Is Cryptocurrency Energy Efficient?
When it comes to the sustainability of cryptocurrency, there are a few key issues that need to be considered. Bitcoin, in particular, has been criticized for its high energy consumption. The main reason for this is the way Bitcoin is mined – through Proof-of-Work (POW). To verify transactions and add them to the blockchain, miners need to solve a complex cryptographic puzzle. The first miner to solve the puzzle gets to add the block to the blockchain and is rewarded with new bitcoins. This process requires a lot of energy, as miners use powerful machines that can generate a lot of hashes per second. As a result, the Bitcoin network consumes more energy than the entire country of Argentina. This is concerning, especially given the growing popularity of Bitcoin and other cryptocurrencies.
Every year around 3,531 tons of gold are mined, producing 81 million metric tons of CO2 emissions. Compared to Bitcoin, mining actual gold is more energy-efficient than mining cryptocurrency. To put it into perspective, if Bitcoin were a country, it would rank as the 61st largest energy consumer. It would also rank as the 27th largest greenhouse gas emitter – emitting more than countries like Qatar and Kuwait. There are a few reasons why Bitcoin is so energy-intensive. First, the price of Bitcoin is currently very high, which incentivizes miners to keep verifying transactions and adding blocks to the blockchain. Second, the difficulty of the cryptographic puzzles that need to be solved to add a block to the blockchain has been increasing steadily over time. This means that miners need to use more and more powerful machines to stay ahead of the competition and earn rewards.
The carbon footprint provided by the Bitcoin Energy Consumption Index shows that the average carbon intensity of electricity consumed by the Bitcoin network may have increased from 478.27 gCO2/kWh on average in 2020 to 557.76 gCO2/kWh in August 2021. This increase could be due to the higher global temperatures and weather conditions, which are causing an increase in electricity demand. And, as the Bitcoin network grows, so does its energy consumption. If action is not taken to improve the efficiency of the network, it is estimated that by February 2025, the Bitcoin network will consume as much energy as the entire world does today. This has created many concerns about the sustainability of cryptocurrency in the long term because of the environmental impact.
While there are many initiatives aimed at making the Bitcoin network more sustainable, such as the Bitcoin Clean Energy Investment, it is still important to be aware of the environmental impact of cryptocurrency. It is also critical to keep in mind that the energy consumption of other cryptocurrencies, such as Ethereum, could be even higher than that of Bitcoin. When it comes to energy consumption, there is a clear difference between traditional currencies and cryptocurrency. Traditional currencies are backed by physical assets like gold that is mined using processes that are much more energy efficient than those used to mine cryptocurrency. This is because the cryptocurrency network is not yet optimized and still requires a lot of energy to power its machines. As the Bitcoin network grows, so does its energy consumption.
One possible solution is to move from Proof-of-Work to Proof-of-Stake. Under this system, instead of miners being rewarded for verifying transactions and adding blocks to the blockchain, they are chosen randomly from a pool of validators. This means that anyone can become a miner, as all you need is a certain amount of the cryptocurrency you want to mine. This would reduce the barriers to entry for mining, which would in turn reduce the amount of energy needed to mine cryptocurrencies. But currently, cryptocurrency is not energy efficient and as its popularity grows, so does the need for energy to power the machines used for mining. If we don’t find a more sustainable way to mine these currencies, their impact on the environment will continue to increase.
If you’re concerned about your electricity bills, reach out to Integrity Energy to learn more about how we can help lower your energy rates and keep crypto energy bills low.