Bitcoin devours enormous amounts of energy: This message has been unequivocally spread by the media. But is it really the case that Bitcoin – compared to existing transaction systems in the economy – performs so poorly? A fierce debate has erupted over this.
One discussion – and two opposing camps
One thing should be clear from the outset: There are irreconcilable camps facing each other in this debate. Neither camp can claim to argue in an unbiased manner. On the one hand, there are the crypto opponents, not infrequently from the sectors of the established financial industry. On the other side are the crypto advocates, Bitcoin maximalists and blockchain fans. One should not be surprised if the discussion quickly turns into a mudslinging match.
Ultimately, it’s about energy consumption and, more recently, also about the electronic waste of the mining farms. The discussion quickly turns to Bitcoin, but a few fundamental aspects are overlooked.
Why does Bitcoin consume so much electricity?
The central topic is the energy hunger of the Bitcoin network and its proof-of-work process. In this process, the miners’ hardware performs highly complex computational tasks to verify new transactions and add new blocks to the blockchain. The computing power required to do this has only increased over the years. The days of using an old CPU to mine the coins are long gone. Today, specialized ASIC (Application-Specific Integrated Circuit) chips in large server farms do most of that.
Energy consumption as a safeguard for the network
At regular intervals, the blockchain automatically adjusts its mining difficulty. According to its programming, this happens every 2,016 blocks. The more miners participate in the network, the higher the difficulty to mine a new block. This should keep the block time at a constant 10 minutes.
The larger the network, the fewer hacks
Furthermore, the high power consumption and computing power serve as protection for the Bitcoin network. The more active and larger the network, the more difficult it is for hackers and other malware to attack it. The whole concept secures a decentralized, global payment network and thus currently a market capitalization of 730,000,000,000 US dollars.
Bitcoin’s power consumption: as much as Pakistan’s
That Bitcoin consumes high amounts of energy is beyond question. Mining gobbles up as much electricity as small to medium-sized states. The consumption does not only refer to the computing power of the hardware. The cooling of the devices and the entire infrastructure of the server farms also play a role.
How much electricity Bitcoin consumes can be estimated quite well. According to Bloomberg, the No. 1 cryptocurrency consumed 67 terawatt hours (TWh) in 2020. In the first half of 2021, it has already surpassed these figures. It is possible that mining will consume up to 91 TWh in 2021. That is about as much as the entire country of Pakistan consumes in electricity. These calculations can still be described as conservative estimates. According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), electricity consumption will be just under 100 TWh (as of October). But there is another way: the GNU Thaler, for example, consumes a fraction as much electricity.
How much CO2 does Bitcoin actually consume?
Trading, shopping and paying with cryptos is already possible today. However, it is important to note: Not all electricity is the same. The discussion about energy consumption suffers from looking only at terawatt hours. However, if we want to talk about how environmentally damaging the mining of BTC is, then we have to look at CO2 consumption. And that’s not so easy. Because while electricity consumption can still be calculated relatively reliably, the source of the electricity is not always obvious. The blockchain does not record whether the miner gets its electricity from gas, oil, water, wind power or solar energy.
CO2 footprint: where does the electricity come from?
The Technical University of Munich published a study on the carbon footprint of the Bitcoin network in 2019. According to this, the CO2 emissions would be 22 to 22.9 megatons per year. Since then, the network has tripled in size. But that doesn’t necessarily mean that CO2 emissions have tripled as well. For that, one would have to determine where the power comes from.
Share of green energy in mining increases
As far as can be determined, BTC mining is much greener than some critics would have us believe. Awareness of the CO2 emissions of mining has been spreading in the Bitcoin scene for some time. And besides, miners are primarily drawn to cheap and therefore green electricity.
In its first quarterly report, the Bitcoin Mining Council claims that the share of green, renewable energy in the mining process is 52.2 percent. So, in summary, the report says: “Bitcoin mining consumes a negligible amount of energy, is becoming more efficient, and uses a much higher mix of renewable energy than any other nation or industry.” Bitcoin alone would get 67.6 percent of its energy needs from renewable sources. However, the BMC’s methodology raises questions, and the council is certainly not unbiased either. A 2020 study by the University of Cambridge concludes that proof-of-work mining is 39 percent green renewables.
China’s mining ban – and the miners are moving
Before the ban, China was long considered a good location for mining. This was mainly due to the low cost of electricity in the Xinjian, Sichuan and Inner Mongolia regions. Although a lot of energy came from coal-fired power plants, the Chinese government increasingly relied on hydropower, especially in Xinjian. Hydropower plants often produce more electricity than is currently needed. Therefore, the electricity is not only green, but also particularly cheap. Mining farms take advantage of this fact and use energy that would otherwise disappear unused.
The mining ban in China had left its mark on cryptocurrency prices and hashrates. In any case, miners moved quickly and soon the hashrate was able to return to previous levels. And this is one of the advantages of mining: the miners and their hardware are not tied to a specific location. They can pull off cryptocurrency mining basically anywhere in the world. A guide on how to invest where and include criteria like ecology is what the Dohrnii Foundation wants to provide.
Miners want cheap and green power
When a user sends his BTC, it does not matter where he is. The wallet gives him security, but risks of cryptos remain in daily business. The location of the mining hardware does not matter either. Since miners are location agnostic, they are drawn to cheap power. Cheap power is often found where it is produced and where fluctuations in the power grid are prevalent. Wind, solar, and hydroelectric power plants often produce more electricity than the network needs at any given time. And this is where mining farms can step in.
A rethink is taking place in terms of energy
According to Stefan Schindler, EX-CEO of Genesis Mining, China is not the only attractive location for mining: “The usual suspects are Kazakhstan and the northern European region, Sweden and Iceland, for example. A rethink is also currently taking place in the USA. States like Texas, which used to rely heavily on oil production, are now increasingly building wind and solar power plants. These are inexpensive energy sources where electricity is available in abundance,” says Schindler in an interview with btc-echo.de.
El Salvador relies on the Bitcoin
El Salvador shows that a state can also go a different way than China. Not only did the small Central American state declare Bitcoin a legally recognized means of payment. It also announced plans to mine the cryptocurrency with the help of volcanic energy. The state-owned geothermal energy company LaGeo will build its own server farms. With the help of renewable energy from the volcano, it will mine BTC.
Away from Bitcoin: PoS and other cryptos
The entire discussion is primarily about Bitcoin. A 2020 study by the Technical University of Munich and the Massachusetts Institute of Technology (MIT) took on the other PoW cryptocurrencies. According to this study, the so-called altcoins with proof-of-work add a good 50 percent additional energy consumption. This amounts to around 55 TWh.
It is worth mentioning that Ethereum is one of them at this point. In the future, however, the number 2 cryptocurrency wants to switch to proof-of-stake. Thus, Vitalik Buterin’s invention would shift the weighting strongly in the direction of PoS blockchains. Proof-of-stake is favored especially in the DeFi sector. The promise is for faster transactions, more transactions per second, and negligible energy consumption.
Certainly, this will not reduce Bitcoin’s power consumption. The more people send and store BTC, the more energy the network will gobble up. That’s why this discussion will always boil up. So it’s worth taking a closer look at where the power is coming from and what you’re using it for.
What is the hashrate?The hashrate is the unit of measurement for the total computing power in the network. It is directly related to electricity consumption - and thus the need for green energy or electricity from nuclear and coal-fired power plants. Each hash is basically an attempt to find the "hashed" value within the last block in order to be allowed to mine the next block. Currently, the hashrate is 140 EH/s or ether hashes per second. That's the equivalent of 140,000,000,000,000,000 hashes per second.
FAQ – Frequently Asked Questions
“Proof-of-work” is the process miners use to verify transactions and thus add new blocks to the blockchain. The miners’ hardware provides the “proof of work”. This is day and night striving to find a hidden hash value. The PoW process is used to secure and regulate the network.
The difficulty and requirements of Bitcoin mining have steadily increased over the years. Today, BTC can only be mined with powerful hardware. The more participants there are in the network, the higher the requirements increase. And as a global payment network, Bitcoin ultimately consumes a large amount of energy.
In addition to proof-of-work, proof-of-stake has become firmly established as a verification method. In PoS, it is not the miners but the stakeholders who secure the network with their stakes (a quantity of the cryptocurrency). This process consumes hardly any energy. However, there is criticism regarding the security and decentralization of PoS blockchains.