Yes, Bitcoin needs a lot of energy. No, that's why the seas do not start to boil. Power consumption is a problem, but not the end of cryptocurrencies.
Add the following sentence: The Bitcoin system consumes more energy than __: A. Ireland B. Six Aircraft Carriers C. Three Million US Households D. 116 States of the World. All right, you believe the headlines and calculations from the past few months. In addition to the strong price fluctuations, no aspect was discussed more than the increasing energy hunger of the cryptocurrency.
This is completely exaggerated, say the critics. To handle a single Bitcoin transaction is currently consuming as much energy as 17 US households need in one day , according to the much cited Bitcoin Energy Consumption Index. Ascending trend. The digital currency is thus neither sustainable nor responsible in times of climate change.
The others, however, warn against false panic. Bitcoin will not bring the oceans to a boil , but, on the contrary, will ultimately help save energy . Especially since Bitcoin is not just money, but a new global, evolving digital financial infrastructure. One should not overvalue the current energy consumption. Finally, every Google request consumes a ton of power .
Which side is right? The answer is both - and none at the same time.
Coal from Mongolia, solar power from the gazebo
One of the biggest problems is that there is no way to get specific data on actual power consumption. Bitcoin, like any other cryptocurrency, is a decentralized project: it does not run through corporate data centers, but through many individual computers around the world that mine new bitcoin with complex mathematical calculations or handle credit transfers. Therefore, there is no institution that would be able to keep track of how much energy has been flowing from which sources into the Bitcoin network.
The network can determine how much computing power is provided to it from all connected computers in total. But not how efficiently they work, where they stand, and what kind of power was used to run them. A Bitcoin transaction could be carried out with artificially generated, comparatively dirty coal flows from Mongolia, through already existing geothermal energy in Iceland or with the help of a solar panel on a gazebo in Chemnitz. The exact consumption can therefore be estimated.
As a result, the results of such estimates currently differ widely between nine and 45 terawatt hours per year. Not only because of different assumptions on which the calculations are based, but also in terms of which thesis should strengthen the data in the end. "There are many ways in which we can make that number big or small, depending on what we want to make you think," says Bitcoin blogger Leo Weese about the dilemma .
If you were lobbying against the currency, you could say that the mining of new bitcoin alone consumed more electricity last year than the 116 states of the earth mentioned earlier. On the other hand, the number could be made small. You could say that the Three Gorges Dam alone in China produces three times more electricity than the Bitcoin system requires. Or the energy needs of the currency is lower than that of 17 NSA data centers. In the end, it always depends on the point of view.
Does Bitcoin justify its energy consumption?
It is indisputable: the Bitcoin network consumes a considerable amount of electricity in its present form. But more decisive is the question of whether this consumption is justified. So what's Bitcoin doing worth more than the bottom line?
One of the most common arguments against the Bitcoin currency in this context is its inefficiency. Despite the enormous energy demand, the system can handle only a very limited number of transactions, currently only about three to ten per second. Especially compared to existing payment service providers such as credit card companies, whose systems processed as many transactions in a second as Bitcoin did in a whole day.
This performance comparison is indeed plastic, but misleading. Because there is no direct correlation between the amount of energy that the Bitcoin network swallows and the number of transactions it makes possible. It does not matter if ten or ten thousand computers work simultaneously in the Bitcoin network. The transaction capacities will not increase.
But what increases is safety and reliability. The bigger and more powerful the network, the harder it is to manipulate the blockchain, the heart of Bitcoin. The database that all computers connected to the Bitcoin network share and update. It contains all Bitcoin transactions ever made and is considered almost unmanipulatable. But only because the Bitcoin network is just as big and powerful as it is today.
Anyone who wants to manipulate the blockchain must therefore convince the entire network of the changes. From a purely mathematical point of view, this requires at least half of the computing power of the network. However, the larger the network, the more costly and expensive this so-called 51 percent attack . If the computing power increases, the power consumption increases, and so does the security and reliability of all Bitcoin transactions. For a state- and bank-free digital currency with a total value in the hundreds of billions, these are important factors.
The concept works, empirically. In the nine years that Bitcoin has existed, no attacker has succeeded in corrupting the integrity of the blockchain. Bitcoin is not only resistant to hackers. "With more than 11,000 copies of blockchain on machines in more than 100 countries, the data from every Bitcoin transaction ever made survives even a nuclear war," says Nick Szabo, describing Bitcoin's security concept. The IT scientist, lawyer and encryption expert had developed bitcoin's predecessor bitcoin with bit gold in the late 1990s and is regarded as a luminary in the blockchain field.
Not every transaction is the same
Security and immutability are an argument, but they are not enough to justify the immense energy needs of the Bitcoin currency. Even though every transaction is extremely safe and irreversible, only a handful of transfers per second are possible. From a purely mathematical point of view, the energy expenditure per transaction thus remains high and the criticism is justified. If someone pays for a coffee with Bitcoin, the expense does not justify the benefits. Cash would be a simpler, faster and greener alternative in this case. The dream of introducing Bitcoin in its current form as a universal means of payment in everyday life is therefore not practicable.
In some cases, that changes. Suppose a larger sum of money would have to be sent to a charitable organization in a developing country at the other end of the world. Such a transfer is in the current financial system, if at all possible, slowly, with costs and effort connected. By contrast, Bitcoin transactions are entirely on the Internet. Which sums are sent, which and how many country borders are crossed, is irrelevant. For the protocol and the network every transfer is the same.
"Bitcoin saves my family from starvation," wrote a user whose family lives in Venezuela, on the discussion platform reddit. In contrast to the official currency BolĂvar, which has reached an inflation rate of several thousand percent, Bitcoin is there a relatively stable currency and help to survive. Not an isolated case: There are countless reports on the Internet about how people smuggle much-needed and Bitcoin-paid food and medicines to Venezuela. The question of energy efficiency does not arise for them.
The developers are working on solutions
The Bitcoin community has been dealing with the energy debate for years. The increasing demand is not surprising, but was long foreseeable. The next big goal is therefore to scale Bitcoin. So to allow more transactions with the same energy expenditure, without, however, weakening the security and reliability of the system.
Already three years ago, a concept was tested and implemented. For a few weeks now the first practical tests with the so-called Lightning network are underway . Based on the Bitcoin blockchain, it will allow instead of now three to ten transactions in the future 10,000 bitcoin transactions and more per second.
It is still unclear whether the concept can actually meet these high expectations. But the motivation of the community of Bitcoin, but also of other crypto currencies like Ether is great. They want to continue the original vision of creating a non-manipulable, free and open decentralized monetary system as an alternative to the existing, crisis-prone and centralized one. One that is not only safe and reliable in the end, but also energy efficient, of course.
