BITCOIN & the ENERGY DEBATE
Part 2 — Where does Bitcoin stand?
“How much power does bitcoin consume? “
It is a question that has been debated for years, especially when the price rises and the recent surge to a new all-time high have certainly reinvigorated the debate.
The question usually arrives with its own load of intense skepticism and criticalism: from a scam, a Ponzi scheme to a means for conducting a transaction in the underworld of criminality to a failure as a valid payment vehicle.
It is no news — as it is human nature to complain of something in a persistent, irritating way.
This leads us to have, on one hand, both studies, such as the one of Cambridge Center for Alternative Finance (CCAF)
Cambridge Bitcoin Electricity Consumption Index (CBECI)
Bitcoin network power demand history updated every 24 hours Theoretical lower bound 4.67 Annualisedconsumption help…
Claiming the Bitcoin network consumption is around 112 Terawatt Hours per year — or 0.55% of the global energy production (roughly equivalent to the annual energy draw of small countries such Malaysia or Sweden) — and headlines like the recent energy strain in Kazakhstan’s power grid — due to huge relocation of miners and the subsequent establishment of 18% of the hash rate of the Bitcoin network.
Bitcoin Mining Continues to Strain Kazakhstan's Power Grid. Here's Why - Decrypt
Bitcoin mining can be very profitable. Image: Shutterstock When China banned in May, plenty of natives scoffed - and…
On the other though, is undeniably documented that Bitcoin has deeply incentivized the implementation of renewable energy sources and further boosted innovation in such fundamental sector, which will be one of the key players in our close future.
How Large-Scale Bitcoin Mining Is Driving Clean Energy Innovation
Energy consumption from Bitcoin mining is massive, and people are taking notice. The increases have been scaling fast…
But the question still remains:
how much energy should a monetary system consume? and so, who’s right in this debate?
Let’s find the answer together.
The binomial Bitcoin — Wasteful
Naturally, there is a political element to the bitcoin energy debate. There are reasons why some people may wish to highlight or even exaggerate bitcoin’s power consumption, just as there are ideological reasons people wish to robustly defend it.
Any objective case about bitcoin’s energy usage must necessarily be placed in context and list the broader benefits of the asset. After all, it’s not a zero-sum game. We can all agree on countless technologies and systems contribute to environmental harm, yet when set against their advantages — to the economy, financial inclusion, or human health, for instance — the matter doesn’t seem so cut and dry.
For Bitcoin proponents, this energy expenditure is a small price to pay for a censorship-resistant digital bearer asset, one that lets citizens of the world escape a broken centralized monetary system. According to The Crypto Voices’ latest release on the global monetary base,
Base Money - Crypto Voices
The government fiat base money supplies in the above table are sourced from the top-30 floating currencies in the…
Bitcoin is the sixth-largest base money on Earth (excluding gold and silver), with only the Eurozone, Japan, the U.S., China, and the U.K. ahead of it. Such exalted status necessarily requires a tremendous amount of energy as miners add new blocks of transactions to the ever-expanding bitcoin blockchain.
Also, when compared to the electrical output of nation-states, bitcoin’s consumption is less than that of 28 countries: in the league table, it sits sandwiched between Ukraine and Argentina.
While it is logical to ask whether the energy required by bitcoin should rival that of an entire nation, doing so must take into account value.
The value of all mined bitcoin is $1.07 trillion — greater than the combined GDP of Ukraine and the next biggest energy consumer, Sweden, with a GDP of $535 billion.
Bitcoin vs Gold
Bitcoin isn’t competing with countries, however, it is competing with rival assets such as the fiat currencies issued by central banks or more comparatively as a store of value, with gold, a precious metal that is mined on an industrial scale every year.
Gold mining, of course, relies heavily on grid power and direct fossil fuel-generated electricity. Last year, a World Gold Council (WGC) report suggested gold sector emissions must be reduced by 80% by 2050 to be aligned with the ‘well-below’ two-degree Celsius scenario outlined in the Paris Agreement.
Gold miners must ramp up renewable energy to meet climate goals: industry group
TORONTO/JOHANNESBURG (Reuters) - Gold miners must rapidly switch to renewable electricity generation if the industry is…
In comparison, the latest Global Cryptoasset Benchmarking Study shows that 39 % of Proof of Work mining is powered by renewables, primarily hydroelectric energy. More than three-quarters of hashers also use renewable energies as part of their energy mix.
It seems like vilifying crypto-mining as a dirty business (when data clearly show otherwise) is a low blow to this industry, which is undoubtedly an advocate for the change.
Bitcoin vs the Banking Industry
Following a report from Galaxy Digital (a financial services and investment management company) released in May 2021, it showed that the Bitcoin network consumes less than half the energy consumed by the banking industry.
The report found (at that time) that Bitcoin consumes 113.89 terawatt-hours (TWh) per year, while the banking industry consumes 263.72 TWh per year.
Bitcoin Is Using Half The Electricity As Your Bank And There Is 19X More Lost In Transmission…
There aren't many sureties in life, but some things are certain. Day after night and Elon Musk tweeting something about…
The report put Bitcoin’s energy consumption into perspective by distilling some of the unique characteristics of Bitcoin and how they relate to and impact its energy consumption, clearly highlighting the characteristic of the asset and its related network:
Bitcoin is not solely a settlement layer, nor solely a store of value or nor solely a medium of exchange
There is no denying that the Bitcoin network consumes a substantial amount of energy, but this energy consumption is what makes it so robust and secure.
What the report is really casting light on is the solidified (yet unintelligent) belief that the energy expended by miners is either stolen from more productive use cases or results in increased energy consumption, but they fail to notice the stark inefficiencies of the current energy system:
Bitcoin miners are incentivized to utilize nonrival energy that may otherwise be wasted or underutilized, as this electricity tends to be the cheapest.
In other words, it is just another hollow, unsound topic of criticism that is yet abundantly used to divert (or completely ignore whatsoever) attention from the benefits of the network and the innovation of this new network.
WHY BITCOIN COULD BE THE BEST FUTURE FOR OUR ENERGY GRID
Bitcoin’s energy use is simply a rounding error relative to global energy usage. Scientists who generally come up with energy usage numbers for the world can easily be off by 1% to 2% in either direction, and we’re talking one-tenth of that here. Simply very little.
Would Bitcoin’s energy usage go up over time? Yes.
If bitcoin becomes successful in becoming the “energy currency” of the world, its energy expenditure has to rise to defend the proof-of-work consensus and the network. If its value to humans increases, so would its energy use.
Bitcoin has great utility and is important for humans. Not everyone may use or appreciate its utility today, which is fine, but that doesn’t mean it doesn’t hold utility to others.
Currently, over $1 trillion of the world’s wealth is stored in it, that’s a lot of monetary energy to disregard.
Bitcoin, in fact, may use too little energy for the value it may store in the future. Considering bitcoin grows over this coming decade and stores $20 trillion of the world’s wealth, maybe even $50 trillion, or, dare I say, $100 trillion, that’s a lot of monetary energy to be secured safely and protected. We should invest and use more energy to protect the network than what we do currently.
The bottom line is this: as renewable energies become cheaper, bitcoin will become greener — and so will everything else. There is no question that Bitcoin, the blockchain, cryptographic currencies, and Distributed Ledger Technology (DLT) protocols must all seek to lower their energy consumption and reduce their carbon footprints — but we all do: central banks, financial institutions, the mining sector… and you and me.
We need to zoom out and put things in a more macro perspective
We can agree to have the certainty that the bitcoin energy debate to die down.
Those fiercely opposed to the cryptocurrency will continue to highlight its environmental impact without putting the case in context. Defenders, meanwhile, will go to bat for bitcoin-like their lives depended on it. What we can do, though, if interested in engaging in the debate in the global community of digitalists and policymakers, is to use reliable facts to make our case. It is perfectly acceptable to come down on either side of the debate, but we must make an informed case.
Ultimately, the market is the arbiter of whether Bitcoin is ‘worth it.’
End of Part 2
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