If You Think the Energy Use of Bitcoin Is a Problem, You Do Not Understand BTC

Some FUD never dies, and one of these stories is the story that we are cooking the oceans with Bitcoin (BTC). Especially after Elon Musk announced that Tesla would not accept BTC payments anymore because of BTC’s alleged energy use. This idea is not new and certainly not original, and it keeps coming up time after time. So how much truth is there in this story?

We can look at this problem from different perspectives, the energy use, but we can also take it a little bit broader and look at the environmental impact. Another aspect is the question; is energy wasted, or is the energy used for a good purpose (for example, we heat our houses, that is not a waste of energy, but we use the energy for a specific purpose).

Energy Makes BTC Safe

Bitcoin works according to a Proof of Work (PoW) model. One of the most straightforward and easy-to-use proofs of work is the use of energy. Bitcoin mining uses dedicated computers to convert electricity into Bitcoins. The miner repeatedly performs hash operations until it solves a cryptographic puzzle and receives a block reward. The solving of the puzzle proves that the miner spent energy. It is the most simplistic and fair method for the physical world to validate something in the digital world.

Bitcoin is minted from energy; basically, energy is changed into digital gold. That BTC uses energy is a feature and not a bug. The use of energy and computational hashing power is exactly that which gives BTC its security. This security is the sum of all energy used; the more energy BTC uses, the higher the security, it will take an equivalent amount of energy to break this security.

Are There Cleaner Options?

To put the energy consumption of BTC in perspective, BTC uses as much energy as Norway. However, the economic value BTC secures is twice as much as that of the economic value of Norway. We also waste energy from inactive home devices; this is the equivalent of 1.5 years of BTC mining.

Bitcoin’s energy consumption is transparent and easy to track in real-time using tools like the Cambridge Bitcoin Electricity Consumption Index, while the evaluation of energy usage of the traditional financial system and the gold industry is not that straightforward. Bitcoin’s utilization of the excess electrical capacity consumes magnitudes less electricity than existing fiat systems which not only have power requirements banking infrastructure, but the military and political system.

The banking industry does not directly report electricity consumption data. Retail and commercial banking system requires multiple settlement layers, while Bitcoin offers a final settlement. The estimations of power usage by banking data centers, bank branches, ATMs, and card networks’ data centers, the total annual energy consumption of the banking system is estimated to be 263.72 TWh globally.

Another environmental impact of the banking system is also the use of buildings and offices. Maintenance of a big infrastructure, and cash has to be produced (printed or minted) stored, and transported.

During Nixon, in 1971, there was the unilateral cancellation of the direct international convertibility of the United States dollar to gold. Still, the US dollar is used in trading all over the world. So what is the underlying value of the dollar if the gold standard does not exist anymore? If we look at the geopolitical developments after 1971, it is safe to say that oil has become the underlying value for the US dollar. And if we look at the environmental impact of the oil industry and usage, then Tesla would better stop accepting US dollars than BTC. The same case can be made for the Chinese Yuan. It is no secret that China is one of the world´s biggest polluters of the environment, so if the environment is really an issue, Tesla should stop accepting Yuan too.

The gold industry utilizes roughly 240.61 TWh per year. These estimates may exclude key sources of energy use and emissions that are second-order effects of the gold industry, like the energy and carbon intensity of the tires used in gold mines.

BTC could replace gold as a store of value, and this would help the environment immensely.

Source: Galaxy Digital

Future of BTC and Energy Use

The energy spent for BTC is per block. A block can have a varying amount of transactions, but more transactions don´t mean more energy use. The `density´ of BTC transactions is continuously increasing. Each unit of energy is securing exponentially more and more economic value. A BTC accumulates the energy associated with all the blocks mined since its creation.

BTC is a way to store energy.

Mining And Energy Transition

Since the physical location of mining centers is not important to the Bitcoin network (they are movable), miners flock to areas generating surplus electricity for the lowest marginal costs. In the long run, this has the potential to produce more efficient worldwide energy markets, with Bitcoin miners performing an arbitrage of electricity between global centers. The cost of Bitcoin mining becomes the lowest (excess) value of electricity.

Source: Bitcoin Mining Council

Bitcoin mining could help with renewable energy sources that have variable output, energy producers can plug in miners and store the excess power as bitcoin. Bitcoin mining is actually pushing the renewable energy industry forward by raising awareness over energy production and encourage a shift towards green energy. One example is the use of energy from flaring (the burning of gasses that come free with oil extraction), which would otherwise be wasted energy or an oversupply of energy. The latest data shows that 56% of the energy used for BTC comes from sustainable energy sources.

In conclusion, Bitcoin is a solution for the future and can help in reducing the energy and environmental impact caused by our fiat system and gold system. The BTC system is not bound to specific locations, so miners can choose to go to places where optimal energy use of energy is possible. If we look at BTC as a system to store energy, we can convert overproduction of energy into BTC, then BTC can have an important role. The network can benefit the energy sector by creating perfect use cases for intermittent and excess energy.

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