Since its creation in 2009, Bitcoin has remained the most accepted reliable cryptocurrency worldwide; however, some of its detractors point out that such cryptocurrency has high energy consumption, and, for example, some studies state that this consumption may be higher than that of some small countries.
How can Bitcoin consume so much energy if it is 100% virtual?
Many people wonder how Bitcoin can consume so much energy, especially if it is 100% virtual; the answer lies in mining (how new Bitcoins are created), a process that comprises solving mathematical problems, where the “miner” who gets the correct result faster will be assigned a reward.
When Bitcoin was born (2009), anyone could “mine” from home with a Personal Computer; still, as time went by, the process became more difficult for two reasons: first, because of the increase in the complexity of the mathematical problems, and second, because of the large number of new miners. Because of the factors above, after a while, computers, or personal computers, were “outdated” to give entry in 2010 to the so-called GPUs (higher power graphic cards), which increased the number of operations per second to find the number called “hash rate,” which solve the complex mathematical functions of the blockchain network (which are used in the process of mining and creation of Bitcoins).
The decline of GPUs
However, these GPU cards also ceased to be helpful in 2012 (used to mine other cryptocurrencies that require less power); the so-called ASIC (Application Specific Integrated Circuit) emerged, which is specialized equipment for mining Bitcoin. Thus, the more ASIC machines work, the more computing power and the better the chances of finding the cryptographic solution. This led miners to possess many ASICs in many large installations, working 24 hours a day and 365 days a year, performing operations involving greater energy resource consumption.
What do the studies say about Bitcoin’s significant consumption?
Knowing exactly how much energy Bitcoin consumes is challenging to determine because, even though the Bitcoin price and the “hash rate” are public data, there are other hidden indicators as the location of all miners, the total number of miners, and the number of machines or computing equipment that are operating at any given time. However, despite these limitations, many studies make “generalizations” or “estimations” that can generate negative conclusions; for example, a 2018 study by Nature Climate Change estimated that Bitcoin pollution could raise the planet’s temperature by two degrees, in less than 30 years, while the University of Cambridge, made a study, estimating the annual consumption of Bitcoin at about 125 TWh, which represent twice the consumption of Greece or approximately 0.5% of total global consumption.
The problem of “source” data and estimates in Bitcoin studies
The problem with some of these studies is that they tend to make “estimates” of specific confidential data, for example, the location and number of miners or computer equipment. Another significant factor is the model of computing equipment used; since many studies consider all miners to use the latest ASIC model in force at the date of the research or that the ASIC consumption will be the same through time, a clear example of this “mismatch” in the information are the current ASICs, which are consuming less electricity than the models of 5 or 6 years ago. This does not consider that as the years go by, computer equipment increases its processing capacity and decreases its energy consumption.
Another factor to consider is that the mining intensity continuously varies since it depends on the number of miners working at one point, so energy consumption is sometimes considerably reduced. Another factor that influences consumption is the origin of the energy; for example, the University of Cambridge mentions that over 60% of mining uses energy from fossil fuels; however, because of this statement, the following question arises: how can we reach this conclusion if we do not know the exact global data mentioned above?
Here arises another factor that can further distort the results, which is the generalization of energy expenditure behavior in the United States about other countries in the world; for example, a miner in the United States will have equipment and energy consumption different from a miner in an Eastern or Latin American country. As we can see, some studies can make conjectures or reach conclusions far removed from reality when not having all these indicators.
Who consumes more energy: Bitcoin or the FIAT System?
In all the studies where the high consumption of Bitcoin is criticized, there is a tendency to “minimize” the consumption of the FIAT system (FIAT money whose quality of money comes from its declaration by the State), arguing that the traditional system consumes less energy; however, many experts mention that the expenditure made by traditional banking not only comprises its computer systems, technologies, banking operations, and cards usage (which are mentioned in some studies) but also encompassed the transportation of staff and banking offices, besides the use and support of ATMs (indicators that are not included in many reports on Bitcoin consumption vs. Traditional banking.)
Physical money
Another point to consider is the physical money because the current FIAT system is not 100% digital. After all, physical capital still has a relevant role in the traditional system; for example, if we analyze from the point of view of “digital vs. physical,” we can say that the printing of physical money is less environmentally friendly since trees have to be cut down to create new banknotes, besides all the logistics involved for such funds to be in circulation (printing, safe deposit systems, cash transport, ATM support, etc.) which considerably increases the energy consumption indicators of the current banking system. In some studies on Bitcoin electricity consumption, a “double standard” can be appreciated, which is strict with the cryptocurrency but flexible with the FIAT money system of traditional banking.
What do you think about this topic? Do you think the studies that criticize the high consumption of Bitcoin are reliable?
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