A transaction in blockchain is verified via competing network of computers. The computers compete to place a block that contains transaction information into the existing chain after they successfully solve the required mathematical problem. The computer that successfully verifies a transaction is rewarded with a Bitcoin.
Bitcoin blockchain will lower or increase the transaction speed according to the transaction’s supply and demand by adjusting the difficulty of the mathematical problem that the computers are resolving so that only one block per minute is generated on average. The rate is recalculated every 2,016 blocks.
As the community continues to adopt blockchain technology for various economic and finance needs, the amount of transactions will increase, which translates to higher computational power needs.
There has been many articles condemning Bitcoin mining as a waste of energy. Based on 2018 data by Digiconomist, Bitcoin uses up to 45 tWh/year, which rate is equivalent to entire electricity used by Denmark. Bitcoin is also said to be 56,000 times more power hungry than VISA when comparing both’s money transaction activity! By projection, Bitcoin mining is expected to utilize more energy than entire US household by 2019 and world’s consumption by 2020.
Now, the environmentalist are louding on how the high electricity consumption is inflicting damage to mother nature. An article by director of NUS Business School cites mining in China are using coal to generate electricity, which is a most environmentally unfriendly source of energy. The article also quotes
While they (the Bitcoin miners) have their blockchains, we lose our food
While acknowledging that large transaction through blockchain network will consume large amount of electricity, it does not mean it is not economical and it’s a waste of electricity. Bitcoin is sold based on market price. As its demand increases, so will its price to justify its uses. At current moment, Bitcoin remain speculative because it is a relatively new asset but with time, it will find its stable price. Consumers will pay for a fair price for its utility, which may expand beyond money transfer.
Countries that attracts Bitcoin miners with cheap electricity is able to do so because supply outweighs demand. In the case of renewable energy such as wind and solar, these energy are difficult to be stored or even sell when demand for electricity is low. Bitcoin mining utilises such energy which otherwise goes into waste. Hydro Quebec in Canada has a surplus of 100tWhrs in next 10 years and it should not come as a surprise that its surplus is now used for Bitcoin mining, which generated handsome profit. You can find out more from this article entitled “Bitcoin drives energy innovation”
The more miners are enticed to compete for Bitcoin, the more they are encourage to find higher cost effective energy source i.e. renewable electrical. On the other hand, its demand will incentives the energy industry to grow towards greater efficiency.
Since its inception in 2009, computer advances have increase Bitcoin mining efficiency. Recent chip advancement by Intel is said to reduce mining electrical consumption by 15%.
Its high electrical consumption generates equal amount of heat, that can be creatively re-used for household heating. Read more here
Bitcoin blockchain wide implementation is set to decentralise our current financial system. It can potentially offset the energy used by current financial food chain
- Mint and paper money printing machines
- Transportation of money from its mint to banks and consumers
- Office building costs
Americans spent equal (if not more) electrical energy on Christmas tree than Bitcoin mining. While it is a joyful tradition, its excessive energy undoubtfully is a waste of energy. Which has a bigger meaning between supporting the evolution of technology or to add more lights during Christmas? – Quote from an article by Nick Tsakanikas
While it is acknowledged that Bitcoin mining consumes huge amount of energy, its wider application has huge potential to offset the energy consumption used by current financial chain and technological advances will provide a pathway to enhance bitcoin mining viability.
Disclosure: I do not own any Cryptocurrency and Bitcoin is worth S$ 4,600 when this article is written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only.