Bitcoin is a decentralized digital currency used as a medium of exchange without a third-party such as a bank. It was developed out of the need for an electronic payment system centered on cryptographic proof instead of trust. The development of Bitcoin ushered in a new era in the global financial technology (fintech) industry. Every Bitcoin transaction made exists on a public ledger that is accessible to everyone. As a result, it is difficult to reverse or fake a transaction. Bitcoins are not backed by the government or financial institution, therefore, their value is guaranteed by the proof baked in the heart of the system.
Over the past several years, the issue of electricity consumption in Bitcoin mining has become a subject of heavy debate. Proponents of this line of thought have argued that the process gobbles power as the currency requires huge quantities of calculations for its ultimate goal of processing financial transactions without intermediaries. Most recently, the energy concerns fuelled by the surging price of Bitcoin in recent months. The crypto-currency has drastically risen from below $5000 in March 2020 to around $50 000 this year.
However, it is paramount to highlight that most of the power concerns leveled against Bitcoin are being blown out of proportion and hold no water. There are several reasons to explain this.
Conflicting sources of information
Most of the electricity consumption data on the Bitcoin network is being sourced from the Cambridge Bitcoin Electricity Consumption Index (CBECI). Also, analysts and mainstream media practitioners have referenced the digiconomist.net Bitcoin energy consumption index as well. It is paramount to highlight that both the digiconomist.net’s and CBECI annualized consumption of terawatt per hour have huge discrepancies. According to the digiconomists’ statistics, the Bitcoin network captures 77.78TWh while the CBECI indicates a power usage of 111.08TWh. It causes a large variance (over 40% difference) in an attempt to estimate the energy consumption of the crypto-currency. Furthermore, there is uncertainty over the accuracy of the data obtained from the CBECI. It is because a team member from the Cambridge Centre for Alternative Finance (CCAF) once explained that the CBECI map is not updated. It further casts doubt on the credibility of the energy consumption information on Bitcoin. It is unfair to critique the cryptocurrency's power usage based on information with such a wide variance. It raises concerns on the validity of the methodologies that are being used by these institutions to arrive at these figures. It begins to appear as if the figures used to advocate against the cryptocurrency are guestimates.
It is crucial to highlight that there is still a need for a more holistic approach when estimating the quantity of electrical energy used on the Bitcoin network. From all indications, it is clear that there has been insufficient research to assess the overall effect that the digital currency has had on global power consumption. When assessing the overall impact that Bitcoin has had on global power usage, it is vital to compare it with other sectors of the finance industry. There are numerous examples of financial technology sectors that use far much more electrical energy compared to Bitcoin. For instance, several statistical sources estimate that the modern banking system uses over 140 terawatts of electrical energy each year. The current banking system involves electrical energy-reliant aspects such as delivery trucks, servers, branches, ATMs, and so on that contribute significantly to global electrical usage. Therefore, it is unfair to highlight the huge energy consumption attributed to Bitcoin without comparing it against its counterparts. The digital finance economy being fronted by Bitcoin may prove to be more energy efficient than the traditional banking system. There is a need for a more comprehensive study to evaluate the impact that Bitcoin has had on global energy usage patterns. While Bitcoin should be critiqued like any other technology rising to global prominence, it is not ideal to do so without first assessing the impact of the alternative technologies that attempt to solve the same problem.
Bitcoin mining does not require all the energy it uses
It is paramount to highlight that the entire Bitcoin network across the globe does not demand that much electrical energy. In fact, the entire Bitcoin network can be run on a single computer node. The reason why Bitcoin is being mined so much is because it's a very profitable business. Demand creates supply, and when the price of Bitcoin is constantly rising, it covers the expenses all the used electricity.
Bitcoin network is not energy exhaustive.
Several Bitcoin alarmist reports have published outrageous claims concerning the crypto currency’s energy consumption. One such article said that Bitcoin would consume all of the globe’s energy by 2020. However, an objective assessment of Bitcoin’s power usage patterns will reveal that the actual figure is very small. Several experts placed the figure between 1 to 4 gigawatts, which is roughly the power output of between one to three nuclear reactors. That’s less than one percent of the U.S electricity consumption and no more than 0.14% of the global power generation.
Furthermore, Bitcoin mining activities are economic. People mine it because they make money with it, just like any other industrial activity. Therefore, it is paramount to understand that Bitcoin mining is like any other economic activity such as banking which uses up electrical energy, but serves a vital purpose to the global population. Pinning the blame about electrical consumption on Bitcoin is similar to blaming any other industry where demand creates supply.
Bitcoin’s usage of renewable energy
Bitcoin miners have been fast embracing eco-friendly facilities. These have already been adopted on a massive scale. In 2020, the University of Cambridge’s third Global Cryptoasset Benchmarking Study discovered that seventy-six percent of crypto-currency miners made use of inexpensive geothermal and hydro-electric energy to power their machines. This figure was a rise from the sixty-percent revealed from the same benchmarking study in 2018. This trend is expected to continue. According to the International Renewable Energy Agency, the adoption of renewable energy sources is on an upward path as they are increasingly proving to be more cost-efficient as compared to their fossil counterparts. Therefore, from these statistics, it is evident that the energy concerns regarding Bitcoin are misleading as the critics of the crypto-currency are not factoring in the swift rate at which Bitcoin miners are embracing eco-friendly sources of energy. Therefore, there is absolutely no reason to worry about the energy concerns of Bitcoin in the future as the digital currency continues to gain global acceptance.
Location of mining activities
Bitcoin miners, in an attempt to avoid huge energy bills, have been fast adopting sustainable mining solutions. It is an aspect that mainstream media outlets have not done enough coverage. For instance, there has been an increasing relocation of Bitcoin mining activities to areas with huge renewable energy potential. Crypto-currency miners have based their operations in areas in which the sun is abundant so that they can fully utilize solar energy. It is critical to highlight that sometimes the grid in those areas cannot handle the huge amounts of power being fed onto it, resulting in energy losses. As part of their efforts to adopt sound and sustainable solutions, cryptocurrency miners have relocated to those regions, primarily attracted by the low power costs. Also, cryptocurrency miners are taking advantage of low-temperature regions like Iceland and Norway, which also happen to have almost 100% renewable energy use. Of late, these countries have become a favorite place for many Bitcoin miners. It is because of the existence of freezing temperatures in these countries helps cut the energy bill as the computer servers cool naturally. As a result, electrical energy consumption in Iceland is cost-effective and eco-friendly. In simple terms, Iceland has the ideal conditions for Bitcoin mining. Furthermore, there is a project by the name Hotmine in Siberia that utilizes Bitcoin mining rigs as a heating system for residential homes. Siberia is notorious for its extreme subzero temperatures during its cold winter months. The Hotmine team intends to effectively use the hot air in Bitcoin mining rigs to provide heating for homes. It is only one of the noble initiatives being spearheaded across the globe to ensure that Bitcoin mining becomes increasingly sustainable. Unfortunately, such efforts usually escape the attention of mainstream media outlets.
Bitcoin uses energy that would have otherwise been wasted.
Most Bitcoin critics often overlook the fact that the crypto-currency is sometimes mined using energy that would have been otherwise wasted. It is where the argument that Bitcoin has massive carbon emissions and the environment misses the point. It is critical to highlight that oil and gas fields use their excess energy to mine Bitcoin. It helps produce value out of natural gas that was going to be flared, thereby giving it economic use. In the process, Bitcoin reduces the carbon footprint by utilizing previously wasted electrical power. The same holds for hydropower. One splendid way to look at this is the Sichuan province in China used to mine Bitcoin. It is where the majority of Bitcoin miners in the People’s Republic of China do their mining. The province is a victim of electricity generation overcapacity. It was a result of the ambitious, centralized Three Gorges Dam hydropower project that produces huge quantities of power that cannot find usage at optimal prices. Instead of filling that gap with the decades-long plans to awaken ghost cities commissioned by central planners, the region benefits from a hypermobile fleet of hardware miners that frequent the area to take advantage of the excess power. These are just isolated examples of the areas where Bitcoin miners are reducing inefficiencies in the respective local power sectors. Looking at it on a broader perspective, you will discover that Bitcoin mining can serve as a missile for power inefficiencies by availing the imagined cities that central planning officers supposed they could conjure up when they were building complex, and probably without Bitcoin, projects that have no economic benefit. It is paramount that critics of the cryptocurrency’s power usage also consider these factors when doing its cost-benefit analysis and computing the total wattage attributed to it.
Bitcoin cost-benefit analysis
Of course, Bitcoin, like any other technology, utilizes electrical power to some extent. However, it is critical that people also make a cost-benefit analysis of the cryptocurrency, to assess how the technology is revolutionalizing the global finance sector against its power consumption. There are several technologies on the globe that are also power reliant, but easily pass a cost-benefit assessment and have been allowed to thrive due to the benefits that they have brought to mankind. A simple example is the information technology industry. There are over a billion people who use the internet for their day-to-day activities. It undoubtedly translates to huge power usage. However, a quick assessment will reveal that the technology has brought forward numerous benefits across the globe. Therefore it has been allowed to thrive. There is a need to also scrutinize the benefits brought forward by the blockchain technology upon which Bitcoin is based.
While blockchain technology is still evolving, a quick look at it will show that it has already brought many benefits. Firstly transactions done using Bitcoin provide user privacy. Unless individuals voluntarily avail the details of their transactions, they are very difficult to trace back to them. They are more like cash-only purchases. It is a great benefit considering that online privacy is gradually taking center stage in the modern technology era. This has resulted in big tech companies like Facebook and Google called for hearings regarding user privacy. The blockchain technology, upon which Bitcoin is based, solves that problem. Also, foreign purchases and wire transfers usually involve hefty fees and exchange costs. Bitcoin transactions do not have an intermediary involvement or government institutions, therefore, transaction costs are very low. Lastly, Bitcoin enables users to send and receive the cryptocurrency using only a smartphone or computer. As a result, it serves the massive populations of users who have no access to the traditional banking system, credit cards, or other methods of payment.
With all these highlighted benefits, it is clear that Bitcoin’s economic benefits outweigh the power consumption concerns that critics of the crypto-currency may have.
In conclusion, as articulated above, it is evident that the electricity consumption concerns are blown out of proportion. There are several issues that critics do not factor in when advocating against the cryptocurrency’s use of power. The sources that are cited concerning the matter produce figures that have wide variances. It results in skepticism about their validity. Critics also overlook the fact that Bitcoin miners, in an attempt to reduce their energy bills, are mostly using renewable energy sources. It is also paramount to highlight that these miners are also using energy that would have been otherwise been wasted. An example of this is the Sichuan province in China which is one of the areas served by the Three Gorges Dam. It is also where most Chinese miners base their operations. Furthermore, it is unfair to critique the cryptocurrency without also looking at the benefits that it has brought to the financial technology sector. There is a need for a more comprehensive study that would factor in all aspects around the energy consumption of Bitcoin. The current projections miss the mark in several areas, and it is crystal clear that a more holistic approach will reveal that the energy issues around Bitcoin are exaggerated.