The biggest argument against Bitcoin in the market right now is that it consumes too much energy. And, now we know just how much.
This is equal to the amount of energy consumed by 1.2 million VISA transactions. VISA powers about 42% of the world’s credit market, making it one of the largest payments providers in the world, alongside Mastercard, Discover and American Express. And even its carbon footprint is smaller.
And, Bitcoin’s carbon footprint — the amount of greenhouse gases generated by mining for the cryptocurrency — is the equivalent of watching 138,762 hours of YouTube or, coming back to VISA, 1.8 million transactions.
Over the span of a year, the amount of power Bitcoin mining ends up consuming is about the same as all of Sweden. But, unlike Sweden — where nearly half of the energy produced comes from renewable sources — Bitcoin rigs are currently centered in countries where the primary source of electricity generation is the burning of fossil fuels like coal.
According to the report, if Bitcoin was a country, it would account for 3.2% of the total energy consumption in the US.
Energy is already a scarce resource. According to the International Energy Agency ( IEA), electricity demand is heading for its fastest growth in more than a decade.
This is why countries like China don’t want Bitcoin mining operators within their borders. The authorities cited environmental concerns as the reason for their most recent series of crackdowns on the crypto industry. The same rationale was also used by Tesla CEO Elon Musk, when he announced that customers could no longer pay for a new car using Bitcoin.
Kazakhstan — China’s neighbor and a country where Chinese Bitcoin miners were hoping to set up shop after being kicked out — isn’t too pleased with the amount of energy Bitcoin uses up either. The government brought in a new law earlier this month imposing a ‘surcharge’ on those consuming electricity for crypto mining.
Iran, which accounts for 4.5% of all Bitcoin mining, also announced a summer ban on cryptocurrency mining in the face of blackouts and power outages.
Not every country is going down the ‘ban’ route. Others have said they want to provide clean energy for mining crypto. El Salvador — which will start accepting Bitcoin as legal tender in September — wants to use the country’s volcanoes to provide energy for crypto miners.
In April, the crypto industry also announced the creation of the Crypto Climate Accords ( CCA) to develop sustainable solutions for mining worldwide.
But, the energy source is only one part of the problem. Switching out Proof of Work (PoW) for Proof of Stake (PoS) could reduce the amount of energy cryptocurrencies need to operate in the first place.
One of the primary reasons for Bitcoin’s high energy consumption is that there is no barrier to entry — if you can build a powerful enough mining rig, you can become a Bitcoin miner.
Every Bitcoin transaction that happens creates a ‘block’ on the network. And, that’s where miners come in. In order to authenticate the transaction, miners have to solve a mathematical equation by a ‘number guessing game,’ which is performed by computers.
And, computers all over the world are racing against each other. Whoever gets there first is rewarded with new Bitcoins for correctly guessing the number. The more powerful the computer, the faster it will solve the equation and authenticate the transaction.
This process is called ‘Proof of Work’ (PoW). The problem is that there’s a lot of computers churning away, but only one winner. So, the industry came up with ‘Proof of Stake’ (PoS) to try and lighten the load.
The system is known as Proof of ‘Stake’ because miners have to put their crypto on the line to be eligible for rewards. And, blockchain platforms like the Binance Smart Chain and the upcoming Ethereum 2.0 platform already use this.
To get a stake, miners approach whales and other larger financiers. It’s kind of like an auction combined with a lucky draw. Only the winners have to spend energy solving the mathematical puzzle to authenticate a transaction.
For instance, the Binance Smart Chain rewards only the top 21 miners on the network for validating a transaction.
If they make a mistake while validating a transaction, the ‘stake’ they put up as collateral gets fined. In the end, the PoS model claims to reduce energy consumption by almost 99% as compared to PoW.