Bitcoin is by far the most popular type of cryptocurrency. As such, many people have only recently learned that bitcoin mining requires an incredible amount of energy. In order to keep up with demand, bitcoin miners are often allowed to set up their own power grids in areas where power is cheap due to low demand or pollution restrictions. However, it is not quite as simple as cutting a power line and plugging in a bitcoin mining rig. That would be much too easy.
One of the reasons why the energy consumption of blockchains is so high is because the amount of processing power needed to verify transactions increases as more transactions are submitted to the blockchain. This means that as the number of bitcoin transactions increases, the amount of energy needed to keep up with demand also increases. Another issue is that mining hardware needs to be constantly upgraded in order to increase its processing power. The older hardware becomes less and less efficient at processing bitcoin transactions, so it must be replaced before it becomes too obsolete to be of any use at all.
In the beginning, Bitcoin only required an ordinary computer for mining, which makes it very different from the vicious cycle of regular hardware upgrades that is sometimes common in other hardware-reliant industries. However, demand for mining has risen so rapidly that many large mining farms have had to dedicate entire buildings to mining. Mining farms of this scale consume enormous amounts of energy because they utilize multiple systems that are constantly running at full capacity. It is widely believed that Bitcoin is constantly making a case for the first use of renewable energy in the mining industry.
Energy consumption is not equivalent to carbon emissions
A common misconception is that the energy consumption of a country or industry equates to its contribution to carbon emissions. On an individual level, however, they do not. In fact, in the United States, it is not generally an accurate idea to compare energy consumption rates with carbon dioxide production rates. This is because energy consumption in the United States covers a wide range of environmental factors and climate change. Thus America’s overall consumption may seem high-emitting when compared with other countries whose total production compares more accurately with their total emissions.
The United States is one of the largest consumers of energy in the world. The US has high energy consumption rates because it uses a variety of sources to produce its energy, such as hydroelectric, nuclear, coal, natural gas, and petroleum. The reason that the US has consistently high emission levels is that it burns so much coal to produce electricity. Although there are other nations with higher annual per-capita emissions, they are not as dependent on coal-powered energy generation as America. The United States has the largest fossil energy consumption rate in the world. The US policies on fossil fuels and greenhouse gas production could drastically reduce carbon dioxide emissions, but they have not succeeded in doing so.
Bitcoin can use energy that other industries can’t
Bitcoin has long been criticized for its heavy energy use, but to understand the magnitude of its impact, it is crucial to compare it with other industries. One particularly interesting comparison, which we’ve never seen mentioned elsewhere, is with the mining industry. Bitcoin mining uses around 80% of all energy consumed by the cryptocurrency market despite mining only making up 11% of all cryptocurrencies.
Proof of work mining consumes huge amounts of energy
The trick comes from looking at the energy intensity of all Proof of Work (PoW) mining, the process that cryptos use to create new blocks and secure their networks. Bitcoin’s energy consumption is only a fraction slower than that of gold production. The reason is that PoW mining uses more energy per coin mined than other mining types.
For example, if we compare bitcoin with a commodity such as gold, we see that each Bitcoin transaction uses around 100 times more electricity than each ounce of gold produced. This energy intensity is due to the use of PoW mining which is used by cryptocurrencies to secure their networks in a way that makes it difficult for individuals to control single units. Although there is no clear theoretical counterpart in classical economics, the closest example to PoW mining and its security mechanism is the centralized minting of money.
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Story by Chiranjit Sinha