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Does Bitcoin Have an Energy Problem? 14 Payment Processors & Bitcoin - Addressing a Potential Alternative At the outset, we outlined why likening Bitcoin to countries was not particularly useful. Similarly misleading are statements comparing third-party payment processors to Bitcoin. The argument is that third-party payment processors, like Visa, spend far less energy than Bitcoin does while also facilitating far more transaction volume. Visa uses a small fraction, ~0.25TWh versus ~125TWh, of the energy Bitcoin does and handles an average of 150 million transactions every day and is capable of handling more than 24,000 transactions per second, opposed to Bitcoin’s ~300 - 400 thousand. As with Bitcoin’s comparison to countries, this is incomplete due to two important factors: The actual energy used by Visa and the transaction scalability of Bitcoin. First, the Visa payment rails are held up by much more than just the Visa technology stack. It is difficult to directly allocate how much energy Visa depends on to facilitate transactions since the currencies it transacts in are government-issued currencies. Visa’s success depends on the success of separate systems. Visa’s “token” is not native to its network. Without diving into the “war-machine” or “petrodollar” argument of U.S. dollar stability that is thrown around on social media, it is certainly the case that the Visa system is predicated on a lot more than just the system itself. If we could consider the energy use of various institutions and industries, the true cost of Visa makes up some parts of “Paper Currency and Minting”, “Banking System” and “Defense” energy consumption. Where Bitcoin diverges from that, and why proponents are so excited about it, is that Bitcoin’s payment network transmits native bitcoin tokens to settle transactions with finality, governed by the same rules and protocol. Bitcoin is more than the payment network. Bitcoin is also the money that is transmitted. Second, one transaction on the Bitcoin blockchain does not equal one payment. As Nic Carter puts it in a CoinDesk article titled The Frustrating, Maddening, All-Consuming Bitcoin Energy Debate: “Bitcoin offers fast, high-assurance, final settlement. This means transactors can trust that value transfers are absolutely final within a short period of time. This permits Bitcoin to scale to enormous size – billion-dollar transactions are common and settle without incident... Bitcoin is therefore best understood as a high-integrity utility-scale settlement network, similar to Fedwire...” The finality of Bitcoin’s settlement mechanism has served as a “first layer” on which to build a thriving, decentralized financial ecosystem. Although the specifics of near-chain, side-chain, “second layer” and off-chain transactions are outside the scope of this report, the important takeaway is that one Bitcoin transaction might represent hundreds, thousands or millions of related transactions. Simply counting transactions at the “block level” or “first layer” of Bitcoin is an incomplete picture. Bitcoin is a simple system of value exchange that can transfer $10 billion of value just as easily as $100 billion of value. The mechanism and system remain the same regardless of scale.PDF Image | Does Bitcoin Have an Energy Problem
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