Is Bitcoin wasting energy?

Bitcoin mining has become a professional enterprise with a lot of large players investing in mining data centers. And we see that the whole network is starting to use a significant amount of energy which has become a topic of discussion.

How much energy is Bitcoin network using?        

Three aspects of Bitcoin energy consumption

We can think of three different ways in which Bitcoin is utilizing energy.

1. Hardware manufacture energy – Most of the Bitcoin mining datacenters use large arrays of specialized chips for mining. The manufacturing process of these chips consumes energy, starting from digging up the metal, fabrication of the chip and transportation to the site. This is pretty insignificant energy loss.

2. Electricity – After procuring the mining equipment, you would plug it into the wall and turn it on. That is the electrical energy consumed. This makes the bulk of energy consumed by Bitcoin network.

3.?Cooling – The third important component of energy consumption is cooling off your equipment to make sure that it doesn’t malfunction. If you are operating your equipment in Antarctica, your cooling cost is very small. But almost anywhere else you are going to have to pay extra, usually electricity, to cool off your equipment from the waste heat it generates.

So how much energy is the entire Bitcoin network using??        

Calculating the total energy consumption of Bitcoin Network

We can’t compute the total energy consumed precisely, because it is a decentralized network with miners operating all over the world who haven’t documented exactly what they are doing.

But, we will start with a really simple approximation strategy. We know how many SHA256 calculations the miners are doing by looking at the network (difficulty of each block). Then we assume that everyone is using the best possible mining equipment available. We ignore the cooling cost and equipment manufacturing cost for now. This would give us the most conservative estimate or the lower bound.

Here is an example calculation from early 2021.

Total hash rate of the Bitcoin network :?150 million TH/s (150 x 1012 SHA256 calculations per second)

Power consumption of the best mining equipment available:?0.1 W for 1 billion SHA256 calculations per second

Approximate energy consumed: 15 GW?

What does this number 15 GW mean?        

Analyzing the energy consumption

Now let us analyze this number in perspective.

University of Cambridge, Judge Business School runs a website that tracks this information in real time.

https://cbeci.org/

Below is a screenshot from Jan 2021.

A typical hydro power plant can generate 1GW of electricity. Three Gorges Dam, which is the biggest hydro power plant in the world produces 10GW.

Nuclear powerplants can generate 4GW.?The larges one in the world, Kashiwazaki-Kariwa plant in Japan, produces 7GW

A typical coal fired plant generates 2GW

The entire Bitcoin network now consumes more energy than a number of countries. If Bitcoin was a country, it would rank as shown below.

How about traditional currency?

It wouldn’t be fair to say that Bitcoin consumes a lot of energy while other forms of currency are free. So, we look at traditional currency,?a lot of energy is consumed moving gold bullion around,?guarding the gold bullion, running the ATM machines, running coin sorting machines,?running cash registers, transporting the money around in armored cars.?

All of that is energy consumed by the traditional money system.

Possible solutions

Scientists have been looking at possible solutions to the problem of energy wasted by Bitcoins.

One pretty interesting idea is, what if we tried to capture the heat generated by Bitcoin mining and turn it around to use it for practical purposes?

The basic idea is that you go down to your local hardware store and instead of buying a traditional electric heater to heat your home or to heat water in your home, you would buy a Bitcoin mining rig that would plug into both electrical outlet and to your internet connection.

Your heater would essentially be doing Bitcoin mining and using the heat produced as a byproduct of that computation to heat your water or your home. And it turns out that the efficiency of doing this is not much worse than just buying an electric heater.

May be it is a promising avenue to explore for the future.

Another idea that has been proposed is to change the underlying protocol of Bitcoin from “Proof of Work” to “Proof of stake”. Other cryptocurrencies like DASH coin uses “Proof of Stake”. However, changing the underlying protocol for Bitcoin requires tremendous work and disruption of service.

Conclusion

So, the whole Bitcoin network is consuming a bit more than a large power plant’s worth of electricity. That is significant. It means that we have to run a large power plant purely to power Bitcoin which could have been used for other purposes. Yet, it has not reached a point where it is a large amount of electricity. Bitcoin network consumes less than 0.5% of the energy produced in this world.

So, sometimes people have the tendency to think that Bitcoin is wasting energy because the energy is being expended in this SHA-256 computation?that doesn't serve any apparent purpose.?

But you can also look at all of the energy in a traditional currency system and?say that it's also wasted, and?that it doesn't serve any other purpose besides maintaining the currency system.

Just because Bitcoin uses electricity, it’s not necessarily wasted. If Bitcoin is a useful currency system, then the electricity is essentially being used for that purpose.