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How Much Energy Does Bitcoin Use?
Much speculation exists regarding the environmental impact of the world's first and most popular cryptocurrency, but what are the actual figures regarding Bitcoin's energy consumption and how does this compare to the energy consumption of other industries?
In this article we'll discuss Bitcoin's energy requirements, including how Bitcoin uses energy, how that translates to its environmental impact, where Bitcoin's energy comes from and how those needs are expected to change over time.
How Does Bitcoin Use Energy?
Before we get into the details of Bitcoin's energy consumption, it's worth taking a few minutes to understand the energy needs of the cryptocurrency and its operating platform as there are a few misconceptions that need to be cleared up.
Launched in 2009, Bitcoin is a cryptocurrency that operates on a decentralised public ledger called a blockchain. Out of the maximum possible supply of 21 million Bitcoins, just over 19 million are currently in circulation, with new coins released into the world through an ongoing process called mining.
Mining is the process by which new blocks of Bitcoin transactions are created, verified and added to the existing blockchain, which results in the release of newly 'minted' Bitcoin (currently 6.25 BTC per block) plus the block's transaction fees as a reward.
The mining process involves using computing power to discover the hash of newly created blocks by running through many possible guesses per second, with the average time to find the hash currently taking around 10 minutes or so.
Many miners are concurrently using their computers to find the hash of the latest block in the chain, but only one can claim the reward. The computing power needed to operate these brute force hash guesses is high and that produces a lot of heat in the process.
Such tremendous amounts of generated heat can result in damage to the computers themselves, so mining companies spend a lot of money on industrial cooling machines to control the temperature, which itself requires even more energy expenditure.
It's this compounded energy consumption that's driving much of the conversation around Bitcoin and its environmental impact.
Bitcoin's Current Energy Consumption
Bitcoin's current total consumption of energy varies depending on who you ask, with some studies suggesting just over 81 teraWatt hours per year, while others estimate closer to 110 teraWatt hours annually. The results of these calculations change over time as more Bitcoin miners join the fray and more Bitcoin transactions are completed.
The current energy requirement for 1 BTC transaction is 2,188 kWh (compare that to 100,000 Visa transactions, which consume about 148 kWh). Given that there are approximately 272,000 Bitcoin transactions per day, that equates to a total daily energy expenditure of around 595 GWh. That results in an estimated yearly energy need of about 217 tWh, which is significantly more than previous studies suggest.
While these are only estimates due to the difficulty in obtaining such data on Bitcoin's energy consumption from notoriously secretive mining operators, they are on the same scale as the annual energy consumption of small countries such as Austria, Finland and Belgium. I guess the Bitcoin wallets here are way more frequent than in other countries.
Energy: Bitcoin VS Traditional Banking
It's very easy to look at these figures and come to the conclusion that Bitcoin mining is an energy-intensive operation. However, let's put it into perspective a little.
The traditional banking system is estimated to consume around 260 tWh per year, while gold mining's energy draw is just behind at 240 tWh per year. At the lower end of the Bitcoin mining energy estimates, it accounts for less than half that of the banking system, while our largest estimate still places Bitcoin's energy consumption at less than half that of both gold and banking combined.
Given that the banking system has a lot of moving parts, including ATMs, printing facilities, physical banks, data centres and secure vehicles, it's clear why its energy consumption is so much greater than that of Bitcoin.
Having said that, in today's climate, it's prudent for all industries to address their environmental impact and take actions to reduce such effects on our planet.
The Problem With Energy Consumption As a Metric
That leads us to consider the very metric of energy consumption itself. The definition of energy consumption is how much energy is needed to power a specific operation. The problem with this definition, particularly in terms of environmental impact, is it doesn't take into account the source of energy.
For example, it might take 2,188 kWh for one BTC transaction, but the carbon emissions of that energy consumption will vary depending on whether coal, gas, wind, tidal or solar power was used to generate it.
In addition, energy consumption also doesn't take into account any carbon offsetting methods that many mining operations use to achieve carbon neutrality.
Bitcoin's Energy Sources
Bitcoin miners can be anything from small, one-man operations all the way up to large Bitcoin farms consisting of several hundred people or more. It's generally quite difficult for individuals to efficiently make a living out of Bitcoin mining due to the prohibitive costs of the computing power that's needed, so it's usually the larger Bitcoin farms that consume most of the energy.
Bitcoin farms are currently located in various countries around the globe and each of these countries has its own profile of available energy sources, which means the carbon emissions of each operation can vary greatly. Further complicating matters is the fact that in certain countries, renewable sources of energy are far more accessible than in others.
Again, it's difficult to get any kind of solid information on the energy sources of Bitcoin farms. A Bitcoin Mining Network report in December 2019 estimated 73% of Bitcoin energy consumption came from carbon-neutral sources, though this source could potentially introduce bias.
A more objective study was carried out by the Cambridge Centre for Alternative Finance (CCAF) in late 2020, which published the following findings regarding Bitcoin mining's energy sources:
- 62% hydroelectricity
- 38% coal
- 36% natural gas
- 17% wind
- 15% oil
- 15% solar
- 12% nuclear
- 8% geothermal
- 2% other
(Note: Figures do not add up to 100% due to mining operators using multiple sources of energy.)
The same study found that 39% of Bitcoin mining's energy consumption comes from renewable sources and that 76% of operations use renewables in some form or another.
Other factors influence where Bitcoin's energy consumption comes from. As an example, some regions in China produce vast amounts of energy from rainfall, which was used by Bitcoin mining farms in the region, with the area purportedly accounting for up to 50% of global mining activities.
However, when China imposed heavy regulations on Bitcoin mining in mid 2021, numerous farms were forced to relocate to other countries, many of which have less availability of renewable energy sources and more of a reliance on fossil fuels.
Efforts To Make Bitcoin More Environmentally Friendly
While a growing number of Bitcoin farms are turning to renewable energy sources as a way of powering their operations, those that use fossil fuels are committing to employing carbon offsetting, in the form of heat distribution, for example, as a way of achieving net-zero emissions, with much encouragement from newly formed organisations.
Inspired by the Paris Climate Agreement, the Crypto Climate Accord aims to be instrumental in the uptake of what they call Proof of Green solutions, with the goal of "decarbonising the cryptocurrency and blockchain industry in record time".
Bitcoin's Changing Energy Needs Over Time
In a financial system that demands constant growth, it's easy to assume that the energy consumption of Bitcoin mining and transactions will increase over time, but there are several reasons why this is unlikely to be the case.
Firstly, built into the system is an effective slowing in the minting of Bitcoin, called halving. Every 210,000 blocks (approx. 4 years), the reward for mining one block (block reward) is reduced by half. Initially, the block reward was 50 BTC, but after three halvings, it is now down to 6.25 BTC. All else being equal, the continued halving of the block reward will make mining unviable for an increasing number of operations due to the costs.
Secondly, the finite supply of Bitcoin (21 million coins) means that there will be an end to the levels of mining we're seeing today. Soon people could start looking for the next Bitcoin!
Thirdly, once all 21 million coins have been mined into circulation, only the transaction fees of each block will be the reward for mining. Since transactions form only a small proportion of Bitcoin's total energy expenditure, this represents a drastic reduction in potential carbon emissions.
Finally, as the world moves towards more sustainable forms of generating electricity, we are seeing an increase in both the quantity and quality of available options: solar, wind, tidal wave, geothermal and other renewable forms of energy are becoming more efficient as time passes and technology in these areas improves. This means the proportion of Bitcoin farms using these renewable sources of energy will increase, resulting in an overall approach toward carbon neutrality for the industry as a whole.
It's easy to be shocked by the figures regarding Bitcoin's purported energy consumption, but it's important to put the data into context. The Bitcoin industry may use the same amount of energy as a small country, but it is still only half that of similar industries.
It's also crucial to factor in efforts to reduce the environmental impacts of the Bitcoin mining industry, whether that's by using renewable energy sources or by carbon offsetting.
As Bitcoin continues to grow, rather than increasing energy expenditure, it is expected to show reduced overall consumption. This alongside the global drive to use more sustainable forms of energy means the industry will most likely move towards net-zero with everyone else.
Want to know more about Bitcoin's energy expenditure? Check our FAQs.
How much energy does Bitcoin use?
Estimates vary, but many suggest the current energy consumption of Bitcoin mining and transactions is somewhere in the region of 80 to 120 teraWatt hours per year, which is roughly the same as the annual energy usage of small countries like Finland and Austria.
Which aspect of Bitcoin uses the most energy?
Most of the energy needed by Bitcoin is for the mining process, with transactions only forming a small part of the overall consumption.
What can Bitcoin be used for?
While only a few large retailers currently accept Bitcoin, the cryptocurrency is one of many accepted at a growing number of online casinos, where members can play slots, table games and live dealer games using their coins.
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