9 years after the network launch, Bitcoin is a tried and tested system that has proven to be secure and the only blockchain so far to deliver on the promises of its white paper. Over the years, the peer-to-peer network of fully validating nodes and miners grew so large that no single central agency can influence it. This means governments can’t devalue the currency, hackers can’t penetrate the entire system, and no transaction in Bitcoin’s history with at least one confirmation has ever been double spent.
Every new system has its critics and naysayers, especially a system as disruptive as Bitcoin. One of the major concerns people have regarding this currency is the energy consumption connected to it. People aren’t just concerned about the cost of consuming excessive electricity during mining, but also the environmental impact of the process. These are valid concerns so here we discuss these in detail.
Holding and Transacting Bitcoin Doesn’t Consume Much Energy
On the user end holding and transacting Bitcoin doesn’t consume much electricity at all. You won’t experience a sudden spike in electricity bills or see your phone battery drain at a rapid pace if you start using Bitcoin. Transactions require no more energy than regular banking transactions you carry out on a day-to-day basis. You can hold and transact Bitcoin without having to mine it and it is mining that consumes energy.
Mining is a process of arranging transactions into blocks and connecting the block together into the global ledger that is blockchain. People mine it for the reward the protocol offers for a valid block constructed this way. A valid block needs a Proof of Work attached to it for the network of nodes to validate it and accept it. Without this Proof of Work no reward can be claimed by the miner and the created block will be ignored.
Generating this proof of work is the expensive part because of how competitive mining has become. The more people compete to be the first to find the Proof of Work for the next block the more difficult it gets by the protocol’s design.
Dividing the total estimated energy consumption of all Bitcoin miners by the daily number of on chain Bitcoin transactions gives as much energy as 1.57 American households consume in one day.
Proof of Work Secures The Network
The more work is done by miners the harder it is for an attacker to reorganise the blockchain. To rewrite a block and double spend some coins the same amount of Proof of Work (roughly the same energy spent) has to be presented. This makes Bitcoin hard cash. Once a transaction is done and confirmed by the network (put in a block with Proof of Work) any attempt at reversing it is economically unfeasible.
Cheaper than Existing Platforms
Bitcoin is designed to replace older forms of currencies and trading. It performs much better than traditional mediums like gold mining and paper currency printing. Here’s a look at annual economic cost comparison:
- Bitcoin Mining – The cost was $0.79 billion back in 2014 and has risen to $5 billion.
- Gold Mining – The cost is $0.5 billion and the cost of recycling is $40 billion.
- Paper Currency and Minting – The overall cost of fiat currency printing and minting is $28 billion.
- Banking System – The electricity use is $63.8 billion and all expenses combined in $1070 billion.
When you look at all the expenses involved, it is pretty clear that Bitcoin isn’t as expensive as it seems. The costs of mining won’t exceed other traditional mediums even if the influence of Bitcoin increases over time. Central banks constantly inflating the supply of money has led to high capital waste and incomparably worse consequences than Bitcoin energy consumption.
Bitcoin Consumes Surplus Energy
Bitcoin mining can be done from anywhere. Instead of mining at locations with higher energy bills, people can mine at locations that have surplus energy production.
The energy rates are low in these areas because the supply exceeds demand, which can lead to energy wastage. Bitcoin mining will consume this surplus energy and avoid waste. Countries like China, Canada, Russia, etc., offer electricity supply at affordable rates, which means mining there can bring overall costs down.
There are plans to run miners on electricity generated by solar power. The generation will happen in the Earth’s orbit, which ensures constant supply of electricity to the mining system. This is sustainable, relatively affordable, and environmentally-friendly.
The cost of Bitcoin mining isn’t as high as most people believe it to be and it will eventually decrease when better power solutions are implemented.
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