With the attention back to Bitcoin (BTC), with the help of some unstable celebrity tweets, the fierce debate about energy use is back. Let’s focus on a seemingly obvious question: Does Bitcoin use a lot of energy?
The main features of the case are clear. Bitcoin protects its network from hostile takeovers with Proof of Work (PoW), a process that uses large amounts of power due to the necessary processing power. Every time we have this debate, the all-too-familiar battle lines change.
Critics argue that Bitcoin’s energy consumption simply cannot be justified. At various times in recent years, reports have indicated that the grid uses the same amount of electricity as, for example, countries such as Denmark or Ireland.
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On the other hand, bitcoin advocates claim that the network can encourage more use of renewable energy. Furthermore, they indicate that we do not consider the use of alternative energy. We can not measure the relative performance of Bitcoin as a warehouse and value exchange unless we compare it with the total energy consumption of the traditional banking system. Just as we must go beyond a narrow calculation of exhaust emissions to measure the environmental impact of vehicles, Bitcoin advocates argue that we need a comprehensive analysis of the environmental impact of traditional economics, including all infrastructure, bricks and mortar buildings. travel and the devices that support them. Other alternatives are also lurking in the background – what about consensus mechanisms such as Proof of Stake (PoS), the approach Ethereum is heading towards?
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Standard battle formations
The fact that blockchain mining technology uses an enormous amount of energy is a fact and without a doubt. This is especially evident when comparing the costs of producing and circulating currency.
For example, Bitcoin is estimated to consume 123.77 billion kilowatt hours of energy annually, compared to 2.64 million kilowatt hours in cash. According to Digiconomist founder Alex de Vries, if bitcoin becomes the world’s reserve currency, global energy production must double.
Others argue that miners will eventually be attracted to places where energy costs are lower, or become buyers of green energy in a pinch. It remains to be seen whether the controversy will persist in the long term, given the degree of regulation in the energy markets, the material costs of relocation and the potential safety implications of the mining concentration.
Formation of opportunity costs
Among all these arguments, it is relatively new to compare the energy use of cryptocurrency with the traditional banking sector – or especially with fiat currency. However, the difference in transaction volume is not taken into account compared to older payment systems: while the Visa network completed more than 185 billion transactions in 2019 alone, Bitcoin has completed 643 million transactions since its inception. Furthermore, commercial organizations such as Visa integrate well with the energy markets, which are heavily regulated in many countries. In mental models, when miners move en masse to new energy markets, the transition costs (plus opposition to traditional players) are likely to be discounted. Again, these trends are not surprising as cryptocurrency advocates tend to be optimistic about the future, believing that markets are performing more efficiently than they actually are.
Aside from the very complex non-trivial implications of energy use for blockchain security, the idea that miners will follow lower power rates does not necessarily mean cleaner energy, because cheaper energy is often dirtier. But most importantly, the notion that minerals will eventually switch to renewable energy ignores the opportunity cost of energy. According to the US Energy Information Administration, global energy consumption will grow by 50% by 2050. And the emergence of unexpected data needs, imposed by smart cities or integrated supply chains, for example, will require blockchain to be more energy efficient – humanity will need to monitor climate goals.