Why does mining Bitcoin use so much energy
Why does crypto mining use so much power? Bitcoin issue (the issue of new coins) occurs approximately once every 10 minutes in the amount of 6.25 BTC (in 2023) as a reward payment to the miner who solved the task proposed by the Bitcoin network. On the Internet, it is often called a “complex mathematical problem”, “complex equation”, “complex puzzle”, etc., but in reality, neither intelligence nor ingenuity are required to receive a reward, since it is only about finding a 64-digit hexadecimal number by iterating through all possible values. The one who finds it gets a reward, but significant resources are required to guess a number 64 characters long (where in addition to 10 digits there may also be 6 letters).
But, why does mining Bitcoin use so much energy? The need to consume a large amount of energy is closely related to Bitcoin network security, that is, its blockchain. If someone decides to add a fake block to it, it would cost a lot - it is very easy to verify information in this blockchain, but it is very expensive to add a new block. Any fake will be instantly rejected by the network and its high cost will not pay off.
In the process of “computing,” computers consume energy like non-stop boiling water kettles. The power of a conventional computer used to be sufficient for mining, but now it can only be done using special devices (miners) designed exclusively for mining, that is, to solve the above-described problem of selecting a 64-digit number.
Perhaps Bitcoin creators did not expect the mining power to grow to such a scale, but today the Bitcoin network consumes as much energy as a medium-sized country. A discussion has begun in the world about whether it’s good in terms of ecology and thrift, because the energy of those miners who try, but are unable to solve the problem, goes to waste.
How Bitcoin transactions are recorded
The sought-after 64-digit hexadecimal number that the miners compete to discover is the name of a new block in the blockchain. To choose the right name means “to mine a new block.” The miner that mined the block fills it with transactions - records of Bitcoin transfers that have happened recently within the network, and adds the block to the blockchain - similarly to putting another ledger volume on the shelf.
Prior to that, transactions accumulate in the so-called mempool. For each transaction included in the block from the mempool, the miner receives a commission. Commissions in the Bitcoin network are set automatically or manually by the user. If the commission is too low, the miner may not be tempted. In an inactive market, such transactions can remain in the mempool for a considerable amount of time and even be canceled with a subsequent refund to the user.
The transaction’s inclusion in a block means a single confirmation of its correctness. Each new block contains a part of the name of the previous one, so by its appearance it also confirms all the past transactions along with the new ones. Six blocks are considered sufficient for the attempts to correct earlier transactions to become meaningless in terms of computing costs. The reason is that in order to change any blockchain record, you will have to change everything that is recorded afterwards (rewrite the whole bookshelf). This principle is crucial in preventing the use of the same Bitcoins simultaneously in different payments.
What can be done about Bitcoin’s energy problem?
How much power does crypto mining use? According to the Bitcoin Mining Council (Oct., 2022), Bitcoin's energy problem is exaggerated. The Bitcoin network consumes only 0.16% of global energy production and emits only 0.10% of global carbon dioxide emissions.
In addition, the Bitcoin network efficiency is growing, amounting to 23% year-on-year. Coupled with reliability and security, as well as an unquestionably leading position in the industry, Bitcoin is still the best thing that exists in the crypto industry, and maybe not only, despite the fact that the question Why does Bitcoin mining use so much electricity? is still relevant.
Earlier publications are even more eloquent. Below is a well-known diagram from the notorious Galaxy Digital (May, 2021):
Obviously, the more people talk about Bitcoin, the more other global industries should think about energy consumption, for example, the banking sector (just imagine how much it spends on paper alone!) or the gold mining industry. The wind may well change direction, and Bitcoin will rightly lose the title of the worst global evil, so don’t rush to conclusions when answering the question of How much power does a crypto miner use?
Hass McCook, who, despite the title of Bitcoin evangelist, appeals not only to emotions and common sense, but also to numbers, gives the most meaningful assessment of Bitcoin energy consumption. Indeed, speaking about the global banking system, does anyone take into account its impact on global consumer demand, provoking excess production and even more environmental pollution? Speaking of the gold mining industry, does anyone include in their estimates all the electricity used by jewelry salons? What is considered pollution - only the release of CO2 or the use of billions of tons of water, cyanide, barren rock, etc?
The answer is obvious. Bitcoin is also woven into the global energy consumption, just like any other industry, and will be cleaner if and when energy consumption becomes cleaner overall.
Switch to renewable energy
The transition to renewable energy sources is already underway. According to the CBECI, Bitcoin consumes about 113 TWh per year. The current global average of the energy system is 0.6 tons of CO2 per kWh of electricity produced, which means 70 Mt of CO2 emissions result from Bitcoin mining.
The same methodology gives a twofold superiority to the emissions produced by the gold mining industry and a fivefold superiority to that of the banking sector, which significantly exceeds the data from the Galaxy report’s eloquent chart.
At the same time, according to the Bitcoin Mining Council report, 59.4% of Bitcoin mining energy already comes from renewable energy sources. In just 5 years, mining has made it from close to zero to more than half way up. However, not only Bitcoin miners are interested in the cheapest possible energy. The cheaper renewable energy becomes, the faster the energy transition will take place. This is a global movement and it cannot exist separately for any one industry - Bitcoin mining, gold mining, the banking sector or any other.
Transition to Proof-of-Stake systems
In 2022, Ethereum convincingly demonstrated how to stop consuming mining energy by replacing the consensus protocol. The original PoW protocol was replaced by the PoS protocol as a result of The Merge, thus Ether mining was replaced by Ether staking, which requires practically no energy costs inherent in mining.
This can be a precedent for some cryptocurrencies that are still being mined thanks to PoW, however, it is unlikely that such a scenario is applicable to Bitcoin, which will simply cease to be itself. It is also worth considering the position of the regulator, specifically, the SEC, which has always separated Bitcoin from other crypto assets. Ethereum does have every chance of being recognized as a security in the near future, Bitcoin in its current form will never become one.
Even less likely for Bitcoin is the pre-mining scenario, when the issue occurs centrally, and then the finished coins are released in the market. In Ethereum, despite the initial PoW protocol, 72 009 995 Ether was initially distributed to 8903 subscription addresses. This is typical for all PoS projects.
It is hard to imagine that Bitcoin has transformed into a system where the coin is distributed from a centralized management body, or according to some algorithm other than the existing one. This would contradict the very essence of Bitcoin and would perhaps bring down the entire industry, which has lost its benchmark.
Introduce carbon credits or fees
The carbon fee for mining is one of the legal ways to influence mining. The fee can be charged even as a transaction fee in the blockchain - it all depends on how deeply this idea penetrates the industry.
Today, when Bitcoin mining is concentrated in the hands of large players, such measures could well have a tonifying effect on the market: to suspend the unrestrained race for hashrate, reduce the companies’ debt burden, increase mining profitability, etc.
The environmental future of the blockchain
Blockchain technology primarily entails the elimination of intermediaries in many areas where consensus is needed, that is, two-party consent. Blockchain allows you to express your consent without the help of lawyers, notaries, real estate agents and other middlemen. Cryptocurrencies are only a small part of what the blockchain can provide, but an important one.
Any intermediary actions also entail energy costs - electricity, gasoline, paper, chemicals, etc. If we imagine a payment system of the future built on the blockchain (not necessarily on the Bitcoin blockchain), then we can confidently say that the global energy costs in such a system will be significantly lower than what we currently have. Any document management system will be an order of magnitude more efficient if it runs on blockchain.
Therefore, the future of the blockchain is very rosy, and regardless of which spiral its development follows, sooner or later we will find ourselves at a point where, with the same figures, global energy consumption will be much more efficient than today.
As for Bitcoin itself, the discussion about its impact on the environment no longer affects its price, which means that unlike blockchain in general and Bitcoin in particular, this discussion has no future.
Why does crypto mining use so much power? FAQ
Does crypto mining pollute?
Almost all aspects of human activity lead to environmental pollution, and mining is no exception, since it uses the same energy sources. As the use of renewable energy in global processes increases and its cost decreases, mining will also become cleaner, but its impact in the global sense is extremely small even now. According to the Bitcoin Mining Council report, as of the end of 2022, the Bitcoin network consumed only 0.16% of global energy and was responsible for only 0.10% of global carbon dioxide emissions.
How much electricity does it take to mine 1 Bitcoin?
On the web, you can find a recurring thesis that one Bitcoin transaction requires 1,449 kWh, which is equivalent to 50 days of consumption by an average American family. In some publications, the same figures are presented as the cost of mining one Bitcoin, which is completely wrong. The truth is that Bitcoin cannot be cheaper than the profitability point of most miners. According to various estimates, today it is $13,000 - 17,000.
Trying to determine the cost of mining one Bitcoin is about the same as trying to determine the cost of traveling one kilometer by car - there are too many factors, ranging from the car model to the specifics of the location. Typically, there is always a cheaper way to travel this kilometer, but people choose the most convenient one, without taking into account the entire complex of auto-related costs, starting from the moment of its production.
How much electricity does it take to mine 1 Ether?
After switching to the PoS protocol, Ethereum stopped using mining, so it is incorrect to talk about the cost of 1 Ether today.