Does Bitcoin use too much energy? 💡
A global financial system needs power. And that power normally comes from electricity. While critics say cryptocurrency uses too much, evidence shows that Bitcoin doesn’t deserve its dirty reputation. The reality shows Bitcoin is actually greener than many industries. Here’s why.
How is Bitcoin made?
Unlike fiat currencies, Bitcoin isn’t just magicked into existence at the push of the button. It takes work. Bitcoin is produced as a reward for mining. Mining is a process in which powerful computers crack complex mathematical problems to create “blocks” of verified transactions. These are then added to the blockchain. While this is a very lucrative practice for miners, it does consume a lot of energy.
Does Bitcoin have an energy problem?
According to the University of Cambridge Bitcoin Electricity Consumption Index, Bitcoin takes up more electricity than the entirety of the Netherlands. According to the data, if Bitcoin’s energy consumption were ranked against all other nations, it comes in at number 32, just behind the United Arab Emirates.
But it’s not all doom and gloom for Bitcoin’s mining methods. Miners, keen to shake off their reputation as polluters amid a conscious global shift towards sustainable energy, are cleaning up their act. According to a 2019 study, 76% of cryptocurrency miners use electricity from renewable sources. The report found that 39 percent of all energy used in generating
proof-of-work cryptocurrencies came from renewables. This is an increase from the 2018 report which stated that only 28% of energy used in mining was renewable.
Industrial areas are in decline. Rent is cheap and authorities try to attract business by slashing energy prices. But there’s one more thing: Industrial rust belts often have underused renewable energy sources.
For Bitcoin miners, it’s the perfect combination. They can move to a new location that reduces costs, create wealth in the form of Bitcoin and use clean energy.
But Miners aren’t just hitching a ride on the clean energy bandwagon. Mining sites are teaming up with renewable energy producers to minimise their use of energy from the grid. In sunny or windy weather, miners don’t need the grid and can simply use energy produced on site.
Science buffs will know that when a huge amount of energy goes into a process, even computing, other energy comes out. This usually comes in the form of heat. Instead of using more electricity for cooling systems, miners are even developing ways to transfer the heat into homes in their local communities. This solves one of mining’s trickiest challenges and shows how dirtier industries can also clean up their act.
Bitcoin doesn’t just affect finance. It could help transform the energy sector too. The technology that powers Bitcoin, blockchain, is decentralized. This means that it is distributed across the networks that use it, not just in one physical location.
With smart meters, smart contracts and cryptocurrencies like Bitcoin to power transactions, blockchain would revolutionize how power is distributed. Information would be stored securely on the blockchain. All data would be publicly available. It sounds radical but, put this way, it might sound more appealing: No companies. No more traders prioritising their profits. No more nasty surprises in bills. A blockchain system powered by Bitcoin would mean a greener, cleaner future for all.
Polluters in glass houses shouldn’t throw stones
Either way, the energy used in Bitcoin production pales in comparison to other sectors. The industrial sector uses a huge 45% of global energy, with building and transport taking up 29 percent and 21 percent respectively. By comparison, Bitcoin consumed a mere 0.51%.
Bitcoin critics might find that the environmental angle is a novel way of criticising cryptocurrency, but the facts show that the industry is already cleaner than other sectors. Perhaps this is why climate-conscious millennial investors often choose cryptocurrency as their first investment.