Billions dollars cost of electricity consumption of bitcoin mining, really is paying from what resource?
The electricity consumption of Bitcoin mining is really staggering. Cambridge University has recently launched an online system provides a real-time estimate of the total electricity consumption of the Bitcoin network and updated every 30 seconds. Usually, the yearly average of power consumption for all mining equipment is estimated to be between 50 to 70 terawatt-hours(TWh) per year. This figure exceeds the annual consumption of a country with ten million populations and costs billions of dollars. In this short article will show such significant cost is covering from what resource.
The authors of the article are Somayyeh Gholami and Mehran Kazeminia.
Suppose a new currency was introduced and sold to the people by a financial institution who announced that users can buy and sell it safely and limitlessly. This financial institution will not receive any payments such as a commission nor fee from users who can trade this money anonymously, easily and free of charge. Meanwhile, using special technology, the reliability of the accuracy of each transaction is 100%. There is neither mistake nor misconduct nor corruption in this financial institution.
Their only condition is to print new currency at least an annual equivalent of $ 3 billion, in addition to the available amount and to sell to the public to cover its costs.
The condition of the financial institution ensures that it receives $ 3 billion annually, and will no longer need to receive any other payment, like the transaction fees. That’s exactly why it can always provide its services for free. Meanwhile, let’s not forget that the injection of new money definitely have inflation effects and indirectly all holder of this currency will be paying this cost. In other words, $ 3 billion annually will be reduced from the value of this currency in hand of holders to cover the costs of this financial institution.
Bitcoin’s decentralized network works just like the financial institution of the above example, makes the new Bitcoins in the form of Bitcoin mining, and immediately gives new Bitcoins to the winner miners. Of course, the transaction fees cover only five percent of the cost of the miners and whether or not it has little impact. So, it should not be surprised at the low transaction fee of Bitcoin transactions or considered it as an advantage of Bitcoin. We have already discussed these issues in a different article and you can learn more here:
One new block is added to the Blockchain about every ten minutes, and immediately the reward plus all transaction fees of the same block is paid to the winner miner. It means that around 52560 blocks are registered annually, considering that the miner’s reward is currently 12.5 Bitcoins this year, about 657,000 new Bitcoins have been generated. If we assume that this year the average price of Bitcoin is $ 5,500 so just this year $ 3.6 billion have been paid to miners. Of course, as mentioned earlier, miners also receive an additional payment as the transaction fees which usually is less than five percent of the miner’s reward.
If we skimmed through Bitcoin daily transactions, we quickly find that in one day, we rarely see Bitcoin transactions worth about $ 1 billion or more. For this reason, we can presume currently the sum of Bitcoin transactions worth about $ 600 million per day, on average. So, in one year $ 3.6 billion is spent just to transfer $ 216 billion. In other words, the actual transaction fee of Bitcoin should be about 0.0167 of the transaction amount.
The staggering electricity bills of miners is not only about money but the study, which was carried out in October 2018 on global climate change, showed that in less than three decades, Bitcoin mining could increase global temperatures more than 2 degrees Celsius.
Unfortunately, in Blockchain society, the main focus is only on possible solutions for consensus, and the types of proof-of-work mechanisms, proof-of-stake, the delegated proof of stake, etc. are proposed with such mentality. But if we concentrated on the main problem, we will have much more affordable and cheaper solutions. There is no need to create multiple alternatives from a block to choose the correct one by spending a lot of energy and using the types of consensus mechanism. Rather, we need to get the flawless data that can be transmitted without interruptions when transactions are made. There may be several ways to do this, but the most tangible way is to use a smart contract. We have named this method “Smart Blockchain“ for this reason.
Smart Blockchain needs neither a financial institution nor intermediary, meanwhile, there will be no task to do for miners and block producers in this technology. In Smart Blockchain, one or more smart contracts collect accurate and flawless data from the successful transactions of a decentralized network at the moment of transaction occurrence and simultaneously store and register these data in new blocks like an accurate and trust financial institution but free of charge and at all time.