DeutschWhen it comes to mining around Bitcoin, there are many prejudices upon closer inspection. But there are also some important aspects that do correspond to the facts. Environmental and sustainability experts have been criticising the supposedly high power consumption associated with mining, i.e. the creation of new units in the Bitcoin blockchain (BTC), for years. Before we get to the exact circumstances and possible solutions to the energy dilemma, one thing in advance: In fact, there has been and still is reason for criticism. Critical voices are certainly justified, especially when miners resort to electricity from conventional energy sources. However, within the crypto world in general and the mining industry in particular, there have long been efforts to take increasing account of environmental protection. What is the current situation regarding Bitcoin power consumption?
Apart from that: In the context of the traditional currency system and other assets, there are also good reasons to criticise.
Bitcoin Power Consumption – many Analyses Oversimplify the Facts
This comparison will definitely play a role later on. We will also recognise in the analysis that “mining” is not the same as “mining”. What they have in common are the various analytical criteria on the one hand and the energy aspect as such on the other. In any case, it is true that the location must also play an important role with regard to electricity and energy consumption. A frequent point of criticism is that the largest leading mining farms – the technical term for professional facilities in which bitcoins and other cryptocurrencies are created on a large scale – are based in the People’s Republic of China. Such statements are not entirely unfounded, because with its own mining pool, the Binance exchange is currently entering the mining sector with massive commitment.
Bitcoin Power Consumption: Location of Miners and Mining Farms Must be Considered
The competitor Bitmain, on the other hand, according to its own statements, is working on a new farm at the Texan US location Rockdale, which should reach a value of 300 megawatts in the near future. Although this is also a Chinese company, the plans refer to the USA. Other farms are based in countries such as Canada or Norway. It is undisputed that the mathematically complex processes involved in mining consume more electricity with increasing blockchain size and the decline in the predefined maximum coin quantity, which is due to the required computing power. In addition to the time required, the burden on the environment increases – according to the voices of the critics mentioned. However, there are also scientists who oppose the fundamental negative sentiment. Among other things, because the energy consumption due to the decentralised system orientation is apparently not measurable in detail due to the lack of complete data records.
Decentralisation Deserves Close Attention in the Evaluation
The data centres are not located at companies, but work on the basis of many individual computers. These in turn can basically be located anywhere around the globe and be networked via the Internet. Reliable statistics are also scarce more than a decade after the Bitcoin system was created. When how much energy from which energy source flows into the blockchain (and similar networks)? There are still few serious offers. Only gradually are models emerging that want to and can enable an exact determination. However, it is already possible to record how much computing power is provided overall by all the computers involved for mining. In terms of efficiency, individual electricity consumption or location, there are, if at all, only limited suitable instruments. Information is also largely lacking on the type of electricity used.
Analysis Tools are Emerging Slowly and Use Different Parameters
A fairly new “tool” is the Bitcoin Electricity Consumption Index (CBECI). Developed by Cambridge University, the index quickly came to the conclusion that the widely estimated energy consumption in connection with the mining of new bitcoins is set too high. The program of the Cambridge Centre for Alternative Finance (CCAF) works on the basis of real-time prices. The aim of the development work was, in fact, open-ended to calculate the real consumption in the Bitcoin network. In this case, real time means: The index is updated every 30 seconds. The foundation is cryptographic processes that, in connection with the so-called “proof-of-work mechanism”, lead to a higher energy consumption around blockchain transactions, which factually leads to a higher energy consumption. However, the researchers also point out that the CO2 footprint of Bitcoin is less large than thought.
Many Analysts Mean many Basic Assumptions
Among critics, the values of entire countries are particularly popular as reference values in order to illustrate the seemingly critically high extent of consumption when mining coins in the crypto world. In some cases, the electricity consumption of the Alpine Republic of Austria served as a basis for comparison in the past, and Switzerland – similar to the German state of Hamburg or Jordan – has already had to face the comparison with the BTC Co2 footprint. For the execution of arithmetic operations in mining, some scientists calculated an annual electricity requirement of 46 terawatt hours, which in turn, according to the same researchers, corresponds to a carbon dioxide release of 22 megatons in the calculation.
Uniform Standards for Calculation are Lacking on the Market
It is above all the lack of uniform methods for measuring consumption that makes serious debates about possible political measures so difficult. The Bitcoin Electricity Consumption Index has quickly become an important yardstick for many representatives of the political and media landscape in this regard. This indicator also relies on a number of different methods, including dozens of hardware models commonly used in mining. In addition, the developers worked early on on a geographic crypto map that should be interactively oriented. The aim of the map: Viewers get an overview of global mining activities.
Consumption is High, but What are the Framework Conditions?
As with all topics worth discussing, there is also a second side to the coin when it comes to mining, or rather a different point of view. It is undisputed, of course, that mining is associated with enormous energy consumption. A researcher at the University of Nottingham, Katrina Kelly, points to the need to distinguish between consumption and the type of electricity used or electricity generation. So what is it about? The amount of energy consumed, according to Kelly, is not unimportant, but rather a side note. Far more important in the context of debates about environmental protection. Unlike other experts, the researcher sees no cause for concern when looking at Bitcoin energy consumption. From a scientific point of view, the discussion is simply conducted at a level that is too simplified and therefore not conducive.
Researcher Sees Discrepancy between Consumption and Impact
Technological progress must be included as an essential context in the considerations. Kelly comes to the conclusion in her calculations that the Bitcoin system recorded an annual electricity quantity of about 30 terawatt hours annually. In contrast, the traditional banking system and its extensive data centres have a value of more than 100 terawatt hours per year. The but: This analysis is just one of many. The well-known “Digiconomist” came to an electricity consumption of 73 TWh electricity consumption in a calculation for the year 2018.
What Does Halving Mean for Consumption Development?
And there are definitely evaluations that have determined even noticeably higher values – with an increasing trend. And after the upcoming halving in the Bitcoin blockchain, global interest could continue to rise. Because some industry experts are literally outdoing themselves with optimistic predictions for the BTC price. Some crypto pioneers expect prices that go far into the six-figure dollar range. This creates desires among investors, and the mining of new coins is becoming increasingly difficult. The technical effort increases and so does the power consumption.
Reliable Data Will Probably Continue to be Missing
When it comes to energy requirements, it should not be forgotten that these are only estimates for Bitcoin, all the other coins and tokens are often not included in most calculations. However, this is definitely relevant for a reliable forecast of global mining consumption. However, researchers now believe that analyses must move away from the absolute consumption of electricity/energy. Instead, the CO2 balance already mentioned is a more important criterion. This data makes it increasingly easier to classify the burden potential of Bitcoin and cryptocurrencies at the present time.
China’s Significant Role in Mining is Indeed a Problem
That Bitcoin mining entails extreme consumption is, as I said, undisputed – even among miners themselves and real crypto fans there are only a few who downplay the “problem”. The dilemma, at least so far, is the distribution of mining activities around the globe. As mentioned above, China currently dominates the market. More than half of the “mines” are located in the People’s Republic these days. There, according to estimates, between 70 and 80% of the electricity is generated from the fossil fuels oil, gas and coal. A relocation of the market is pre-programmed on site anyway, because the government has been concerned about the massive energy consumption for some time. In some places there have already been initial bans.
Other Countries, other Customs? How Quickly Will Green Electricity Move in?
Abroad – for example in the USA, Iceland, Norway and Canada – there have been increasing projects launched in recent years that are saying goodbye to traditional energy sources. The scientist Kelly refers, for example, to a hydropower-powered mining farm in the US state of Oregon. The company Northern Bitcoin also pursues the approach in the production of its miners, which are used in Norway in former mines. Norway is a good example of the question of CO2 consumption, as the country now generates 95 percent of its electricity from hydropower and four percent from wind power. In addition, the electricity consumption during mining in the Northern European country is further reduced by the energy-saving cooling with fjord water.
Development of Electricity and Energy Consumption is Increasing Rapidly
To come back to Bitcoin power consumption: At the Technical University of Munich, a team of researchers calculated at the end of 2018 a consumption of around 45.8 trillion watt hours, i.e. 46 terawatt hours annually year as the total amount of all computers involved in Bitcoin mining. The scientists in turn gave the annual CO2 emissions as 22 to 23 million tonnes. This corresponds to data from countries such as Jordan or Sri Lanka – or the German city-state of Hamburg. The Munich researchers are therefore between the two statistics mentioned above. Mining pools as well as IPOs of three heavyweights from the field of mining hardware production served as sources for the evaluation.
Steady increases in consumption were also recognisable in the analysis. While energy consumption was allegedly still below 345 megawatts at the end of 2016, consumption was already more than 5,200 megawatts at the end of 2018, as the researchers calculated. If one relates these values to the example of Norway, it can be said: The electricity mix at the location of the computers is decisive.
Global Shifts in the Mining Sector could Provide Relief
The amount of CO2 is undoubtedly worrying at first. And the values will certainly increase, as the developments in the Corona crisis show. Bitcoin and Co. are in vogue, not only young people or residents of economically dramatically troubled countries are increasingly using digital currencies. The researchers give the CO2 footprint for mining in China as 550 grams of CO2 per kilowatt hour of electricity consumed. And China now accounts for almost 70% of production. Europe’s BTC mining share is 17%, North America brought it to 15% in 2018. And in these regions, miners are increasingly relying on “green” electricity.
The Number of Transactions is also a Central Consumption Feature
Alex de Vries, business expert and Digiconomist blog operator, comes to the conclusion in the Bitcoin Energy Consumption Index that each Bitcoin transaction in itself consumes the same amount of energy as 17 households on one day and more. Or a 4-person household on average in two months. And there were many transactions. Very many. Almost 81.4 million were carried out in 2018. The economist mentioned also estimated that about 42,000 KWh of electricity are needed to mine a single bitcoin. Attention: He refers in the calculation to so-called “Asic-Miner”, but not every miner uses this efficient hardware. The actual value is therefore most likely considerably above this number and cannot be calculated due to the lack of uniform documentation.
How Quickly Can the Industry Recognise the Signs of the Times?
When it comes to the question of using green electricity, analysts are unfortunately in a quandary. Despite all efforts, it is hardly possible to trace the origin of the electricity in mining and Bitcoin transactions. Clean geothermal energy or dirty coal power? Everything between these two poles is always possible in principle. So it’s difficult. According to some scientists, only conclusions about electricity and energy consumption via the mining locations and regions as well as the electricity mix common there are practicable. The latter currently looks very bad in China, good in Norway or Canada.
Criticism is Important, but other Technologies also Consume a Lot
In general, it should be pointed out again: Despite all the justified criticism of Bitcoin and its energy consumption in mining and transactions, the view beyond the box should not be forgotten. Services such as PayPal, credit card companies and classic banking systems also consume resources on a large scale. Anyone who invests in gold also promotes global energy consumption in connection with extraction, transport and storage. In addition, there are increasing ways to reduce consumption in mining and in the Bitcoin system in general. One approach is the switch from the established, but energy-consuming proof-of-work algorithm to the more energy-efficient proof-of-stake. In the latter, the importance of the miners is dwindling, as blocks are increasingly created by coin holders. This reduces the processor requirement.
Regulatory Measures could Herald a Turnaround
A rethink on this point could make the Bitcoin blockchain more sustainable. However, this step will still take time with Bitcoin, while the “follower” Ethereum has already set important course for a massive reduction in energy consumption some time ago. On the market as a whole, the use of renewable energies probably offers the best opportunities for the time being to be able to reduce CO2 emissions by the necessary amount. Politics, on the other hand, can regulate Bitcoin mining through new laws and create clear energy rules for mining farms and pools. Most experts expect a permanent increase in electricity consumption – but the emission of harmful carbon dioxide will hopefully gradually decrease through the measures and developments mentioned.
So far, however, this is only wishful thinking, so criticism of Bitcoin power consumption is certainly appropriate. However, it will do little to change the increasing interest. And this is only too understandable.
