People often criticize bitcoin for its energy usage in mining. In this post I will espouse whether or not bitcoin’s proof of work mining is a waste of energy.
In order to answer that question we have to look at what problem the bitcoin network solves. What service or utility does the bitcoin network provide to society? After all, the end product is what will determine if energy usage is a waste or not.
You could argue that there are differing values for gasoline usage:
Scenario 1 – I drive my car 20km from home to downtown for a dinner party.
Scenario 2 – an ambulance drives a patient with a medical emergency 20km to a hospital.
In both scenarios, roughly the same amount of gasoline is used (likely more for the ambulance actually). One would argue that there is a value differential in the energy usage. Most people would agree that the ambulance use of the gasoline is more valuable/important than my personal use of the same amount of energy for entertainment.
There are value hierarchies in society. Some things are just more valuable than others. Some things are valuable for a period of time, and then become obsolete by newer, more efficient technology (i.e. horse-buggy replaced by automobile, film-camera replaced by digital camera, which then mostly displaced by iPhones/smart phones, etc).
Bitcoin’s end product: a provably scare store of value asset with a fixed supply and dis-inflationary issuance rate hard coded into the protocol. It provides secure, trust-less, free, open financial system for anyone in the world with an internet access… which happens to be ~57% of the world population (4.33 billion active internet users worldwide) (1).
Why Does Bitcoin Mining Need Energy Input?
As you are probably aware, the bitcoin protocol works when computer nodes in the network – “miners” – compute an arbitrarily complex mathematical puzzle/problem. The first node to successfully solve the problem has the privilege to publish the next block in the blockchain and is subsequently rewarded newly issued bitcoin (6.25 BTC/block in this halving epoch, 2020 – 2024).
The more miners in the network will increase the total network hash-rate, which means that an increased amount of computational power, aka energy/power, is required to solve the subsequent blocks.
The integrity of the bitcoin blockchain relies on the difficulty (energy input) needed to retroactively edit/alter prior blocks. If it is easy to manipulate previous blocks, then the blockchain is not secure and not trustworthy, because transactions from the past can be changed.
So the more difficult it is to edit previous blocks, the more secure the network becomes.
That is the utility of energy input to the bitcoin blockchain: security, trustworthiness of a free and open monetary network that cannot be debased.
What Type of Energy Sources does Bitcoin Mining Use?
In real terms, the bitcoin network uses 77.78 TWh of energy per year, comparable to the consumption of the nation Chile. Bitcoin mining has a carbon footprint of 36.95 Mt CO2, comparable to the carbon footprint of New Zealand (2).
Data suggests 76% of miners use renewable energy sources for their mining operations… however, on closer examination, that is 76% of the mining nodes, however, those mining nodes only represent 39% of total energy consumed by Proof of Work cryptocurrencies (3). Positively, this is an increase from 28% from a previous report in 2018, which is a 40% increase in renewable energy for bitcoin mining.
Moreover, a report from 2018 indicates that despite the bitcoin energy usage, it still only constituted 0.01% of the world’s global energy production per year (4).
Bitcoin Mining Energy Use in Perspective
Bitcoin and other cryptocurrencies are disrupting the financial sector.
Let us not forget that the current financial system uses energy too. Your banking app on your phone, the computers and electricity for the bank to update their balance sheets at the end of each day – ok admittedly this is a relatively minuscule amount of energy. However, consider the fact that a bank branch will require: lights, heating in the winter, cooling in the summer, water, not to mention the cost, materials and energy to build, furnish and finish the bank branches; as well as the energy cost of employees’ commute… these are the hidden energy costs to the current financial system and although not typically considered (5). These are also costs that the everyday citizen consumer pays for when using a traditional bank … don’t kid yourself that the bank pays for these expenses out of the kindness of their hearts.
When you stop and think to broaden your perspective and overcome cognitive biases you can realize some bigger picture nuances and make a more accurate comparison of energy costs.
Bitcoin and cryptocurrencies are on track to dis-intermediate (and de-materialize) the financial industry. You will no longer need to go to a bank branch and open an account or use a plastic debt/credit card for transactions… bitcoin and cryptocurrency will obsolete bank branches and their associated energy consumption and cost.
Comparatively, Bitcoin provides a stable, objective monetary policy that will not be subject to the whims of politicians. When governments avoid facing the consequences of mounting national debts by lowering interest rates and implementing quantitative easing they avoid an economic depression… but at the cost of a widening wealth gap from inflating asset prices reflected in the stock market, real estate, commodities like gold/silver as well as in other scarce valuables like jewelry and fine art.
When people store their savings in bitcoin, over the long term, the bitcoin network increases in value, over time becoming less volatile and taking over the store-of-value market. When governments print money via issuing debt, it devalues each dollar in your bank account, and inflates asset prices. When you hold bitcoin, it does not matter how much the government prints, because the set, limited bitcoin supply increases in value when juxtaposed to the dollar.
The value and importance of not losing buying power with your savings is often critically under appreciated, especially in the developed western world. Imagine living below your means and saving diligently for years and years while working your full time job and providing for your family. Then in the last few years before your retirement you find that despite your savings you are not able to retire because living expenses have slowly risen over the years… property taxes jump, insurance rates jump, food prices increase, the cost of your utilities to power your home has increased…
If the energy input to maintain the bitcoin network will undoubtedly provide protection against a devaluing USD and other fiat currencies, then I believe that the energy usage of the bitcoin network is well justified, and not one joule wasted. Storing the buying power of the working class in an unconfiscatable, un-debase-able digital store of value is so important to the integrity of a society that I think the energy input is anything but a waste.
Do not underestimate the value provided by securing a financial asset that preserves your buying power – which is your ability to pay for resources such as utilities, internet, food, water, transportation, health care costs, etc.
- Individuals using the Internet, The World Bank, https://data.worldbank.org/indicator/IT.NET.USER.ZS
- Bitcoin Energy Consumption Index, https://digiconomist.net/bitcoin-energy-consumption
- Report: 76% crypto miners use renewables as part of their energy mix, Mohammad Musharraf. Cointelegraph. October 2020. https://cointelegraph.com/news/report-76-crypto-miners-use-renewables-as-part-of-their-energy-mix
- 2nd Global Cryptoasset Benchmarking Study, Michel Rauchs, Apolline Blandin etc al. University of Cambridge. December 2018. https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/2nd-global-cryptoasset-benchmark-study/#.YAMqaJNKjCO
- Is Bitcoin Mining a Waste of Electricity?, bitcoinmining.com, Melvin Draupnir, May 2016. https://www.bitcoinmining.com/is-bitcoin-mining-waste-electricity/