By now, most people have heard of Bitcoin. Even entrepreneur Elon Musk (the CEO of Tesla) has found interest in the new Internet gold.
However, there has been some discussion lately about the Bitcoin network’s high power consumption. But what is it exactly? In this article, I will explain the pros and cons of the Bitcoin network.
How much energy does Bitcoin use?
It is hard to say precisely how much energy the Bitcoin network uses because it is spread worldwide. You can start Bitcoin mining (making transactions on the Bitcoin network) tomorrow too.
Therefore, because of this dispersion, the results of different studies are sometimes quite contrasting. However, we can conclude that it is still a lot.
The University of Cambridge published an estimation showing that Bitcoin accounts for between 0.40% and 0.60% of total electricity consumption. That percentage represents around 114 TWh per year, almost as much energy as all of Sweden consumes in a year.
Quite a lot of energy, right?
Why does Bitcoin consume a lot of energy?
We can better understand why the Bitcoin network consumes so much energy once we see how transactions are validated on the blockchain.
Within the Bitcoin network, this is done through a consensus mechanism called ‘Proof of Work.’
The miners (the ones who check and execute your transaction on the network) make their computers available to the Bitcoin network to solve complex cryptographic calculations meant to keep hackers out.
The first miner to crack the formula will be rewarded in Bitcoin. And to prevent the winning miner from adding a fraudulent block (a bundle of transactions) to the blockchain, the result is first checked by other miners on the network.
Once enough miners have approved the transaction (and come up with the same answer), the new block is added to the blockchain. Every Bitcoin transaction is carried out in this way, even if you transfer directly to a close friend or buy from a third party.
This method of execution and control ensures that to this day, the network has never been hacked.
The network consumes so much electricity because thousands of computers are busy validating one transaction at the same time. Now, it is nice to remember that mining Bitcoin is a global business, and therefore knows no borders. So, you can imagine that all these computers together consume an incredible amount of electricity.
But are the figures correct?
Since many new investors have entered the market in the past year, the debate around energy consumption has come back to light. It is not a new discovery.
Bitcoin has worked this way since 2009.
The kick-start of this debate came from a published study by Nature Climate Change.
The study showed that the Bitcoin network could cause a 2-degree temperature increase over the next 30 years. This, of course, would have a terrible impact on the Earth.
The authors of this study have been widely criticized. Several erroneous assumptions were made, which made the results unreliable. Nevertheless, the information from this study has been used by numerous other studies.
For example, you may have seen that a single Bitcoin transaction consumes more energy than 750,000 Visa transactions. Claims like this are incorrect and do cause a stir.
The real debate
There are many different arguments when it comes to people who are against the Bitcoin network. On a technical basis, most ideas attack the energy demand of the network. One of the leading and most heard arguments is that Bitcoin miners use a lot of fossil fuel to execute transactions on the network.
Since fossil fuels are highly damaging to the environment, an increase in consumption due to the Bitcoin network would significantly harm the planet we all love.
On the other hand, you could say that miners make use of renewable energy to power the network. Who is right? Since all assumptions are based on estimations, it is tough to tell.
Below I have added a list with common arguments from both sides of the story.
Arguments against Bitcoin network
1. Miners use a lot of fossil energy to confirm transactions;
2. Bitcoin uses as much energy as some wealthy countries;
3. As Bitcoin becomes more popular, its energy consumption will also increase.
Arguments in favor of the Bitcoin network
1. You get a decentralized and secure payment system in return;
2. Bitcoin consumes 0.50%-0.60% of the total electricity;
3. Research (from Nature Climate Change) on which many other studies are based is unreliable;
4. A lot of renewable energy is used for the Bitcoin network;
5. The current banking system uses much more energy than the Bitcoin network.
There are several arguments for both sides.
Fortunately, the idea that cryptocurrency is as extremely bad as it was thought to be is distorted. For example, research by Galaxy Digital shows that the current banking system uses much more energy than the Bitcoin network.
It is estimated that the banking system consumes a total of 238.83 Terawatt hours per year. On the other hand, the entire Bitcoin network consumes a mere 113.89 Terawatt-hours per year.
One thing is for sure; the Bitcoin network uses a lot of energy anyway. Therefore, it is always worth thinking about using and optimizing this kind of system as efficiently as possible.
Another question we can ask ourselves is: ‘Is this network worth all the burdens it imposes?
Of course, the decentralization and security you get in return weigh heavily.
On the other hand, almost all new developments cost energy.
For example, a common argument is that Tesla cars consume more energy than a standard car. Following this train of thought, the Tesla cars are therefore worse for the environment.
Tesla’s strength, however, is its low CO2 emissions. This is what makes it a strong and environmentally friendly product. You can also look at it this way with cryptocurrencies.
So, it is and remains a difficult situation that the best computer geniuses deal with on a daily basis.
Since cryptocurrency networks are worldwide and peer-to-peer, it is very hard to control/regulate these networks.
Until now, Bitcoin and other digital currencies have been labeled as ‘property’ and not as legal tender by most governments. With systems like this, it can be challenging to change the way it works. No government has the power to change the consensus mechanism.
Although, it is possible to punish the validators in the network (for example, through heavy tax or even banning mining).
What is the alternative?
As Bitcoin turns out not to be as bad as thought, the fact remains that the whole network consumes a tremendous amount of energy. How can we solve this in the future? And are there already alternatives?
To answer briefly: Yes. We can solve this, and there are other ways to achieve consensus (verifying transactions). The consumption of large amounts of energy just remains unavoidable (as with the current digital banking system, for example).
An excellent example of a more eco-friendly blockchain is Energy Web. Energy Web is developing a low-carbon and energy-efficient blockchain.
The project supports two primary cases. The first one will be to create real-time, clean energy and carbon traceability. The second goal will be to use distributed energy resources to increase grid flexibility. Projects like this will accelerate future innovation when it comes to energy-efficient blockchains.
Another great example of a more energy-efficient way of validating a transaction could be to use different consensus mechanisms. For instance, Ethereum 2.0 will switch from Proof of Work to Proof of Stake. With this update, the network’s energy consumption will drastically decrease while maintaining its ability to verify transactions safely.
Besides Energy Web Tokens, there are many other cryptocurrency projects that are much more energy-efficient than the current frontrunners. In the future, we will see which ones are the most efficient and secure.
As with any new development, there are obstacles to overcome. With cryptocurrencies, one of these obstacles is reducing energy consumption.
To overcome this, we will have to use more efficient cryptocurrencies and smarter consensus mechanisms in the future.
Since the cryptocurrency market is developing very rapidly, this will undoubtedly be solved in the near future.
Large parties such as Ethereum are already moving from Proof of Work to Proof of Stake (a much greener consensus mechanism).
In a Tweet, Elon Musk announced that he is in talks with cryptocurrency developers from both Bitcoin and Dogecoin to tackle this problem. In short, a lot of attention is being paid to this problem.