15% shortly after. The increasing worldwide demand on bitcoin miners to utilize more renewable energy has prompted the formation of organizations such as the Bitcoin Mining Council, as well as a trend among conscious investors to seek out “greener” bitcoins.

A single bitcoin transaction took 1719.51 kilowatt hours (kWh) as of mid-July, where a kWh is the amount of energy used by a 1,000-watt appliance over the course of an hour. To put it in context, a typical American family consumes approximately 59 days' worth of electricity. On a typical day, the network processes 240,000 bitcoin transactions.

How does bitcoin make use of its computing power?

It's easy to see how something with no physical manifestation can be so resource-intensive, which is why it's sometimes referred to as the "new gold rush." To validate and add transactions to the blockchain, the Bitcoin network depends on thousands of miners operating energy-intensive computers 24 hours a day, seven days a week. This is known as the "proof-of-work" mechanism.

The amount of energy used by Bitcoin is determined by the number of miners on the network at any one moment. To earn the privilege to upload the next block to the blockchain and receive rewards, these miners must compete against one another. Because only one miner may add a new block every 10 minutes, the competitive structure wastes a lot of energy.

Many bigger companies are compelled to scale up or update their equipment in order to retain a competitive edge over other miners. As a consequence, many of mining sites across the globe now have hundreds, if not thousands, of rigs operating at all times. Heat is one of the consequences of these large-scale activities. When executing hashing tasks, application-specific integrated circuit (ASIC) miners – the most common kind of specialized computer equipment used for mining cryptocurrency – generate a lot of heat and must be kept cool to avoid becoming less efficient or burning out. Large mining facilities need industrial-style cooling systems, whereas smaller operations may just require fans and a cold environment to keep temperatures in control. This raises the amount of energy used even further.

What is the issue with this energy consumption?

While the mining industry is moving toward greener energy, the Bitcoin network still consumes a significant amount of electricity from nonrenewable sources such as coal-fired power plants. Burning fossil fuels like coal emits massive quantities of carbon dioxide into the atmosphere, which is the primary cause of climate change. That implies that as more mining machines join the network, there will be greater need for energy to be created and consumed.

Bitcoin's energy needs have always been a source of worry, particularly now that the network has quadrupled since its previous high in 2017. The network is continuously developing. Bitcoin currently uses 81.51terawatt hours (TWh) per year at its current rate. It would be number 39 in annual power usage if it were a nation, ahead of Austria and Venezuela.

Recognizing the environmental consequences

There is a distinction to be made between energy usage and environmental/carbon impact. Bitcoin miners, without a doubt, use a significant amount of energy. However, information regarding where miners get their energy is needed to evaluate the environmental effect. Bitcoin can not generate more carbon emissions by itself since it may be powered by any source of energy. According to the Cambridge Center of Alternative Finance (CCAF), 62 percent of worldwide miners utilized hydropower, 38 percent used coal, and 39 percent used a mix of wind, solar, and geothermal energy as of September 2020. However, just 39% of bitcoin's energy usage is expected to be carbon neutral.

While other businesses need particular locations and circumstances, bitcoin may take use of energy sources that are otherwise unavailable. Large amounts of surplus electricity were collected in the Chinese regions of Yunnan and Sichuan to power China's expanding mining industries. These regions may be responsible for half of all mining activities globally during the wet season. The Chinese government, on the other hand, placed limits on cryptocurrency mining in June. As a consequence, mining activities have shifted to nations like Kazakhstan, where fossil fuel-based power is more prevalent.

What does bitcoin have in common with conventional banking?

While Bitcoin uses a lot of power, it's nothing compared to the amount of energy used by conventional banks. The bitcoin ecosystem is estimated to use less than half of the energy required by financial systems. When you consider the vast amount of physical branches, printing facilities, ATMs, data centers, card machines, and secure transportation vehicles needed to maintain the fiat money system, it's not surprising.

Bitcoin's energy use in the future

In 2021, there will be a significant effort to make bitcoin mining, and also other cryptocurrency mining, more ecologically friendly. The Crypto Climate Accord encourages the cryptocurrency sector to look for new sources of energy and seeks to offer crypto businesses with a "open-source toolbox of digital solutions" to assist them reach net-zero emissions by 2030.

Finally, there may not be as much cause to be concerned as the frightening headlines suggest. The number of Bitcoin miners is unlikely to grow at the same rate as it did a few years ago. This is due in part to bitcoin halving, a feature of the Bitcoin network that lowers block rewards for miners every four years. To preserve margins and make large-scale mining operations viable, miners will need to move toward more efficient equipment and cheaper sources of energy unless bitcoin's value continues to increase to compensate for the decrease.

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