Is the energy required to support the Bitcoin network worth it?
The usage of energy to mine bitcoin has hit the news hard recently. However, much of the concerns are misaligned with the reality of bitcoin mining in the modern-day. No longer is bitcoin a niche economic project. Instead, it has scaled to an enormous size and continues to grow, but is this a problem, should you be concerned, or is there something more important to worry about?
Does More Bitcoin Transactions Mean More Power?
No, this is a common myth. This myth may often come from the assumption that performing a transaction has a static energy requirement. While some things that use energy scale in this manner, such as making multiple batches of toast with your toaster, it doesn't make sense when it comes to the bitcoin network.
Bitcoin transactions don't scale linearly with energy usage. The amount of activity on the network has minimal effect on the power used to mine bitcoin. Miners attempt to solve blocks as quickly as possible for a share in transaction fees, but primarily for the block reward. The reward is the same whether there are only one or many transactions in a block, removing the correlation between transactions and bitcoin energy usage. Currently, fees only account for a minimal amount of the rewards earned for solving a block.
Bitcoin growing 10x larger doesn't mean 10x more power!
Waste is Based on Perspective
What one person considers waste, another may highly value. Many perspectives on whether bitcoin mining constitutes waste are drenched in biases and frequently snap opinions based on assumptions.
Is sound money protected by thermoelectric security a waste? If you don't use it, then it's easy to claim that it is. However, for those who explore the benefits of bitcoin, there's a far different reality typically experienced. Bitcoin isn't just a speculative asset; for many, it’s protection from failing economies, hyperinflation, and controlling regimes.
Immutability when it comes to data is extremely difficult at scale, yet this is something that bitcoin provides. The bitcoin blockchain across the world is constantly being validated and growing thanks to the millions of network participants helping make bitcoin as large and as strong as it is today.
Traditional Systems Use Vast Amounts of Energy
When considering the merits of new technology, it's easy to forget the issues that come with the approaches we already use. Keeping our modern payment systems like banks, companies like Visa and MasterCard, and even payment processors like PayPal afloat is also a vast energy requirement that is rarely, if ever, discussed.
Companies that deal with payments generally have extensive networks of offices, staff, various forms of security if cash or other valuables are being handled, large data centers that span multiple countries, and much more. Do we ignore these uses of energy? Are these payment channels somehow better uses of resources when bitcoin could be the far greener option? If it were apples to apples, would the payment methods you use stand up to the scrutiny regarding energy efficiency? Would the rules need to be bent to allow these last-generation value exchange formats?
Energy is Hard to Transport Bitcoin Isn't
Moving bitcoin across the world can take only a matter of minutes. However, power is not as simple as moving more considerable distances. While switching on the power in your home likely feels like a simple enough thing to most of us, the reality of moving excess energy to other regions is often not just tricky but prohibitively impractical, resulting in wasted power.
Producing energy to the scale the modern world requires often results in significant amounts of wasted energy. This energy is extremely attractive to bitcoin miners as it can be purchased at far lower rates than retail energy prices. The cheaper the power is, the more likely miners will chase it. Power costs are generally the highest consideration when setting up a mining operation, as this controls how wide your profit margin can be. If there is a demand for power in a region, miners are quickly priced out of the market and forced to look for cheaper options, which often leads them to waste energy or renewable power sources.
The International Renewable Energy Agency (IREA) has stated that renewables are even beginning to beat the cheapest coal options on cost, which seems to be continuing to trend down. Considering that energy cost is the prime driver for miners when deciding how and where to operate. This economic reality is hard to ignore and, if anything, points to incentives for more renewable energy infrastructure development.
The Bottom Line is More About Energy Itself
Energy or consuming energy isn't an inherently bad thing by any means; generating energy with low efficiency or using non-renewable resources is a genuine concern. Perhaps if there is a problem, it firmly lies at the feet of how we choose to generate energy. If you were to oversimplify things, it's easy to point to air conditioning, non-essential heating, and even electric cars as a poor way to use energy or even a waste, depending on your perspective. Still, like when it comes to bitcoin energy usage, the reality is often far more nuanced and deserves more consideration than it usually receives.
Protecting value and free exchange is essential, and in turn, so is bitcoin. However, perhaps it’s time to address the problems associated with some forms of energy production, not attempt to lay blame on the tools that can help shape the future and push us to innovate in ways never seen before.