The current surge in energy prices brings back the debate about Bitcoin's high energy consumption. In this article, we will address why and how much energy the first cryptocurrency consumes, providing data to give us an idea of how accurate (or inaccurate) the criticisms labeling Bitcoin as an energy disaster.
We can state upfront that the cause of the (excessive?) energy consumption is the consensus algorithm used by Bitcoin. Since there is no central entity to audit and verify the validity of all events occurring on the network (decentralization), users must reach an agreement among themselves, and this is where the algorithm plays a key role.
In a nutshell, it ensures the network functions correctly by deterring malicious actors who might try to exploit it in the absence of a central authority.
When developers face the complex task of designing a new blockchain network, they must choose from a wide variety of protocols, each with its own advantages and disadvantages. In Bitcoin's case, the algorithm used is called Proof of Work or prueba de trabajo, the first to emerge around 2009 but largely unused in new projects today.
When we turn on our computer, it begins to perform a multitude of operations to wake up from dormancy, open processes, applications, etc. Hardware needs energy to perform these operations; as minutes pass, components heat up and require a fan to cool down, which, in turn, also consumes energy. In home computers for user-level tasks, the computational effort required is small, so energy consumption is correspondingly low.
Bitcoin is purely digital. We can define it as an immense computer made up of hundreds of thousands of individual computers, so it absolutely needs hardware (and software) to exist and therefore energy to function. But why so much? The answer is simple: to keep the network secure. Let's take a look.
One of the fundamental cogs in Bitcoin's machinery are the well-known miners. Flesh-and-blood individuals who have traded picks and shovels for powerful computer equipment and who have fallen under the spell of the gold rush, just like those migrants over 150 years ago.
Miners keep the network alive and wield significant influence: they possess the power to validate and record everything that happens on it. With such credentials, Satoshi Nakamoto wanted to ensure that no one could exploit this advantageous position to use the network for personal gain.
For Bitcoin to function, mining is necessary. Mining primarily involves validating a package of «transactions» contained within a block, which requires solving a specially designed mathematical problem (in Bitcoin, transactions don't strictly exist, but that's for another article). This problem was specifically designed to disincentivize malicious actors, as solving it requires significant computational effort, which implies the use of energy. And a substantial amount.
(We should imagine Bitcoin as a chain, where each block is a link. And each block contains the entire history, from its inception, plus the latest events.)
In summary, for Alice to send Bob bitcoins, miners compete to solve a problem that has no straightforward solution in order to mine the block and add a link to the chain. They must find a number that allows them to solve a puzzle, which also contains all user transactions and their fees.
To elaborate, the game is fair since miners start from scratch. Everyone has the same chances of solving the puzzle, although in practice, with just a server and my humble laptop, we have very, very few possibilities.
At this point, several questions arise: why every 8-10 minutes? Because that's how the network was designed.
As of today, over 19 million bitcoins are in circulation (already mined). The sustained release of the remaining bitcoins until the 21 million limit is reached is scheduled over time and will conclude in the year 2140.
Neither the writer nor the reader will see it, but for this schedule to be followed to the letter, Bitcoin is wise. If it detects that miners are finding the solution faster and faster, either because technology improves, or new miners join, or they associate with each other increasing their computational power, etc., then the network itself adjusts the difficulty (by increasing it) to make it more complicated and for miners to take longer to solve the problem, thus consuming more energy.
And the same happens in reverse: imagine a country that hosts many miners decides to change its policy and ban mining, or we face a chip shortage, or the price of Bitcoin decreases due to market conditions at a given moment (lower rewards discourage continued mining), etc.
All of this leads to some miners abandoning the network, decreasing its computational power. In such a case, Bitcoin detects this and reduces the problem's complexity so that the remaining active miners find the solution within 8-10 minutes, establishing a balance to make it profitable to maintain the network.
These adjustments in difficulty occur, more or less, every fourteen days.
In this way, new bitcoins are released according to the roadmap established by Satoshi Nakamoto.
The answer is simple: by trying, trying, and trying again. This implies consuming a lot of energy. Hundreds of thousands of very powerful computer systems designed for this purpose perform quintillions of operations, competing to solve the problem that unlocks the reward. This is why Bitcoin consumes so much energy. Energy that is used exclusively for that purpose.
We might think that, at least in part, the price of Bitcoin is backed by the energy consumption required to obtain it. But let's not stray from the topic.
Bitcoin is an environment without intermediaries, where we can exchange value peer-to-peer, but it's obvious that we must reward those who invest time and energy in maintaining the network, as otherwise, they wouldn't invest time and effort for nothing.
The miner who first solves the puzzle communicates the solution to others as proof of their work (recall Proof of Work, which we mentioned at the beginning). For more detail, the problem has a peculiarity (a hash function): despite being enormously difficult to solve, it is very easy to verify that the found solution is, in fact, correct. Thus, the rest of the miners can check in a matter of tenths of a second if the proposed solution is indeed the right one. Another point for Satoshi.
If the miners approve, the fortunate one receives a significant reward, previously fixed in bitcoins, which changes every 4 years (halving).
Today, this reward is 6.25 bitcoins. Or, to put it another way, approximately every 10 minutes, Bitcoin distributes 118,000 euros. A juicy lottery, to which all the transaction fees from the block that has been mined are added. In fact, since the miner is the one who selects which transactions to validate, they will always choose those with a higher associated fee.
At this point, we can infer that problem difficulty – energy consumption – Bitcoin price are parameters that move in sync. Let's look at an example:
If the price of Bitcoin rises, the reward for validating increases, attracting more miners drawn by a larger prize. As more miners concentrate their computers working at full capacity, more energy is consumed. With more computers searching for the solution, they find it faster, so Bitcoin detects this and increases the difficulty to ensure the problem is solved within the predefined time. The more complicated mining is, the more secure the network.
Once the puzzle is solved, the miner receives their reward, Bitcoin continues its course, Alice, Bob, and the rest of the users see their transaction completed, and energy companies can pay their executives' salaries. Everyone's happy.
Well, not everyone. The large amount of energy consumed in this process, as expected, has numerous detractors who point to Bitcoin as a significant source of pollution. But what do they mean when they say Bitcoin consumes a lot of energy?
To give you an idea, Bitcoin consumes around 204 terawatt-hours (TWh) per year. That's more energy than Sweden. Additionally, it's responsible for emitting around 114 million tons of CO2 annually, an amount equivalent to the emissions generated by a country like the Czech Republic.
We'd like to mention that at Domoblock we strongly support the transition to sustainability, and that's why, through our tokenized properties, we reduce CO2 emissions into the atmosphere by 25% to 45%. But that's another topic, let's continue.
It's undeniable that concern for and increased awareness of humanity's impact on our planet is a growing trend in modern societies, increasingly committed to responsible energy use. This trend, coupled with the current energy price surge stemming from the geopolitical situation in Eastern Europe, is only getting stronger.
It's no coincidence that the second-largest cryptocurrency by market capitalization, Ethereum, recently successfully completed a significant change in its ecosystem. The event, known as «The Merge», marked the shift from the energy-intensive Proof of Work to Proof of Stake, another type of algorithm that is more energy-friendly.
Its main figurehead, Vitalik Buterin, stated that taking this step saved the planet 0.2% in energy consumption. While this figure may have a limited global impact, it is nonetheless astonishing.
More data to put Bitcoin's consumption into perspective, compared in this case to the second-largest cryptocurrency:
· To complete one transaction on the Bitcoin network, 1,135 kWh are consumed. This is equivalent to the energy consumption of an average Spanish household over 4 months.
· A transaction on the Ethereum network under PoW consumed around 85 kWh (equivalent to the consumption of an average Spanish household over 9 days).
· A transaction on the Ethereum network will now consume 0.035 kWh (what we consume in a week to charge our mobile phone).
But it's fair to also compare it with other traditional systems for context.
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Trucks, excavators, washing plants, foundries, logistics… The gold industry consumes more than double the energy of Bitcoin, and the traditional financial system, with its employees, branches, etc., consumes even more (though it does move a much larger volume of money).
Amidst the controversy, various studies argue that a high percentage of the energy consumed by Bitcoin comes from 100% renewable sources.
This is undoubtedly a step that mitigates the impact, but it still doesn't address the criticism regarding the amount of energy consumed. We can open another debate that goes beyond the amount of energy consumed.
To what extent does the source from which the energy is obtained solve the problem? The energy expenditure remains the same, and it's worth discussing whether that energy could be allocated to other, more functional uses for society.
Other questions that arise are: Can we create a blockchain ecosystem that provides the same benefits but in a much more sustainable way? Can we create a secure, decentralized, and energy-efficient network that fulfills the same function? Would it lack Bitcoin's romantic appeal?
It's undeniable that Bitcoin opened up a world of new opportunities and has been running like clockwork since 2010. No one has been able to disrupt it or seize control of it, and it is the most decentralized network in the entire blockchain ecosystem. The energy invested to date in its maintenance seems not to have been in vain.
Given all this, perhaps sooner or later Bitcoin will have to face the complex task of migrating to a more environmentally friendly consensus algorithm that enables a lower and more efficient use of energy. But that's up to the community and its developers.
Ethereum has already paved the way; many others simply decided to launch it with another consensus protocol.
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Josep Ramón Batalla, 54
Funded
100%
647.323,06 €
Target
647.323,06 €
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