The Truth About Bitcoin Energy Consumption
Ever since it was announced that Tesla would no longer accept Bitcoin (BTC) due to environmental concerns, it seems that everyone is suddenly worried about the cryptocurrency’s energy usage.
Electricity is one of the main components of Bitcoin mining. As adoption and prices continue to rise, Bitcoin energy consumption is expected to go up as well. This part then raises a lot of eyebrows as to how much mining contributes to carbon emission.
So, how much energy does Bitcoin mining actually use, and is it really harmful to the environment?
Why mining requires energy
When people mine BTC, what they’re really doing is updating the transparent ledger of transactions, known as the blockchain. Solving complex cryptographic puzzles gives them the chance to be rewarded with Bitcoins, assuming they arrive at the solution before the others. This is the nature of Bitcoin’s Proof-of-Work (PoW) consensus mechanism.
PoW keeps the network secure in a decentralized way since it doesn’t rely on any intermediary or single point of failure. However, solving these complex puzzles is a highly energy-intensive process and as Bitcoin rises in price, the mining scene becomes more competitive.
This is why Bitcoin mining facilities, giant warehouses filled with computers, have been popping up worldwide. These warehouses allow people to scale up their hash rate—the higher the hash rate, the more chances they have of getting to the solution first. Of course, this also means that the Bitcoin electricity consumption goes up.
The primary concern that environmentalists have here is that mining could become less efficient as the price of crypto increases. If prices continue to soar, the network would need more computing power and energy to process the same number of transactions.
Additionally, outside of Bitcoin energy consumption, mining can also generate a significant amount of electronic waste. This is true especially for Application-Specific Integrated Circuits (ASICs), the specialized hardware used for mining the most popular cryptocurrencies. Unlike other computer hardware, ASICs can’t be used for any other purpose—meaning they quickly become obsolete.
Increasing mining efficiency and profitability
When people decide to become miners, they consider hardware, software, internet connection, and electricity costs.
With several Bitcoin halvings already finished, people look to maximize their mining profits even more nowadays. This is why you see a lot of people moving to different countries just to become miners. People look for cooler climates, speedy internet connections, and places that have lower electricity costs.
By finding the right balance between all those factors, they find ideal places to mine in—including Russia, Georgia, Estonia, Canada, and more. This then would maximize their profits and balance out their losses.
Comparing Bitcoin energy consumption
Alright, we know that BTC mining uses a lot of electricity, but how much power does Bitcoin actually consume?
To put things into perspective, let’s take it in the context of countries and see how much terawatt-hour (TWh) it would use annually:
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According to a report by BBC, Bitcoin consumes around 121.36 TWh a year—an electricity consumption that’s more than the entire country of Argentina consumes. Despite being relatively light compared to powerhouses like China and the USA, it’s not something that anyone can overlook.
However, the critical thing to note here is that Bitcoin energy consumption doesn’t equate to the same amount of carbon emission. For example, one unit of hydroelectric energy will have a much lower environmental impact than the same unit of energy that’s coal-powered.
Additionally, the Bitcoin network consumes less than 10% of what traditional banking systems use. However, it’s also important to understand that the banking system serves billions of people extensively. Right now, it’s a little hard to compare—mainly because…
Bitcoin can use different kinds of energy
We have to remember that BTC miners aren’t geographically fixed, allowing them to go wherever there is extra power. In other cases, energy must be produced close to its end users. Bitcoin doesn’t have that limitation, allowing it to rely on different kinds of energy.
The makeup of different energy sources used by BTC miners is called the energy mix. Knowing Bitcoin energy consumption can be easy—you could take a look at BTC’s hash rate and from there, someone could make an educated guess. However, carbon emissions are a different story. To determine that, we’ll need the precise energy mix—which is hard to come by. Miners tend not to be so particularly forthcoming about their operations and the estimates for what percentage of Bitcoin mining uses renewable energy vary widely.
Additionally, transaction validation consumes less energy than mining operations. Once a coin is mined, the energy requirements decline drastically, meaning that it’s even harder to come to an accurate conclusion as to how much energy is actually consumed by mining.
Another thing that makes it harder to compute for carbon emission is that there are Bitcoin mining operations that actually use clean and renewable energy. Take El Salvador as an example. Recently, La Geo, their state-owned geothermal electric company, announced that they’ve begun exploring Bitcoin mining using energy from their volcanoes. They working directly with the president of El Salvador to “put up a plan to offer facilities for Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy” from their volcanoes.
With that being said, the miners from El Salvador aren’t the only ones exploring clean energy. In a remote facility in Siberia, a Russian data center is harnessing cheap surplus energy from dams to mine Bitcoin. The data center also built other facilities in regions with nearby sources of renewable energy and electricity surpluses. These hydroelectric-powered mining operations in Russia have been estimated to account for 7% of the world’s Bitcoin mining.
Another promising avenue for carbon-neutral mining is flared natural gas. During the process of oil extraction, a significant amount of natural gas is released as a byproduct. This flared natural gas is essentially energy that pollutes the environment. However, it’s wasted because it never makes it to the grid. Since that type of energy is concentrated in the location of remote oil mines, more traditional applications have been unable to leverage it.
Since miners aren’t geographically fixed, that alternative could be a way to reduce a common issue: the oversupply of energy.
A greener future
Despite the enormous Bitcoin energy consumption, many believe that mining operations will have a more environment-friendly future. As a result, both BTC and blockchain technology have been attracting both retail and institutional investors at the corporate level.
As cryptocurrency adoption grows, many people will likely turn to the issue of Bitcoin’s carbon footprint again. However, that isn’t necessarily a bad thing. The more people become aware of this problem, the more they start to think of a solution.
Right now, the specifics are a little fuzzy—readings are somewhat inaccurate, some miners aren’t as forthcoming about their operations as we’d like, and crypto naysayers are blowing things out of proportion. In the midst of all of that, one thing’s for sure: there’s a lot more to this story. As we move along BTC’s lifespan, we’ll learn more and see how people can improve the system more. Who knows? We could possibly be moving into a future where cryptocurrencies are mined with nothing but clean energy.