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Does Bitcoin Have an Energy Problem? 4 Energy Consumption and Bitcoin Mining As Bitcoin garners attention, respected investors, thought leaders, media outlets and critics are sounding the alarm about Bitcoin’s significant energy consumption. And it is true; Bitcoin is energy intensive. Individuals, groups and businesses 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, mining is profitable. (See Annex: “Bitcoin Mining Explained”) Bitcoin uses a lot of energy, but does it need to? Bitcoin 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 consensus or agreement as to “who owns what” with an adequate security model 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, 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. 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.PDF Image | Does Bitcoin Have an Energy Problem
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