Does Bitcoin mining use too much energy? 🔋
The ecological debate on Bitcoin evolves in two directions: its energy consumption and the provenance of that energy.
We have spoken at length about Bitcoin energy mix and its ability to boost green energy production worldwide, and now a brilliant study by Michel KHAZZAKA has tackled the issue of Bitcoin energy use and efficiency.
Spoiler: it’s eye-opening.
The study leverages physics, IT and economic concepts to compute Bitcoin energy consumption and compare it to the traditional monetary system’s. This is how we would sum it up.
💵 Fiat system
While Bitcoin is self-sufficient, in the fiat world its job is done by a plethora of different organizations ensuring issuance, distribution and management, bookkeeping and payment services. The author computed the energy they need for different stages of a money lifetime:
🔌 printing and minting physical money
🔌 cash in transit
🔌 cash at electronic points of sale
🔌 card payments
🔌 banking offices
🔌 banking employees’ commute
🔌 banking IT
Adding up these figures the author concludes that traditional monetary system requires about 4981 TWh yearly.
₿ What about Bitcoin?
The most famous method to calculate Bitcoin’s energy consumption is that of the Cambridge University, which uses an assumption of “a weighted profitable hardware”. This study goes further and defines miners’ efficiency as Watts consumed per Terahash (computational unit needed to get the Proof-of-Work) and the release dates of each machine.
Using this method Bitcoin energy consumption is estimated at 88.95 TWh yearly (vs CBECI’s 128 TWh).
🔥 From here the math is simple: Bitcoin energy consumption is 56 (!) times less than the current monetary system’s.
💡 Energy efficiency
Comparing energy efficiency per transaction does not make much sense, since Bitcoin settles a transaction in 10 minutes, while the classic payment system needs 48 hours on average, i.e. 288 times slower. As power is the energy consumed in a given duration (we told you there was physics here), the author prefers to compare the energy consumption relative to the settlement time.
Surprise-surprise, Bitcoin in its actual state is x1.2 more energy efficient than fiat system.
However, Bitcoin is not used a its full capacity now (out of 4MB of theoretical block size only a half is actually being filled with transactions). When it is, it will be x5.7 more energy efficient.
Of course, Lightning Network ⚡ and the immense scalability improvement it can bring will push the virtue even further, making Bitcoin millions of times more efficient than fiat.
For those of you with a knack for science, we do recommend reading the study. Let’s turn the ecological debate in the right direction.