The rising of the bitcoin versus its amounts of energy consumption
The future of bitcoin in the face of the increase in energy expenditure in recent times seems uncertain. While it is a reality that its price has grown exorbitantly, it is also true that the discussion around its characteristics as a stable currency has increased. Additionally and more notoriously, the diatribe has focused on the carbon footprint that the mining process is leaving worldwide.
Bitcoin's energy consumption in numbers
To further understand the picture of cryptocurrency mining and its environmental impact, it is necessary to review recent numbers. According to an analysis conducted by Cambridge University’s Centre for Alternative Finance (CCAF), if bitcoin were a country, it would consume more energy per year than Argentina, Switzerland, or Finland.
The CCAF estimates that the cryptocurrency business consumes on average between 4 and 445 TWh per year. Let’s compare this with the average UK consumption of 300 TWh. We have an idea of the dimension of consumption and the associated problem. The data show that two-thirds of the energy used in the mining process comes from polluting sources: fossil fuels.
Estimates made by the Bank of America show that buying a bitcoin at $50,000 has a carbon footprint of 270 tons of CO2.
We are facing a business that involves considerable environmental risk. Due to its profitability and nature, it does not stop growing. On the contrary, it seems that it will continue to grow for some time to come.
The cryptocurrency network is designed to be finite. It is estimated that it will reach its peak of asset issuance in 2024. But, until that time, there is a long way to go in which the environmental damage can be extensive.
Bitcoin currently accounts for 0.59% of the world’s total energy consumption. If it were a country, it would rank 29th in global energy consumption.
What is the mechanism behind the immense energy consumption?
To understand why this is the case, we need to review the mechanism associated with the cryptocurrency mining process and its energy consumption.
Bitcoin is based on blockchain technology that guarantees peer-to-peer transactions, without intermediaries, encrypted and available at any point in the network. Its characteristics are anonymity, decentralization, and audibility.
The mining process is designed so that, every 10 minutes, miners receive a mathematical problem to solve. The first to solve it is rewarded with new coins, which he or she puts into circulation. What does this imply? Miners strive to improve their systems to access more and more rewards in less time and increase their income.
As a result of this race against time to solve puzzles and earn coins, energy consumption increases at a dizzying rate. Everyone wants to be part of this lottery of fortune and spares no expense in investing in systems and equipment that solve the 10-minute riddle faster and faster.
Miners and stakeholders defend against potential environmental damage
As in any situation, the actors involved and accused of causing significant environmental damage to defend themselves. Many of the large capitals that are part of this business claim a significant percentage of mining uses renewable energy.
The truth is that, in countries such as China, there are sectors where mining has settled in search of renewable energy sources with less environmental impact. The Sichuan and Yunnan areas have become a miner’s paradise due to their access to hydroelectric power. Sichuan has the third-largest hydropower plant in the world.
Likewise, those areas where energy extraction and generation are from coal have become an option for digital miners.
Iceland has also become the dream of many miners. In the last year, mining activity has doubled. Fortunately, this is due to the conditions offered by this country: hydroelectric and geothermal energy (from its intense volcanic activity). The other favorable element is the climate, whose low temperatures minimize the energy expenditure needed to cool mining equipment 24 hours a day.
The truth is that, although efforts are being made worldwide to reduce energy consumption, it continues to increase, and so does the associated damage.
New options to reduce energy consumption and optimize the mining process
Fortunately, efforts continue in various sectors to find alternatives to reduce energy consumption and facilitate the switch to renewable energy.
One of the most exciting initiatives focuses on analyzing blockchain security protocols and the development of alternative solutions that preserve the security of operations and decrease energy consumption. A group of researchers from the Federal Polytechnic School of Lausanne, Switzerland, claim that changing the algorithm of distributed ledger protocols favors reducing energy consumption while keeping security intact.
They propose a new “gossip-based algorithm” to handle the transmission of information they claim guarantees and maintains the validity of messages. Their contribution would be that it reduces the number of operations required to carry out this process and, therefore, the associated energy consumption.
Another exciting initiative in this field is that of the companies DMG Blockchain Solutions and Argo Blockchain. Both have launched the project of a clean energy Bitcoin mining pool. How does this work? The pool called Terra Pool will force miners to use clean energy sources to be part of it. An initiative will reward those miners who contribute to the environment and be part of a pool that will increase their profitability.
There are also actions such as solarcoin (the virtual currency awarded to those who generate voltaic energy) or peercoin that suggests an alternative blockchain model. In this new model, the reward is not given to the block owner who solves the mathematical riddle but to a randomly chosen user, according to their track record and investment in the currency. Both initiatives have their fans and detractors to date.
What's next? The immediate future of Bitcoin
Indeed, the immediate future of Bitcoin remains encouraging, despite the difficulties it faces. Increasingly, initiatives aimed at decreasing energy consumption and reducing the carbon footprint associated with mining are emerging. And many professionals and organizations argue that Bitcoin will grow along with the transformations needed to preserve the environment and not behind it.
On the other hand, it faces many sectors regarding its nature as a currency and financial asset. Some authors consider that its limited supply in time and the volatility of its value make it an unattractive investment for many. It does not meet the conditions to be considered a currency in the strict sense of the word.
The truth is that there is still much to see and expect from the world of cryptocurrencies, and their ability to reinvent themselves will surely leave us speechless in the future. Hypernova Labs has always been a group of professionals passionate about change and the future. As the Bitcoin world grows and overcomes difficulties, in the same way, we work for you to find solutions in a changing world. Join us, share a coffee with us and let’s talk about building your future.