How Much is the Energy Consumption of Bitcoin Mining?
Does it really need to spend that much of energy?
What is Hashrate, and what is its effect on energy consumption?
As you know Bitcoin garnering attention these days whether with raising or falling movements; however, these raisings and fallings can lead to different results, in some cases it’s profitable and in some cases not. With all these issues there are so many profitable ways to earn Bitcoin and one of the most popular methods is mining. But there are some issues about it, one of them is energy consumption. Bitcoin is energy-intensive. Individuals, groups and businesses are known as “miners” use specialized hardware to carry out what is known as “Bitcoin mining.” Miners process transactions by grouping them into blocks and then racing to find a random variable that satisfies a pre-established protocol requirement. This enables the block to be added to the blockchain and consumes a considerable amount of energy. Miners are rewarded for the computing work expended in successfully processing blocks with the issue of new bitcoins – when the value of the new bitcoins is greater than the cost of energy expended.
Bitcoin to maintain network integrity. Bitcoin’s energy-intensive consensus protocol is how the network achieves that consensus and integrity. If consensus were easy to achieve, was created to transact value between two parties without putting trust in a third party, effectively decentralizing trust in a payment network. To achieve trust, all participants need to reach a consensus or agreement as to “who owns what” with an adequate security model then the network could be easily attacked. Mining is energy-intensive so that it is prohibitively expensive to attack the Bitcoin network. Since Bitcoin achieves consensus through energy consumption or “work,” Bitcoin’s blockchain is typically referred to as a “proof-of work chain.” Proof-of-work chain energy use is relatively transparent; there is only one step between energy input and bitcoin output. As such, the energy footprint for Bitcoin is fully contained by the energy consumption of Bitcoin mining. This has made criticisms of Bitcoin’s energy consumption easier than other industries, energy-intensive or otherwise. For most of its early life, Bitcoin used relatively little energy. In 2015, Bitcoin consumed just 0.02% of total global energy consumption and reached 0.16% by 2018, according to estimates by the Cambridge Centre for Alternative Finance (CCAF). Bitcoin was a rounding error in the grand scheme of global energy consumption. With the price of bitcoin rising and the concurrent growth of the Bitcoin network, news sources, critics and supporters have correctly identified that Bitcoin now uses a meaningful amount of energy, making up roughly 0.58% of global energy consumption.
The Bitcoin “hashrate” refers to the total computational power that is being used to mine and process Bitcoin transactions. Higher network hashrate implies greater security and growing hashrate is indicative of miner optimism and additional capital investment in computing power. Bitcoin’s hashrate recently reached an all-time high on April 6, 2021. Hashrate is expressed as a number of hashes per second (h/s). A hash is an algorithm that converts an input of letters and numbers into an encrypted output of a fixed length. Given the size of the Bitcoin network, hashrate is typically expressed in terahash (TH/s) or petahash (PH/s) which represent 1 trillion and 1 quadrillion hashes, respectively. Hashrate is usually presented as a moving average to smooth out datasets and give a better picture of long-term network health. Determining the hashrate is not exact. There are too many miners operating all over the world to accurately determine how much computing power is being used. Instead, hashrate is estimated by taking the expected rate of finding a block and comparing it to the actual rate of finding a block given the current difficulty (a parameter of the Bitcoin network that measures how hard it is to construct a valid block). Although this is the industry standard, some are searching for more precise measurements employing statistical analyses.
If Bitcoin were a country, it would be ranked 29th in energy consumption, between Ukraine and Argentina (as of April 18, 2021). Anything that uses as much energy as entire nation states will undoubtedly get attention. And it should. For argument’s sake, we could think about Bitcoin as a simple economy that imports energy and exports the transfer, security and minting of value. Using this framework, Bitcoin the country has a population of about 1 million people (miners), successfully transfers $3 – $4 trillion of value annually (transactions), secures a digital vault worth $1 trillion (bitcoin market capitalization) and mints $20 billion of new value per year to facilitate transactions (block rewards) for 100 million unique parties (Bitcoin users). In this scenario, if Bitcoin were a country, the prosperity of 1 million people would surely not be called out so readily as wasted energy. Comparing its energy consumption to countries does not accomplish much beyond giving a reference point to the amount of energy that is being used. If we consider the top ten countries in the world by energy consumption that have mining operations, Bitcoin at most makes up 1.29% of any one country’s total energy consumption. Using the United States as a reference point, video game consoles make up ~0.25% of energy consumption, while construction (~2.2%), commercial cooling (~2.7%), commercial ventilation (~2.9%) and commercial lighting (~3.0%) each make up roughly 2 – 3% of energy consumption, respectively.
While Bitcoin’s energy consumption is noticeable, we should consider that the goal of environmentally conscious investing and policy is not about energy consumption. Policing what people can spend energy on would be a complicated ideological battle rife with subjectivity. Instead, environmentally conscious investing is focused on increasing industry use and improving production of “green,” “clean” renewable energy. The goal of ambitious environmental projects and policy declarations, mostly notably the Paris Agreement (see sidebar), is to curtail or completely neutralize the emission of greenhouse gases, namely carbon, given their damaging effects on the environment. The use of coal and fossil fuels for energy production is a source for greenhouse gas emissions and, as a result, there has been a push to move towards renewable energy production as renewables do not emit greenhouse gases. The environmental pledges of some of the world’s largest companies reflect that reality. Their goals are to be “net carbon neutral” and, as such, the environmental investment thesis around Bitcoin should also focus on relative carbon emissions. While Bitcoin mining uses a substantial amount of energy, a good percentage comes from renewable energy. According to a 2020 study carried out by the CCAF, 39% of total energy for Bitcoin mining came from renewable sources in 2019 (compared to 28% in 2018) with 76% of miners using renewable sources as part of their energy mix. This upward trend and meaningful renewable energy penetration should be encouraging.
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