Bitcoin’s appetite for energy needs little discussion. For years it’s been a top-of-mind topic for regulators, a major concern among critics, and a frequently misreported feature of the protocol.
The specific point of contention lies with bitcoin mining — a resource-intensive, cryptography-based competition that repeats approximately every ten minutes. Each winner is rewarded with transaction fees, newly issued units of the native bitcoin (BTC) cryptocurrency and the right to propose a new block of transaction data to join the Bitcoin blockchain.
This process is vitally important for issuing new bitcoin and securing the network, but by virtue of its design it requires those who compete for its prize to run specialized electronic devices.
On its own, this wouldn’t necessarily pose an issue. However, what was once a cottage industry of hobby miners has evolved into a fiercely competitive, corporate-driven arms race comprising huge facilities of machines dedicated solely to mining bitcoin.
These operations require large amounts of energy to continuously compete for bitcoin rewards, something detractors swear is fuelled predominantly by non-renewable sources. The system, they say, is inherently wasteful and potentially destabilizing to national energy grids and the global climate.
But how much of this is actually true?
How much energy does bitcoin consume?
It’s no secret that huge quantities of electricity are used to mine bitcoin. But to truly pin down these numbers requires a bit of sleuthing. Several online tools are available that attempt to pinpoint just how much the protocol consumes annually.
The Cambridge Bitcoin Electricity Consumption Index (CBECI) is one of the leading sources for gauging bitcoin’s energy usage and updates its figures every 24 hours. This tool though, as with all other tools, can only provide theoretical estimates.
Why are these estimates theoretical? There are multiple variables that must be considered when approximating how much energy the bitcoin network is using at any given time. These factors include:
- Mining difficulty.
- Mining equipment.
The Bitcoin protocol has been coded such that new blocks are discovered approximately every ten minutes. It’s believed that this figure was chosen by bitcoin’s creator, Satoshi Nakamoto, because it was an acceptable sweet spot between transaction throughput and energy usage.
Energy usage here simply refers to the amount of computational power committed by miners that fail to win the mining competition. This is often called wastage but we must remember that the energy spent by unsuccessful miners still performs an important role in securing the network.
To ensure the mining competition is won roughly every ten minutes, a difficulty algorithm was implemented that automatically adjusts how easy or hard the competition is to win. This adjustment takes place every 2,016 blocks (approximately two weeks). The more miners competing, the more difficult the competition and the more computational energy is used, and vice versa.
Hashrate refers to the total sum of all computational power being used to mine bitcoin at any given time. This number fluctuates constantly as miners leave and join the network.
It’s often used as a metric for gauging the health of the Bitcoin network. In short, the higher the hashrate, the greater the network security. This is because the resources needed to attack the network rises in line with the hashrate.
Advances in application specific integrated circuit (ASIC) technology have led to machines becoming more energy efficient while producing higher hash rates.
The competitive nature of mining puts pressure on manufacturers to optimize equipment and improve product lines.
With more sophisticated equipment, operators can maintain or increase their hashing potential and use less energy. This means a rising hashrate is not necessarily indicative of increased energy consumption.
Bitcoin doesn’t boil oceans
When discussing the topic of Bitcoin’s energy consumption, it’s important to look beyond the worrisome “bitcoin boils oceans” headlines and consider a number of important, often-overlooked factors.
Bitcoin’s energy consumption is a feature
As described, the energy committed by miners is not just for winning rewards and issuing new units of currency. A primary feature of Bitcoin’s proof-of-work system is that all energy used goes toward helping to secure the network against potential 51% attacks — yes, including the energy “wasted” by unsuccessful miners after every ten minute block is discovered.
Network security is paramount when you have a decentralized monetary system with no military or government to protect it. Bitcoin’s hashrate acts like a deterrent against potential malicious hackers who might look to corrupt the network by making it financially infeasible to pull off an attack.
Renewable energy mix
According to figures from the Bitcoin Mining Council—a crypto clean energy initiative spearheaded by Tesla CEO Elon Musk and Microstrategy CEO Michael Saylor— 59.5% of bitcoin mining globally is powered using sustainable energy sources. The technical efficiency of equipment used to mine also increased by 46% between 2021 and 2022.
Collectively, this makes bitcoin mining one of the world’s most renewable-energy powered industries.
In part, the leap in sustainable energy usage was driven by China’s national ban on mining in May 2021. Prior to the ban, China accounted for up to 70% of Bitcoin’s hashrate—a less than ideal situation considering it’s one of the worst countries for burning fossil fuels.
After the ban, miners exited the nation in droves looking for new countries to continue operations in. The United States has become one of the new dominant countries for bitcoin mining, particularly in states like Texas where strong solar and wind energy sources are available. This dramatic shift has cultivated a much greener bitcoin mining industry and is driving large operators to seek increasingly more sustainable energy sources to power their facilities.
Another important feature of the Bitcoin network that is rarely acknowledged is its measurability.
Unlike any other asset class, bitcoin’s energy usage is completely transparent and trackable.
It’s also a complete system, meaning everything from issuance to settlement and security are all handled by the Bitcoin network. No external services or intermediaries are required.
Because of this, it’s easy to monitor the total amount of energy the system uses at any given time. In contrast, no one has ever tried to calculate the amount of energy involved in supporting just one national currency. To do so, you’d need to factor in the energy consumption of the military, ATM machines, bank buildings, personnel, security services, and point-of-service (POS) machines.
Collectively, it’s more than likely these figures would dwarf Bitcoin’s energy consumption levels. However, it remains almost impossible to estimate and has never been attempted.
As bitcoin grows, the miners must act
Every 210,000 blocks (or approximately every four years) the amount of newly minted bitcoin given as a reward to successful miners is automatically halved. Known as a Halving, this issuance feature is controlled by an algorithm that Satoshi Nakamoto added to the protocol.
What this means is that over time, the amount of bitcoin entering circulation (and therefore the profitable reward associated with mining) continues to be reduced.
Depending on the future price of BTC, this systematic reduction in rewards will push miners to find ever cheaper energy sources, seek more efficient equipment or cease operations altogether.
Either way, it ultimately means that the bitcoin mining industry has a well-defined termination date. It will not last forever and as a result of ever-decreasing profit margins and rising commitments to global climate change, it’s likely mining will only become greener and more efficient while it lasts.
Mining monetizes isolated energy
Miners, particularly large bitcoin mining companies, are always looking for cheap electricity to improve their profitability. In many instances, companies have set up shop in remote areas of the world to capitalize on these sources, like Iceland and Kazakhstan.
This has the profound effect of making the value of isolated energy sources that would otherwise be wasted instantly usable.
Renowned Bitcoin proponent and author of the The Bitcoin Standard, Saifedean Ammous, gave an example of how this works in an interview with clinical psychologist Dr. Jordan Peterson. In it, Ammous said that the monetization of remote electricity sources via bitcoin mining could help “unlock” resources from as far as the mountains of northern Canada. In this way, bitcoin mining would be far more cost-effective than burying miles of cables or erecting hundreds of pylons to ferry the energy to a grid where it can be distributed.
Bitcoin mining, therefore, doesn’t risk destabilizing energy grids or the environment at all. Instead, it actually improves the accessibility of secluded energy resources without the need for intrusive infrastructure projects.
So what does the future of bitcoin mining look like? We already know the clock is ticking for a majority of miners. Some have predicted that by the time the last Bitcoin is mined, machines will have become efficient enough that the remaining operators will be able to subside on transaction fees alone.
In the meantime, initiatives like the Bitcoin Mining Council and rising miner-concentrations in climate-conscious countries like the United States paint a much greener picture for the industry moving forward. This is a far cry from the doom and gloom predictions of critics. Bitcoin uses energy, but it isn’t the monster we often make it out to be.
These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your crypto assets and you should seek independent advice on your taxation position.
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