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How Much Energy Does Bitcoin Actually Consume?

How Much Energy Does Bitcoin Actually Consume?

How much energy does an industry deserve to consume? Right now, organizations around the world are facing pressure to limit the consumption of non-renewable energy sources and the emission of carbon into the atmosphere. But figuring out how much consumption is too much is a complex question that’s intertwined with debates around our priorities as a society. The calculation of which goods and services are “worth” spending these resources on, after all, is really a question of values. As cryptocurrencies, and Bitcoin in particular, have grown in prominence, energy use has become the latest flashpoint in the larger conversation about what, and who, digital currencies are really good for.

On the face of it, the question about energy use is a fair one. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden. This certainly sounds like a lot of energy. But how much energy should a monetary system consume?

How you answer that likely depends on how you feel about Bitcoin. If you believe that Bitcoin offers no utility beyond serving as a ponzi scheme or a device for money laundering, then it would only be logical to conclude that consuming any amount of energy is wasteful. If you are one of the tens of millions of individuals worldwide using it as a tool to escape monetary repressioninflation, or capital controls, you most likely think that the energy is extremely well spent. Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society.

If we’re going to have this debate, however, we should be clear on how Bitcoin actually consumes energy. Understanding Bitcoin’s energy consumption may not settle questions about its usefulness, but it can help to contextualize how much of an environmental impact Bitcoin advocates are really talking about making. Specifically, there are a few key misconceptions worth addressing.

How much energy does an industry deserve to consume?

Right now, organizations around the world are facing pressure to limit the consumption of non-renewable energy sources and the emission of carbon into the atmosphere. But figuring out how much consumption is too much is a complex question that’s intertwined with debates around our priorities as a society. The calculation of which goods and services are “worth” spending these resources on, after all, is really a question of values. As cryptocurrencies, and Bitcoin in particular, have grown in prominence, energy use has become the latest flashpoint in the larger conversation about what, and who, digital currencies are really good for.

On the face of it, the question about energy use is a fair one. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden. This certainly sounds like a lot of energy. But how much energy should a monetary system consume?

How you answer that likely depends on how you feel about Bitcoin. If you believe that Bitcoin offers no utility beyond serving as a ponzi scheme or a device for money laundering, then it would only be logical to conclude that consuming any amount of energy is wasteful. If you are one of the tens of millions of individuals worldwide using it as a tool to escape monetary repression, inflation, or capital controls, you most likely think that the energy is extremely well spent. Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society.

If we’re going to have this debate, however, we should be clear on how Bitcoin actually consumes energy. Understanding Bitcoin’s energy consumption may not settle questions about its usefulness, but it can help to contextualize how much of an environmental impact Bitcoin advocates are really talking about making. Specifically, there are a few key misconceptions worth addressing.

Bitcoin Can Use Energy That Other Industries Can’t

Another key factor that makes Bitcoin’s energy consumption different from that of most other industries is that Bitcoin can be mined  anywhere. Almost all of the energy used worldwide must be produced relatively close to its end users — but Bitcoin has no such limitation, enabling miners to utilize power sources that are inaccessible for most other applications.

Hydro is the most well-known example of this. In the wet season in Sichuan and Yunnan, enormous quantities of renewable hydro energy are wasted every year. In these areas, production capacity massively outpaces local demand, and battery technology is far from advanced enough to make it worthwhile to store and transport energy from these rural regions into the urban centers that need it. These regions most likely represent the single largest stranded energy resource on the planet, and as such it’s no coincidence that these provinces are the heartlands of mining in China, responsible for almost 10% of global Bitcoin mining in the dry season and 50% in the wet season.

Another promising avenue for carbon neutral mining is flared natural gas. The process of oil extraction today releases significant amount of natural gas as a byproduct — energy that pollutes the environment without ever making it to the grid. Since it’s constrained to the location of remote oil mines, most traditional applications have historically been unable to effectively leverage that energy. But Bitcoin miners from North Dakota to Siberia have seized the opportunity to monetize this otherwise-wasted resource, and some companies are even exploring ways to further reduce emissions by combusting the gas in a more controlled manner. Of course, this is still a minor player in today’s Bitcoin mining arena, but back of the envelope calculations suggest that there’s enough flared natural gas in the U.S. and Canada alone to run the entire Bitcoin network.

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