Bitcoin and Energy
Why does Bitcoin use energy in the first place
Bitcoin's energy consumption derives from what is called mining. In this process, new bitcoins are created according to the rules of the protocol and at the same time the entire network is secured against attacks and attackers. The more energy expended, the more secure the network is. You can determine the security of the Bitcoin network with the hashrate. Currently, we are just at an all-time high.
How much Energy does Bitcoin consume?
Bitcoin critics frequently claim that mining consumes more resources, particularly energy, than the value it generates. It is not possible to determine exactly how much energy is consumed because of the decentralized nature of the network. However, it is possible to limit the lower and upper end of the energy consumption. The current data on consumption can be viewed at the Cambridge Bitcoin Electricity Consumption Index (CBECI): https://ccaf.io/cbeci/index
It must also be taken into account that the energy requirement changes with the price of Bitcoin. For example, if the price falls so much that the cost of electricity is higher than the value of the mined Bitcoin, it is no longer worthwhile for rational miners to continue operating their mining equipment. Some miners will leave and only the most cost-efficient miners will stay. Thus, the market creates an incentive for cost-efficiency. This is very important for the long and successful continuation of the network.
What kind of Energy does Bitcoin consume?
To be cost-effecient, the most profitable Bitcoin miners use cheap and stable energy sources. These sources emit different levels of CO₂, however, the majority of the network uses renewable energy sources. According to a study by NYDIG LLC, Bitcoin mining uses already over 50% renewable energy sources: https://bit.ly/3ePiNyc. In addition, there are many practical examples of how energy for Bitcoin mining can be produced sustainably. El Salvador for example, uses excess geothermal energy from a volcano to create Bitcoin. Thus, Bitcoin mining can make renewables profitable.
Bitcoin mining is also increasingly acting as a buyer for otherwise wasted energy in the production of oil. These are mostly by-products of production that are too cost-intensive to allow any other economical use, since storing or transporting this raw energy would be too expensive. Therefore, this energy is often burned or sometimes even released into the atmosphere unburned. Bitcoin miners provide a solution to this problem because they can be operated mobile and independent of the power grid. This comes in the form of a shipping container full of bitcoin mining equipment delivered directly to the power source. The gas methane, which is many times more harmful to the atmosphere than CO₂, is converted to 99% CO₂ by generating electricity for Bitcoin Mining. Before miners used methane, it was simply burned with a steady flame, with more than half of it still escaping into the atmosphere unburned.
Energy Efficiency of Financial Systems
The energy footprint of Bitcoin is easier to quantify than the energy footprint of the current financial system and is therefore susceptible to superficial criticism. However, measured by the cost of electricity alone, Bitcoin is much more efficient than traditional banking and gold mining on a global scale. Traditional banking emits 1,368 megatons of CO₂ per year and gold mining emits 144 megatons. Bitcoin, on the other hand, emits 61 megatons, less than 5% and 45% of traditional banking and gold mining respectively.
In return, Bitcoin offers billions of people access to a global financial market and an apolitical alternative to inflationary currencies. If you like to learn more about Bitcoin, check out our education center: https://21bitcoin.app/en/help
What are your thoughts on Bitcoin and the energy consumption?