On Dec 15, 2017, The World Economic Forum published an article headlined: “In 2020 Bitcoin will consume more power than the world does today”.
They were off by a long margin; three orders of magnitude. Even today, it is only a TINY FRACTION of global energy consumption. There were many such examples of incorrect alarms and factual misrepresentations, in 2017 when the Bitcoin Bull cycle made “Electricity consumption by Bitcoin” famous among the mainstream media for the first time. As we enter 2024, another Bull Market for Bitcoin, we must brace ourselves for another such wave of misinformation.
Hence, I have decided to share a few facts with all of you to truly understand what’s happening beneath all the noise.
What is Bitcoin Mining and how is a Bitcoin Mined
Imagine Bitcoin as a digital gold mine, but instead of digging with shovels, miners use computers to solve puzzles. These puzzles are complex math problems that publicly verify transactions. This is like shouting out to the entire world - “HEY - THIS IS A LEGIT TRANSACTION” and sharing the proof of it with the world to see. This proof is called “Proof of work”. The person who solves this problem receives Bitcoins as a reward for their effort. This is how Bitcoin comes into existence and is available for public use.
Mining is like finding gold and adding it to the chain while making sure everything is legit!
So in short - Miners solve puzzles to verify Bitcoin transactions and earn Bitcoin rewards; They use powerful computers for this, which ARE ENERGY INTENSIVE. The solved puzzles lock transactions in a secure chain called the blockchain.
Going Deep into Bitcoin’s Energy Consumption
Imagine a race with a million participants. All are running to solve the same math puzzle. The first one to get it right wins a prize. That's kind of like Bitcoin mining, but instead of sprinting, miners use powerful computers that gobble up electricity required for fast computation. The reasons why miners consume so much energy is:
Hard Puzzles: Solving these puzzles requires a lot of computing power, which means running computers at full speed for hours and hours. Just like a high-performance car guzzles more fuel, these computers consume a lot of electricity.
Trial and Error: Each miner keeps guessing and checking solutions until they get the right one. It's like trying every key on a giant keyring until you find the one that opens the treasure chest. The more miners are guessing, the more electricity is used.
Competition: As more people join the mining race, the difficulty of the puzzles increases to keep the Bitcoin creation fair. This means even more powerful computers and even more electricity used.
For the geeks out there, here’s a take by Satoshi Nakamoto, the anonymous inventor of Bitcoin, on Bitcoin Mining.
This energy is required to ensure the functioning of a public shared transactional ledger, that settles billions of dollars per day. It is required to fairly distribute unit’s of synthetic commodities to the world. Essentially, what’s happening here is that Energy, in the form of electricity, is being used to CONNECT THE PHYSICAL AND THE DIGITAL WORLD.
This Energy Input gives Bitcoin its hardness and immutability - giving users confidence that txns will settle.
Bitcoin’s direct Energy consumption comes from three sources:
Nodes that validate and relay transactions
The pools that coordinate miners’ activity across the world
Mining Machines (the ASICs) - (Majority 99.8%)
Energy Consumption Metric | Electricity Consumption kWH/Yr | % distribution |
Nodes | 5,358,089 | 0.004% |
Pools | 8,609,328 | 0.007% |
Miner Machine | 113,880,000,000 | 99.98% |
Total | 113,893,967,417 | 100% |
Total energy consumption is roughly 113.89 TWH per year
Bitcoin’s energy consumption in context of the Global Energy Generation and Supply
Energy Consuming Category | Energy (TWH/Yr) | Context (times) |
Bitcoin | 113.89 | 1 |
Global Energy Supply | 166,071 | 1458 |
Global Electricity Generation | 26,730 | 234 |
Electricity Lost in Gen., Trans. & Dist. | 2205 | 19.5 |
Energy Footprints of always on devices in American Households | 1375 | 12 |
Comparing Bitcoin’s Energy consumption with that of Gold and Traditional Banking systems | ||
Energy Consuming Category | Energy (TWH/Yr) | Context (times) |
Bitcoin | 113.89 | 1 |
Gold (First Order Effects only) Energy and carbon intensity of tyres used in mines is excluded | 240.61 | 2.11 |
Traditional Banking Systems | 263.72 | 2.31 |
Fact: Bitcoin Miners consume 0.26% of the World’s Electricity production |
So, the question is:
“Is the Bitcoin network’s electricity consumption an acceptable use of energy?”
And the answer for that is
“The perceived merit of the application’s energy consumption is a function of one’s subjective view of the application's utility.”
In short, it depends… 🙂
Bitcoin Mining leverages inefficiencies in Energy markets
Critics often feel that Bitcoin Energy usage rivals with existing usage and that increases the electricity price. But that is not a true picture. Due to inefficiencies in the current energy market, miners are incentivised to consume non-rival energy that may be otherwise wasted or under-utilized.
Energy Loss happens in the following places:
Stages of Energy loss | Reasons for Energy Loss |
Generation | Generators cannot be easily switched on or off, so the excess energy generated is dissipated into open or in the earth. It is called No Load loss |
Transmission | ~1-2%. When electricity is transmitted, it dissipates heat and naturally some of the energy is lost in that heat |
Distribution | 25% to 30%. Lost in Theft, Public Infrastructure earthing |
Consumption | At user level (Example: Switching on AC but not using) |
As of now, primarily Energy Wasted in Generation loss can be/is being used for Bitcoin Mining
Solar and Wind Energy source are Renewable and are advocated to be used for electricity Generation. However, they are significant Energy Sinks. Meaning - they consume/waste a significant amount of energy. This typically happens because they generate electricity at rate that is consumed at a different rate. The reasons could be many.
Below I have shared the average curtailment, meaning the amount of energy wasted every year
Energy Sinks | Curtailment per Year (TWH/Yr) |
Solar | 100 |
Wind | 50 |
This energy can be used to run Bitcoin Mining farms.
Making a case for Bitcoin Mining
Let’s take a look at the pros of Bitcoin’s Energy Consumption
Bitcoin’s energy consumption is flexible and location independent
The miners can move their operations relatively easily; plug and play. This gives them the benefit of moving closer to the most cheap energy resource, unlike other commodity productions where the miners have to establish their base where the commodity is. So bitcoin can exploit otherwise untapped sources of energies especially sustainable and non-rival ones:
Excess Hydro
Wind and Solar
Otherwise-flared natural Gas
Bitcoin miners are synergistic with Grids that are more renewable in energy
Bitcoin miners can scale up and scale down depending on load pretty much immediately
Unlike Thermal Grids, BTC miners can be used to adjust that Demand load. For example, Bitcoin miners can buy the energy when the demand is low from household grids and it can stop mining when the demand is high from the households
Bitcoin Miners are becoming more sustainable
Transparency: 32% of hashrate has signed up for Bitcoin Mining Council where energy source is sustainable and they report Quarterly Updates
Miners want to be located in a country that is politically stable
Bitcoin Mining has low CO2 Emissions
Bitcoin is responsible for 50 Megatons of CO2 emission per year, which is ONLY 0.1% of the worlds emissions
Here is Bitcoin’s CO2 Emission in comparison to some other commodities:
Industry | CO2 Emission Comparison in context of Bitcoin |
Bitcoin | 1 |
Domestic Tumble Driers | 1.6X |
Copper Production | 1.9X |
Zinc Production | 2.8X |
Gold Mining & production | 3.4X |
Bank Branches & ATMs | 4.7X |
US Military | 7X |
Domestic Refrigeration | 10X |
Aluminum Production | 16.3X |
Financial Sector | 27X |
Bitcoin Mining using Sustainable Methods: Three Case Studies
Vaspene Energy
Link: https://vespene.energy/
Concept: A frequent byproduct of oil extraction is Methane. Methane cannot be transported by pipelines, so it has to be burnt. 144B cubic metres of gas flared in one year, which is roughly equal to $16B of yearly Sales Value, wasted. This damages the environment. The GreenHouse effects associated with Methane are 25 times worse than those associated with CO2. Bitcoin Mining has a solution. Generators can burn this methane with 99% efficiency and that energy can be used to mine Bitcoin. This gives a 24x carbon footprint benefit to oil fields.
Gridless
Concept: In Africa there are vast resources for example - solar, wind and hydro. But there is limited to no infrastructure to bring that electricity from the source of generation to the consumer. (Transmission lines, Distribution Yards etc) This is because the local govts lack the resources to do so. This Energy can be used to power the Bitcoin Network, generate revenue. As the govt gradually sets up the connection, and consumers start paying more than what Bitcoin Miners can afford, the Bitcoin Mining load can be lowered.
BigBlock
Concept: In 2014, the European Union helped finance a 15 megawatt (MW) hydroelectric plant on a small tributary of the Congo River in the DRC. The facility is nestled in what is, after the Amazon, the second-largest tropical rainforest in the world. It is owned and operated by Virunga National Park. But, as is typical, due to the difficulty of grid construction, the park’s management has not been able to use all of the power right away. In 2020 it decided to start mining Bitcoin with the surplus energy. Normally, generating revenue right away from a remote power plant in the mountains or jungles or deserts is nearly impossible, because the energy may not be connected immediately with customers. But with Bitcoin, the facility can still profit even without distribution lines or local demand.
Country-wise Bitcoin Mining Distribution
The distribution of computation is represented in the form of %Hashrate share. Hash rate refers to the total combined computational power dedicated to mining and processing transactions on a blockchain. Think of it as the network's processing muscle.
Country | Hash-rate Share |
US | 37.84% |
China | 21.11% |
Kazakhstan | 13.22% |
Canada | 6.48% |
Russia | 4.66% |
Germany | 3.06% |
Rest (50 to 75 countries) | 17% - Dispersed at average less than 1% |
The above data tells us that Bitcoin Mining is predominantly concentrated to very few countries. This aspect has to become decentralised so that no one country has a lot of concentration of Bitcoin computing power.
Future of Bitcoin Mining
Bitcoin Mining’s Future is GREEN (Nuclear + Renewable). Here’s why:
Bitcoin Mining is a synthetic Process. Unlike Gold which involves sifting earth, Ore, and for other commodity extraction, they can never become fully green. However, Bitcoin Mining can be rendered as green as it’s source electrical input permits, so if all Miners move to sustainable/renewable energy inputs tomorrow, the entire Bitcoin Grid becomes Green.
Data on current state of Source of Energy for Bitcoin Mining relative to existing Grids.
Metric | Renewable | Sustainable (Renewable + Nuclear) |
Bitcoin Mining | 39% | 46% |
US Grid | NA | 40% |
China Grid | NA | 31% |
Global Grid | NA | 36% |
80% of the expense of Bitcoin Mining Farm is power consumption. So the cost of electricity is the most important element. Usually, Minings farms crack a deal directly with the generators.
However, the main question remains:
“Should this Electricity be sourced from a Thermal Plant or a Sustainable source?”
Here’s our take:
Hydro is the cheapest source of energy. This is because most of the cost in building a Hydro Dam is fixed. (Capital, Compliance and Permissions). The only variable cost is Staffing. Unlike coal, where raw material is a huge cost alongside more labour. Hence Coal plant has higher cost per unit
Wind and Solar Sources do not generate energy in a stable and reliable fashion. So promising a contractually obligated energy source becomes difficult. We can generate on an average 22% energy from a Solar source in a day. This number is higher for nuclear (99.9%). And both emit just about the same amount of carbon.
Nuclear Source is extremely promising. It is the most expensive to build upfront. But it has a compelling Carbon Footprint Index. In addition to that, it is an extremely stable source, producing consistent base load. The same amount of Power can be generated on a tiny fraction of acreage relative to wind or solar.
Conclusion
In this article, we discussed Bitcoin Mining, Bitcoin’s Energy Consumption in context of the Global Demand and Supply, CO2 Emission comparisons, Sustainable sources of Energy for Mining bitcoin and some creative case studies of Bitcoin Mining on sustainable sources of Energy. Then, we discussed the promise of sustainable Bitcoin Mining.
We learnt that Energy is fundamentally integrated in our basic quality of life. The higher the Energy Density per capita, the better the society is leading it’s life. So we come back to the original question.
Is the Bitcoin network’s electricity consumption an acceptable use of energy?
My definitive answer is YES
I would like to end this with a thought for all to remember:
Today, just 4% of the world’s population has the exorbitant privilege of creating the global reserve currency. But in a potential future where Bitcoin is that reserve currency, mining from renewable sources could help empower any nation to directly earn the future base money of the world.
“This is the beautiful dream.”
THE END
Notes and Source of Information:
News: In 2020 Bitcoin will consume more power than the world does today http://wef.ch/2odVW4z
Full article: https://www.weforum.org/agenda/2017/12/bitcoin-consume-more-power-than-world-2020/
Bitcoin’s Energy Consumption: https://www.lopp.net/pdf/On_Bitcoin_Energy_Consumption.pdf
Nic Carter: Debunking Bitcoin Wastes Energy
China Bitcoin Exodus: https://www.wired.co.uk/article/china-bitcoin-mining-crackdown#:~:text=The%20running%20joke%20among%20crypto,a%20former%20WIRED%20senior%20writer.
China Makes a comeback: https://financialpost.com/pmn/business-pmn/china-makes-a-comeback-in-bitcoin-mining-despite-government-ban
Bitcoin Mining is primarily dominated by (%Hashrate share): https://worldpopulationreview.com/country-rankings/bitcoin-mining-by-country
World Bank: Global Gas Flaring Data: https://www.worldbank.org/en/programs/gasflaringreduction/global-flaring-data
Cambridge Bitcoin Energy consumption Index: https://www.jbs.cam.ac.uk/2019/cambridge-bitcoin-electricity-consumption-index-cbeci/#:~:text=The%20index%20provides%20a%20real,to%20put%20numbers%20into%20perspective
Harry Sudok on Bitcoin’s Energy: https://www.youtube.com/watch?v=vSkEgUsgP3E
Texas Grid usage offer: https://www.coindesk.com/business/2022/12/06/texas-bitcoin-miners-are-offered-to-cut-electricity-usage-to-help-the-grid/
Japan’s Bitcoin Mining news: https://www.btctimes.com/news/japans-largest-power-company-will-mine-bitcoin-with-excess-energy
Satoshi’s take on Bitcoin Minting being Thermodynamically Perverse: https://bitcointalk.org/index.php?topic=721.20
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