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Bitcoin is an assembly of&nbsp; technologies and principles that interact in a predefined manner, securing the whole system performance.&nbsp;So how does it work? 



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<a href="https://d.center/explore/keys-and-addresses" class="ek-link">Keys and addresses</a>. Bitcoin is a decentralized system without any trusted third party, which means that no one can dispose of coins except for their rightful owner. Such feature necessitates extensive security measures, and Bitcoin ensures them using a system of cryptographic keys and addresses. 



<a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Wallets</a><a href="https://d.center/explore/bitcoin-wallets" class="ek-link"> </a>are programs capable of communicating with the Bitcoin network. They generate keys and addresses that allow sending and receiving bitcoins, and can reconstitute the bitcoin balance of a particular account by researching the blockchain. 



<a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Transactions </a>are generated and sent by wallets. Bitcoin transactions have a simple structure called UTXO, and a limited coding language script, which ensure the system’s robustness. 



<a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> enjoys a Peer-to-Peer, or <a href="https://d.center/explore/p2p-network" class="ek-link">P2P</a>, architecture - its nodes communicate with each other without any central server. Network nodes run Bitcoin protocol to verify if a transaction is valid (the sender has enough coins on their account and their signatures are correct) and if a candidate block (set of confirmed transactions) sent by a miner is OK, then propagate them to the network. 



<a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Consensus </a>is needed in order to determine which node will add the next block to the blockchain and to guarantee that this block is not fraudulent. Bitcoin utilizes <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, where nodes need to find a solution to a cryptographic problem, which necessitates a big amount of electricity and specific equipment. As a reward for such work a node gets to add a block and receives newly created bitcoins. Such “bitcoin extraction” activity is called mining and the nodes engaging in it - miners. Mining is the only way to create new bitcoins.



 The node who finds a PoW solution first broadcasts a new block to the network, where, if the block is validated by the network, other nodes start working on the following blocks. Each block having a cryptographic reference to the previous one, a <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">blockchain </a>is being formed.

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Bitcoin consensus allows network members to agree on the next block, incentivises them to maintain the blockchain and regulates the bitcoin emission. 



All the nodes of the Bitcoin network being equal in rights, the system needs a mechanism to determine which one among them will be able to add the next block to the blockchain. This decision is important, for an ill-intentioned node could be tempted to rewrite the history and spend the bitcoins which were already spent - a threat known as double spending. 



<h2>Proof-of-Work</h2>







The consensus used by Bitcoin is called the Proof-of-Work, or <a href="https://d.center/fr/explore/proof-of-work" class="ek-link">PoW</a>. The work here consists of finding a hash of the block header, which will start with a certain number of ‘0’. The hash is obtained by applying a cryptographic function that transforms any volume of data into a fixed length’ alphanumeric result. It is also a one-way function - it is easy to hash a piece of data, but almost impossible to guess the data from its hash. 



In order to get a hash starting with a ‘0’, the nodes called miners will add to the block header a number called nonce that will change its data and therefore its hash. The more ‘0’ required, the more difficult is the work, increasing the number of different nonces that a miner would have to try to produce a PoW. 



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For a better understanding of how the PoW works we recommend <a href="https://demoblockchain.org/block">https://demoblockchain.org</a> website, which proposes an excellent tool to understand the essence of the blockchain. 



In order to be efficient, mining requires a considerable amount of electricity and specific hardware. The money that a miner spends on adding a block serves in a way like a guarantee of their honesty: they literally invest into the network's security. 



<h2>Miner’s reward</h2>







The miner who finds a PoW propagates their block to the rest of the <a href="https://d.center/fr/explore/bitcoin-network" class="ek-link">network </a>who verify it. If the block is valid, it is integrated into the blockchain and miners start working on the next block, which will carry a mention to the previous one.



As a reward for their work miners insert into a block a special type of <a href="https://d.center/fr/explore/bitcoin-transaction" class="ek-link">transaction </a>called coinbase, which generates a predefined quantity of bitcoins and attributes them to the miner’s address. It also sends to the miner the fees paid by people who initiated transactions included into this block. However, in order to be sure that the block has really been accepted, a miner has to wait 100 blocks more to pocket the reward. 



<h2>Bitcoins creation </h2>



Bitcoin protocol is set to have a block added to the blockchain every 10 minutes on average, allowing to know emission rhythm beforehand. Such monetary emission is radically different from the classic one, depending on a Central Bank’s whim, and is one of the reasons Bitcoin was created.



As the Bitcoin network grows bigger, more and more miners join the competition in order to find a block’s PoW and add it to the blockchain. Their equipment is being constantly upgraded too. In order to maintain a stable emission rhythm in spite of technological progress Bitcoin protocol reacts by increasing the PoW difficulty - the number of necessary ‘0’. 



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Bitcoin is a deflationary currency: miners’ reward is cut by half every 4 years approximately, the event known as the halving. At this rhythm the maximum bitcoins quantity will be 21’000’000 - a number which will be approached by 2140. 
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Does Bitcoin mining harm the planet ? The only way to know is to analyze the energy source it uses - dirty or green - and compare to its traditional alternative - the banking system.&nbsp;



It is true that mining necessitates great amounts of electricity. This is in part what makes <a href="https://d.center/explore/proof-of-work" class="ek-link">PoW-based</a> cryptocurrencies, such as <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>, so robust : electricity and hardware are the price to pay for a secure network, resistant to attacks and malicious actors.



Of course this raises ecological concerns. Is it really sustainable to spend (someone would even say waste) such huge amounts of electricity to mine coins?



Well, electricity consumption as such does not harm the planet. What does harm it is obtaining electricity from “dirty” sources: coal, oil etc. So when analyzing crypto mining's impact on the environment the first question must be&nbsp; “Where does this electricity come from ?”, followed by “What does this crypto aims at achieving?”. If a blockchain is set to replace an existing activity, it would be judicious to compare their carbon footprints to each other.



<h2>Where does mining electricity come from?&nbsp;</h2>



The world’s cheapest energy can be found near renewable sources, such as dams or wind farms. However, electricity is remarkably hard to stock and to transport, so unused energy in these places is most often simply lost. Luckily mining farms, unlike banks’ head offices, do not need to be located in city centers, so they can very well be set near a dam, enjoying cheap and green energy.



And that’s what mining farms actually do. Global Bitcoin mining is estimated to have 57.7% of renewables in its energy mix, as per the <a href="https://bitcoinminingcouncil.com/wp-content/uploads/2021/10/2021.10.19-Q3-BMC-Presentation-Materials-Final.pdf" class="ek-link">BMC report of September, 2021</a>. 



Since the exodus of miners <a href="https://d.center/posts/china-banning-bitcoin-mining" class="ek-link">from China</a> in the summer of 2021 (65% of global hashrate was produced by the Chinese miners before the ban, partly from coal plants), and consequently <a href="https://d.center/posts/crypto-miners-leaving-kazakhstan" class="ek-link">from Kazakhstan</a> in Autumn 2021 (a share of chinese miners briefly landed there, but left after it became clear that the country's energy sources - mostly coal plants - were not sufficient), the share of coal-powered mining has decreased significantly.



A lion’s share of mining farms are using hydro-power and wind energy in the US (Washington state, New York, Texas), Canada, Scandinavia, The Caucasus. The farms are also built in Iceland, a country that enjoys abundant geothermal energy, and beyond the Arctic Circle in the Russian Norilsk, where the temperatures as low as -40° C naturally cool down the equipment.



There are also situations where crypto mining can be beneficial to the environment, for example in the case of stranded gas - a byproduct of oil extraction that is quite expensive to capture and transfer, so it is often simply rejected into the atmosphere. Mining farms are being built near oil-extraction plants (some examples include Texas and North Dakota) to utilize the stranded gas to mine coins, instead of polluting the air.



For the moment global crypto mining is not carbon-neutral, but many efforts are made to make it so, with green mining companies like Iris Energy, Gryphon or MintGreen raising record fundings to develop their activity. The latter is set to not only mine green, but also to increase the energy efficiency : projects of recycling heat waste from mining into hot water and heating services are being developed, with pilot programs including a whiskey distillery and a sea salt facility in Canada.&nbsp;



<h2>What does mining help achieve?</h2>



The blockchain is a decentralized alternative to traditional organizations, and its carbon footprint should be considered as an alternative to the carbon footprint of a system it is to replace.&nbsp;



In the case of Bitcoin it is 
 fiat money 
 fiduciary money with no intrinsic value, dependent on the government and the central bank (like dollars or euros)
 and gold. 



Cambridge University has set up a <a href="https://cbeci.org/">Bitcoin Electricity Consumption Index</a> that estimates Bitcoin network power almost in real time. Its electricity consumption as of August 2021 is around 14.6 GW, which is estimated at 128 TWh of annualised consumption. More recent BMC study (September 2021)indicates the consumption of 188 TWh yearly. To put things in perspective, the energy footprint of <a href="https://www.nrdc.org/sites/default/files/home-idle-load-IP.pdf" class="ek-link">"always-on" devices</a> in American households is appr. 1375 TWh (data of 2015), 7 times that of the Bitcoin network.



There are much less studies on the ecological impact of the banking industry (like many others we just take for granted), and the proper methodology is yet to be defined. However it is already possible to see the main lines. 



A 2021 <a href="https://docsend.com/view/adwmdeeyfvqwecj2" class="ek-link">study </a>by Galaxy Digital, an asset management firm specializing in cryptocurrencies, indicates that the banking system, according to only 4 metrics (branches, servers, ATMs and card network's data centers) consumes over 263 TWh yearly. Bank offices, servers and the majority of ATMs are situated in cities and have no choice but to take their energy from the city grids, which unfortunately don’t have much renewables in their mix, thus making much of banking electricity dirty. It is also clear that the real carbon footprint of the whole banking industry is much higher when taking into account all its aspects (employees transport, whether it is private cars or private jets, cash transportation... etc).



Gold mining industry has been studied better. In addition to a desastrous impact on the environment (pollution of soils and waters with toxic chemicals, deforestation, exposure of humans to the toxic vapours...) it uses approximately 571 TWh.



So, 128 to 188 TWh consumed by Bitcoin with 58% of renewable energy vs >263 TWh consumed by banks, with mostly dirty energy and 571 TWh consumed by gold mining + pollution. All things considered, it might be somewhat presumptuous to declare Bitcoin the enemy of the planet even with those figures, and it will be even more so in the years to come, considering a strong green mining trend.



As improbable as it may sound, Bitcoin could be an environmentally-friendly alternative to fiat money. Financing green miners and developing new ways of making electricity consumption more efficient, i.e. to use the heat waste, are key steps to make Bitcoin carbon-neutral.&nbsp; Moreover, the efforts that miners deploy to find more green solutions could benefit other sectors as well. 



*article updated in May 2021