Many detractors of Bitcoin criticize the cryptocurrency for its high consumption of electrical energy or not making efficient use of it. However, it is essential to take the consumption figures considering the global context. For example, Lyn Alden (electrical engineer and investment strategist) mentions that if the data provided by the University of Cambridge is taken into account, which is one of the most consulted sources on the energy consumption of Bitcoin, the rate of consumption of Bitcoin has a maximum level of 140TWh, however, the entire planet consumes about 170,000TWh per year, this means that the Bitcoin network barely uses 0.1% of that total energy, even being a network with more than 100 million of users.
Alden mentions that if in the long term, Bitcoin massifies its use globally and becomes a system used by billions of people (increasing its capitalization 10 or 20 times in the current market), it is possible that its level of energy consumption increase, but it would only be a few tenths of that 1% of global energy consumption. If the scenario is the opposite and Bitcoin does not achieve the desired success (does not grow according to expectations) its use will decrease as the subsidies or commissions for creating blocks (halving) are declining.
Lyn mentions that there will always be errors when “rounding” the percentage of electricity consumption of the Bitcoin network. When scientists estimate the annual consumption of energy at a global level, they can easily err a couple of percentage points in any direction and lead to wrong conclusions. Alden claims that whether Bitcoin is successful or not, its power consumption will not exceed its usefulness in the long run. If Bitcoin were a severe “scaled consumption” of energy, there would probably be flaws compared to other competitors, as it could not offer enough utility for its high energy consumption.
Comparing the consumption of Bitcoin with other sectors or companies
Alden mentions that it is easy to “sensationalize” the topic of Bitcoin consumption, as it is generally used to get views on a website, generate political interest or attack the cryptocurrency. For example, it mentions that it is commonly said that the Bitcoin network consumes more energy than some small countries, which is true. Still, it should be noted that the same happens with other companies such as Google, Netflix, Facebook, Amazon, or other sectors such as cruise companies, commercial aviation, or extractive industries.
Understanding the concept of “adjustment” or “self-regulation.”
The Bitcoin network is programmed to create (on average) a block every ten minutes, which is added to the blockchain; said network consists of thousands of blocks (which began to be created in 2009). Each new block is produced by a miner using a computer or computer equipment that solves cryptographic problems created by the previous block.
If the miners leave the network and the new blocks begin to take more than ten minutes to be produced, then the network “self-regulates,” making processes more flexible and helping to solve the cryptographic problem or challenge so that the blocks return to the average time of ten minutes. If the miners join together and the blocks are added to the network “before” ten minutes, the web will make the problem or challenge more challenging to solve. This is known as “difficulty setting,” which was created so that the network works correctly and does not waste resources or energy. The problem is that many people do not consider this system of “adjustment” or “self-regulation” when evaluating the consumption and efficiency of Bitcoin.
Ways Bitcoin uses wasted energy
Alden explains that because Bitcoin miners require cheap sources of electricity, they cannot usually compete with normal electricity users. As a result, Bitcoin miners look for places globally where electricity is more affordable, underutilized, or wasted.
Bitcoin miners are “unusual” energy consumers since, unlike the average user (who receives power at his home or office and any standard electricity plan is applicable), in the case of miners, they are generally directed or relocated close to where the power source is, which means that they use energy in quite efficient and unusual ways.
Alden cites three examples of how Bitcoin uses wasted energy:
- Hydropower in Sichuan (China): In this case, the Sichuan area in China is mentioned, which has one ton of “overbuilt” hydroelectric capacity and which during the rainy season produces more clean electricity than can be used, cites the case of a large number of miners (before the restrictions imposed by China) who were in that area to take advantage of that energy.
- Mining with unused natural gas: In this case, they mentioned that natural gas is beneficial for electricity and heating; however, if the amount is small, then it will not be economical enough to build a pipeline or collect that gas and market it when this happens, the extractor has to “ventilate” or “burn” the gas, which is why it is wasted.
In the wake of this problem, several private Bitcoin mining companies specialize in connecting Bitcoin miner trailers to stranded gas oil producers to use that energy that would otherwise go to waste; this is a “win-win” scenario for Bitcoin miners and producers. Producers can sell their gas instead of destroying it while earning higher ESG scores and complying with state gas flaring limits, and Bitcoin miners are getting a cheap energy source in the process.
- Bitcoin mining as a network battery: In this case, it is mentioned that both the demand and supply of electrical energy change throughout the year and that many facilities and power plants have production capacities more significant than what they need. However, customers and the constant flow of energy make the system have some stability and profitability. However, in solar and wind energy, these are not constant since they vary according to weather, so there must be storage places. Precisely, one of the major problems of this type of renewable energy is the cost of its storage. Bitcoin mining makes it profitable to build plants and sources of wind or solar energy production. It allows to ‘monetize’ the surplus energy generated or stored since miners can use it to carry out their activities.
What do you think about this topic? Did you know the percentage of energy consumption of Bitcoin?
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