Why does Bitcoin use so much energy? (adv)

Blockchain and Bitcoin are two buzzwords of recent years. The price of Bitcoin has risen to astronomical heights before falling in value again. Making a Bitcoin can be lucrative, but it costs a lot of energy, why is that?

Why does this network consume so much energy?

Bitcoin’s promises are great, but not everything about this network is positive. It uses a lot of energy. A report came out some time ago that made some assumptions about the energy consumption of the Bitcoin industry.

This research from Nature Climate Change claims that this industry will only be responsible for global warming of 2 degrees. In addition, a single Bitcoin transaction would consume as much energy as 750,000 Visa transactions. This research has been questioned several times by various authorities. Wrong assumptions have been made, which means that the results are incorrect. Despite this, the results of this research have been made by various parties to make their point.

Why does Bitcoin consume so much energy?

Let’s be clear, it’s true that this network uses a lot of energy. This is because a transaction on the blockchain must first be approved by multiple computers. To do this, they have to guess an answer and to find this answer you need a lot of computing power. Various decentralized computers make their computing power available for this. We are talking about thousands of computers working on a single transaction.

Large mining companies have emerged that are working with thousands of computers at the same time to approve as many transactions as possible and thus earn as much profit as possible. You will receive a reward for verifying a transaction, this is done via the ‘proof of work’ concept. Energy is therefore the largest cost item of a miner, the lower the costs the higher the profit of the company. Therefore, such a company will always look for a location for its factory in a place where the energy costs are the lowest. Regions where a lot of sustainable energy is produced and where the price for energy is low are popular for these miners.

Providing proof of a transaction and where the miner derives its earnings therefore costs a lot of energy. Therefore, many environmental organizations are trying to introduce another validation system. This system is called ‘proof of stake’ and works on the basis of agreement and will use 99% less energy. That sounds hopeful, of course, but because of the way it would be set up, it is almost only possible for wealthy investors. That would close the system again for anyone with a small budget and that’s not what this way of working is about.

The pros and cons arguments

So it is a fact that this network consumes a lot of energy, sometimes comparable to the consumption of an entire country. In addition, as Bitcoin becomes more popular, energy consumption also increases. That is a problem when you consider the finite supply of fossil fuels.

Fortunately, there are plenty of arguments in favor of the system. Firstly, we get a decentralized payment system in return, which is a lot safer and fairer. Many of the companies in this industry use renewable energy and less and less fossil fuels. This is another positive push in the right direction of more solar and wind energy. Finally, we must not forget that the current banking structure and the amount of companies, offices and other facilities associated with it consume much more energy than Bitcoin.

Conclusion

It’s a matter of looking beyond what we know now. Although the platform now consumes a lot of energy, there is an incentive for the many miners to use renewable energy, especially with the current prices due to the war between Ukraine and Russia. Crypto is a promising new step in our future and we should give it a chance.