Bitcoin is a virtual currency, whose unit of currency is a digital coin. Each digital bitcoin is created by an electronic process called “mining”. Mining consumes computing power to solve a complex, decrypted mathematical problem. A block of transactions in the Bitcoin network is processed every time such a problem is solved through “mining”.
In January 2021, Tesla CEO Elon Musk wrote “#bitcoin” to his Twitter bio, which hiked the price of Bitcoin by $5,000 within only one hour. Following that in February, Tesla announced that it had bought $1.5 billion worth of Bitcoin and recorded it in its balance sheet. The company also declared its intention to start accepting Bitcoin as a payment for its products in the near future. There are now a myriad of ways to buy BTC so that you can pay your purchases in Bitcoin.
Environmental Concerns with Bitcoin Mining
The process of Bitcoin mining consumes a lot of computing power and, thus, energy. As a matter of fact, Bitcoin mining consumes around 0.55% of the world’s entire power production today, which equals the energy consumption of entire countries like the Netherlands or Switzerland.
To make things worse, the majority of Bitcoin mining is made in massive data centers that are powered by coal. Burning this much fossil fuel to run the Bitcoin network adds significantly to global carbon emissions and contributes to climate change.
The energy consumption of Bitcoin has long become a concern for regulators and a subject of hotly contested debates among politicians. China has been the forefront country in enforcing laws against Bitcoin mining as this country used to constitute over 70% of Bitcoin’s total global mining power all by itself. In June 2021, Chinese officials shut down mining centers in a number of states, which were all major Bitcoin mining hubs. As a result, a large number of Bitcoin miners in China were either forced to shut down permanently or move overseas to crypto-friendly countries.
The Tesla company also backed off from its former step forward and declared in May that it would no longer accept Bitcoin payments due to environmental concerns.
Environmental concerns, along with the ongoing energy shortages, may push other major governments to go ruthlessly against Bitcoin mining in the coming days. Considering that threat, Bitcoin developers around the world shall better find a solution to address this immense energy consumption problem.
Bitcoin’s Decentralized Design
In theory, it doesn’t seem like the Bitcoin network would require such gigantic amounts of power to operate. We have had electronic payment systems that perform similar transactions for different asset exchanges for quite a long time, but none of them was ever known for their energy consumption.
It is Bitcoin’s decentralized design that requires a tremendous amount of energy to operate. To process any transaction, all mining devices (computers, graphic cards, rigs, etc.) connected to the Bitcoin network need to solve the same mathematical problem, which confirms the authenticity of a block of transactions by every miner. Due to this operating scheme, confirming transactions in Bitcoin consumes way more energy than confirming transactions on a centralized network, such as that of a bank.
And the worst part is regardless of how many miners work towards solving a single block, only the miner that comes up with the correct hash is rewarded. All other miners end up wasting the energy they consumed to solve that block. Due to that, it is simply becoming impossible to justify the level of energy waste in Bitcoin mining in a world that is getting ever shorter with its energy resources.
Bitcoin Mining in Asia
In September 2021, China banned all cryptocurrency mining and trading activities within its jurisdiction. Their primary rationale was the energy consumption of Bitcoin, in addition to concerns that virtual currencies are facilitating illegal and criminal activities.
Following China’s bans on Bitcoin mining, a large portion of Chinese mining operators preferred to move to Texas. This is because Texas has been known for its crypto-friendly regulations, along with its campaigns to attract cryptocurrency miners from all around the world. Moreover, Texas offers one of the lowest electricity rates in the world due to its deregulated power grid, which makes this state a heaven for Bitcoin miners.
However, not all Chinese miners are moving out of the continent. There are a number of locations in Asia that have been able to attract Bitcoin miners into their country.
Kazakhstan is the most prominent example. As of today, Kazakhstan accounts for 18% of the global Bitcoin mining operations, which means this central Asian nation has greatly benefited from China’s crackdown on Bitcoin mining.
The rush for migrating Bitcoin mining to Kazakhstan gave birth to a number of problems though. First of all, electricity demand in the country skyrocketed, which has in return strained Kazakhstan’s already outdated electricity grid and caused numerous power outages. As a matter of fact, Bitcoin mining operations are held largely accountable for the recent natural gas price hikes and thus the widely spread turmoil throughout Kazakhstan that we have witnessed in the media.
To make things even worse, almost all of Kazakhstan’s Bitcoin mining farms are powered by ancient coal plants, which contributes greatly to the country’s carbon emissions. Unfortunately, mining businesses that have migrated to Kazakhstan have been quite greedy so far in an effort to mine as many bitcoins as possible, due to which this energy-rich former Soviet state even had to import electricity and ration domestic supplies.
Some other Asian nations to note regarding Bitcoin mining are Malaysia and Thailand. Kazakhstan was the default choice for large Chinese mining businesses, while smaller ones usually opted to Malaysia and Thailand.
It is not certain, however, whether any of these countries will keep their crypto-friendly policies in the future, especially considering the rising energy prices and the close ties of these countries with China.
Renewable Energy Sources
The global supply of fossil fuels is expected to end by 2060, according to Octopus Energy estimates. On the contrary, Bitcoin mining is expected to continue until 2140. Due to that, Bitcoin miners must rely on renewable energy sources such as wind, solar, geothermal, or hydropower to sustain their operations for over a century.
There are ongoing efforts to power large Bitcoin mining centers with renewable energy sources. A number of mining hubs in China and in the US currently use hydropower. Many other miner companies are also progressively investigating solar-powered energy systems in order to adapt their Bitcoin mining businesses.
Some nations have a clear advantage in terms of mining Bitcoin with renewable sources. Paraguay, for example, has an energy supply that is almost 100% based on hydroelectric sources. Due to that, Paraguay believes it can become the cryptocurrency hub of Latin America.
On a positive note, the global Bitcoin mining industry’s renewable energy mix has increased to around 56% as of Q3 2021, according to a report by Bitcoin Mining Council. Compare that to 36.8% only in the preceding quarter. The 56% figure already surpasses the requirement set by Elon Musk back in May 2021, which stipulated that Bitcoin miners should demonstrate at least 50% of renewable energy consumption in their operations for Tesla to accept Bitcoin payments again.
However, you should also note that the Bitcoin Mining Council collected information from only 32% of the current global Bitcoin mining network for its study, which may not reflect the picture correctly.
Transition to Proof-of-Stake Mechanism
Bitcoin can alternately migrate to a “Proof-of-Stake” blockchain, just like what Ethereum is doing nowadays. A Proof-of-Stake (PoS) blockchain gives you the right to instantaneously validate transactions in a cryptocurrency network and add new coins into circulation, based on how many coins of that cryptocurrency you hold. It is akin to voting rights in a company by the ratio of shares you own.
The good thing about this operating principle is that a PoS blockchain consumes negligible energy and thus creates almost zero carbon footprint. This has made PoS cryptocurrencies quite popular during recent years as an alternative to Bitcoin. Some of these popular PoS cryptocurrencies are PoS, such as Cardano, Solana, Binance Smart Chain, Avalanche, and Polkadot.
Although it may be possible for Bitcoin to migrate to a Proof-of-Stake blockchain, this is a very costly and time-consuming process, with which the Ethereum network has been struggling for the last 2 years. We are not sure if the Bitcoin network, which is more than 10 times the size of Ethereum, could afford and justify the cost of such a transformation.
In addition, this would also contradict with the fundamental philosophy of Bitcoin, which envisaged that the same amount of computing power would give everybody the same yield.
The estimated carbon footprint generated by the power plants that provide the energy is a source of environmental concern. A single Bitcoin transaction is projected to consume 2,292.5 kilowatt-hours of electricity, which is enough to run a normal US family for nearly 78 days. Now you can assume how badly bitcoin is impacting our future.
1. To accomplish the computations connected with crypto mining, Bitcoin and other proof-of-work cryptocurrencies demand a vast amount of energy—more than is utilized by entire countries.
2. Bitcoin mining is dominated by the United States, which accounts for 35% of all Bitcoin mining activity.
3. Hydropower and other renewable energy sources account for over 40% of the energy needed in Bitcoin mining.
4. Bitcoin mining produces about 30 kilotons of electronic garbage each year as a byproduct.
To lower the energy requirements for cryptocurrency, new ways for validating transactions are being developed and implemented.
Crypto mining’s high energy consumption is a plus, not a flaw. Mining for Bitcoin or any proof-of-work (PoW) cryptocurrency is meant to take a lot of energy, just like mining for physical gold. The need for both expensive hardware and sufficient of electricity to power it creates entrance barriers, making it exceedingly difficult (but not impossible) for a small group of miners to gain control of an entire crypto network.
Cryptocurrency supporters claim that the decentralized structure has several advantages over centralized currency systems because cryptocurrency networks can function without the need for a trusted intermediary such as a central bank. Miners employ vast quantities of computational power to operate and maintain the security of a cryptocurrency network in place of any centralized authority.