Mining cryptocurrencies and especially bitcoin is not a waste of energy resources. It's resources and money invested in the most secure financial network on earth. Bitcoin professor Andreas Antonopoulos tackled this subject in recent Q&A on his Youtube channel. Even though Bitcoin is much smaller than the banking business, it's probably also more efficient.
Antonopoulos sees mining as the effect of market conditions. It's a profitable business and therefore there are developments in the optimization of the mining process. However, the biggest costs in mining comes from electricity. That's why mining farms often choose natural resources for electricity over the traditional electricity net. Think about hydro generators in Russia and China, wind energy and solar energy in for example the United States.
"It is not a waste of money. It is money that has been well spend and invested by miners in order to buy us all the most robust system of immutability, security and protection against double spending that has ever been invented."
Andreas Antonopoulos - Bitcoin Q&A: Proof-of-Work, attacks and ASICs (Youtube Jan 10th)
Over the course of 2019 there were multiple reports accusing the Bitcoin network of being a waste of energy resources and harmful to the environment. However, over the past few years there's been research that the banking business is much more harmful to the environment. Now we don't want to say Bitcoin should replace the banking system immediately, but keep an open mind and put things into perspective.
Recent research by the American Chemical Society suggests that Bitcoin consumed 31.3 Terawatt-hours (TWh) of electricity and generated 17.3 megatons of CO2 in 2018. Mining equipment is responsible for 99 percent of this. Over the course of 2019 many cryptocurrency mining farms have moved from fossil fuels to natural resources, like solar energy or hydro-powered energy. Other more innovative methods helps oil companies to reduce their carbon footprint.
A tool by the Cambridge University states that 32 TWh is the minimum of Bitcoin's energy consumption, and 160 TWh is the maximum. They average at 77.68 TWh. If that would be the true consumption of the Bitcoin network, it would require 0.36% of all the electricity generated in the world. The electricity usage would surpass countries like Chile, Switzerland, Portugal and Greece. However, as all researchers have stated. It's difficulty to truly determine the impact of Bitcoin on the environment because you never know where the energy comes from.
However, the fact is that Bitcoin miners using renewable energy are more likely to make a profit. Therefore they have a strong incentive to operate on solar power or wind energy. In addition the carbon footprint of miners is limited to energy consumption and hardware usage. There are no building, paper waste, water usage, transport or any other form of consumption.
We need to look at Bitcoin as an alternative for payments, and therefore we need to compare its environmental impact to the banking business. Banks require servers, offices and ATMs. All these require people, paper, electricity and other resources.
Servers are working 24/7 and require 400Wh per server. One hundred servers per bank would already require 800 MWh. Obviously we don't know all details about the branches. But let's say there are twelve desktop computers, airconditioners, and lights. Which would require 10 KWh per year per branch. In addition there are three million ATMs worldwide, running on 5 Wh. All this would come down to close to 100 TWh per year.
This would make Bitcoin already three times more energy efficient than the banking system. We're not even talking about transport, plastic credit cards, and other costs the traditional banking system brings with it. A study from 2014 suggested that banking was responsible for 10 percent of all the energy consumption in the world.
Obviously the banking system is being used by billions of people across the globe, while Bitcoin is limited to 50 million people. When Bitcoin grows and mining will become more rewarding due to value increase, the energy consumption will also increase. Miners will keep pumping energy in bitcoin mining as long as it's a profitable business. At the current rate this could mean that Bitcoin's energy usage will become 100 times bigger if it would be used by everybody around the world.
No worries. This won't happen. First of all, let's point out that the Bitcoin blockchain is not the greatest system to register one thousand transactions per second. Second layer technology, like the Lightning Network for example, will be build on top of Bitcoin. This takes lots of computing power away from the Bitcoin network, but these second layer solutions do profit from the security of the Bitcoin blockchain.
In the future even third layer solutions will come into existence. These connect to the second layer after which things finally end up on the Bitcoin blockchain. These layers make sure that the main Bitcoin blockchain requires less transactions and therefore less energy is needed to run Bitcoin. It's not set in stone, and I can't predict the future. But Bitcoin isn't likely to ever require one hundred times the energy resources it needs now, even if it would be used by five billion people worldwide.
