Since its creation in 2009, Bitcoin has remained the most popular and most valuable cryptocurrency globally. However, some of its detractors point out that Bitcoin has a high energy consumption; for example, some studies affirm that this consumption may be higher in some small countries.

How can Bitcoin consume so much energy if it is virtual?

Many people wonder how Bitcoin can consume so much energy, especially if it is 100% virtual; the answer lies in mining (the process by which new Bitcoins does create); this process consists of solving mathematical problems, where the miner with the correct “fastest” result will be awarded a reward. When Bitcoin was born (2009), anyone could “mine” from home with a simple personal computer. Still, as time went by, things got complicated for two reasons: firstly, due to the increase in the complexity of the mathematical problems and secondly, by many new miners. Due to the factors mentioned above, after a while, the computers or home computers were “out of date” to give entry in 2010 to the so-called GPUs (higher power graphics cards), which increased the number of operations per second to find the correct number called “hash rate” that solves the complex mathematical functions of the blockchain network (which are used in mining and creating Bitcoins).

However, these GPU cards also stopped serving in 2012 (being used to mine other cryptocurrencies that require less power); at that time, the so-called ASICs (Integrated Circuit for Specific Applications) emerged, which are specialized equipment to mine Bitcoin. In such a way that the more ASIC machines working, the greater the computing power and better probabilities of finding the cryptographic solution. This meant that the miners had in their possession many ASICs in extensive facilities, working at the same time, 24 hours a day, carrying out operations that imply a greater consumption of energy resources.

What do the studies say?

Knowing precisely the energy that Bitcoin consumes is problematic since, although the price of Bitcoin and the “hash rate” are public data, there are other hidden indicators such as the location of all miners, the total number of miners, and the number of machines or computer equipment that are operating at a given time. However, despite these limitations, many studies make “generalizations” or “estimates” that can lead to negative conclusions – for example, a 2018 study in Nature Climate Change estimated that Bitcoin pollution could raise the planet’s temperature by 2 degrees, in less than 30 years, while the University of Cambridge, did a study assessing the annual consumption of Bitcoin is about 125 TWh, which represents twice the consumption of Greece or approximately 0.5% of the total consumption world.

The problem of source data and estimates from Bitcoin studies

The problem with some of these studies is that they tend to make “estimates” and “generalizations” of specific confidential data, for example, in addition to “hidden” data such as the location and number of miners or computer equipment, an essential factor is the model of the computer equipment used; In many studies, it is considered that all miners use the latest ASIC model in force on the date of the survey, or that the consumption of the ASIC will be the same over time, a clear example of this is the current ASICs, which are consuming less electricity than models 4 or 5 years ago.

Another factor to consider is that the intensity of mining continuously varies since it depends on the number of miners working at a given time, which means that there are times when energy consumption is considerably reduced. Another factor that influences consumption is the origin of energy; for example, the University of Cambridge mentions that more than 60% of mining uses energy from fossils; however, the following question arises, how can this be achieved? Conclusion if the global data mentioned above is not known precisely? Here, another factor appears that can further distort the results, which is the generalization of the behavior of energy expenditure in the United States concerning other countries in the world (a miner in the United States will have a different equipment and energy consumption than a miner in an eastern country or Latin America). As we can see, by not having all these clear indicators, some studies can make conjectures or reach conclusions far from reality.

Who consumes the most energy? Bitcoin or the FIAT system?

In all the studies where the high consumption of Bitcoin is criticized, there is a tendency to “minimize” the consumption of the FIAT system, arguing that the traditional system consumes less energy; however, many experts mention that the expenditure made by conventional banking does not make it only includes its computer systems, technologies, banking operations and card use (which are mentioned in some studies), but also consists of the transport of personnel, bank offices and use of ATMs (indicators that are not included in many reports on Bitcoin consumption vs. traditional banking).

Another point to take into account is physical money, since the current FIAT system is not 100% digital, because printed money still has a relevant role in the traditional system, for example, if we analyze from the point of view of “digital” vs. “physical,” we can say that the printing of physical money is less ecological since it is necessary to “cut down trees” to create new banknotes, in addition to all the logistics involved so that said money is in circulation (printing, security in safes, transportation of cash, support of ATMs, etc.) which would considerably increase the energy consumption indicators of the current banking system. The truth is that in some studies on the electricity consumption of Bitcoin, a “double standard” can be seen, which tends to be “strict” with Bitcoin, but “flexible” with the FIAT system of traditional banking.

What do you think about this topic? Do you feel that the studies that criticize the high consumption of Bitcoin are objective or reliable?

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