Recently tipped a decade since its conception, Bitcoin continues proving to be the technology to redefine business as we know it. Considering the technology used to drive Bitcoin needs no intermediaries to make, receive and run payment, the popularity of this incredible leap in capability waxes more than it wanes, and growth is steady across all sectors currently touched by Bitcoin and blockchain technology.
While all this progress is dizzying – we’re overly excited about the concept of a business world made fairer and more exciting with cryptocurrency. But cryptocurrency has a problem that can no longer be overlooked. The high carbon footprint created by Bitcoin looks set to run deep and wide.
Why does Bitcoin consume so much energy?
Studies have estimated that Bitcoin currently consumes an average of 50 Terawatt-hours of electricity per year. To put this into perspective, this amount is more than the whole country of Argentina, with a population of 45 million.
If you’ve ever made a transaction using Bitcoin, you know you only need one click. Then what’s making it use up all this energy? The culprit here is the decentralised mining process.
What is the mining process?
The mining process for Bitcoin involves a peer-to-peer web of computers, often referred to as miners, performing something called a Proof of Work (PoW) consensus mechanism. Proof of Work is a brigade of computers that solve intense cryptographic problems to authenticate blocks of transaction information recorded on the blockchain’s public ledger. A unanimous agreement of all the miners or a “consensus” must reach to confirm this proof. However, the miner who reaches the answer the fastest wins a reward in the form of Bitcoin payment.
How does mining increase the energy consumption for Bitcoin?
It might sound unbelievable now, but in the early days of Bitcoin, it didn’t take this much energy to get the mining process done, which you may also notice in the graph above.
Then what happened?
Bitcoin got popular; that’s what happened. Even though it’s only a blockchain application, Bitcoin got way more popular than its underlying technology.
While this meticulous mining process is one of the most important parts of blockchain development and maintenance for Bitcoin, once Bitcoin got popular, too many people started lining up to be Bitcoin miners in expectation of the reward. Now, all these people are consuming electricity to solve the complex problem, which is getting harder and harder as with the growing Bitcoin market, more people are turning up for the competition. More complex problems also need more complex computers, which drain even more power for each of them. Since only one person can win the race and the ultimate reward, 99% of the energy consumed in the process is wasted.
The latest approach to tackling this issue
Even though this blockchain application got out of hand, the importance of Bitcoin and blockchain technology is undeniable. Honestly, we can go so far as to say that blockchain will completely transform the finance industry very soon, if not already started to do so.
Although the energy issue created by Bitcoin sounds bewildering, we can vouch that this was never the intention of the original inventor, who wanted to provide an alternative to the centralisation of transactions and the huge negative impact of those. Therefore, no matter how big the trouble is, we can safely say there are solutions since the problem isn’t embedded in the proper functioning of the technology. A few modifications to its code and operating system can make big strides in this department.
- Finding a sustainable alternative for energy usage:
While the huge amount of energy being used by Bitcoin is certainly bad for the environment, the good news is that given the popularity of this crypto, this situation is already becoming an incentive for thinking about renewable alternatives to fossil fuels. Startups are coming up left, right, and centre to solve the problem. Nuclear- and hydro-powered electricity are already in use, and some mining companies are even using gas leaks from oil fields and solar-powered machines.
- Government regulations for less carbon emission:
In some countries, the government is creating regulations on how much Carbon a company is allowed to release into the environment, called “Carbon credits”. These credits are tradable, meaning the companies that need to produce more Carbon can purchase credits from others that can function with fewer Carbon emissions. Crypto mining companies that cannot shift to greener energy can buy such Carbon credits from other companies to help maintain the country’s overall Carbon footprint.
- Switching to a more energy-efficient consensus mechanism:
As discussed earlier, the blockchain development community doesn’t want Bitcoin to be banned, so they have come up with a very effective solution. As it turns out, a small tweak to the coding process of the underlying blockchain technology can make a huge difference.
To address the problems of PoW, a new idea called Proof-of-Stake (PoS) has been introduced. Here, a single member of a blockchain can become a transaction validator and acquire the sole decision-making authority for a particular transaction by pledging a portion (or all) of their token holdings to the blocks they consider authentic. If you put in some of your funds as security, you’ll be less inclined to allow fraudulent transactions that depreciate the currency and lose your investment. After introducing a new block to the blockchain, the participant is awarded a specific percentage of the promised assets as a reward. The reward is referred to as the “staking” of crypto assets. There are several types of PoS methods, each of which chooses validators differently and employs its system of regulations to choose who gets to verify the next block and collect the block incentives. In any case, in this system, since only one member is taking up the job of validating the transactions each time, and thus, the workload for blockchain development is getting distributed over the whole network, the energy expense lowers dramatically. Very shortly, Bitcoin’s biggest competitor, Ethereum, is incorporating PoS in its development, and we expect it won’t take long for Bitcoin to follow suit.
No matter the energy expense, there is no doubt that Bitcoin and other blockchain applications like smart contracts are immensely beneficial for the finance industry and many other sectors. Blockchain is a revolutionary technology that can make the operations of almost every industry out there much more time- and cost-efficient, protect against a broad range of cybercriminal activities, and drastically bring down fraudulent and corrupt activities. On the other hand, this excessive amount of energy consumption by Bitcoin harms the profitability of mining companies and the environment. So, by integrating the proposed energy solutions into Bitcoin and blockchain development and rebuilding the system, we will prosper. A clean, carbon-free future will be a bonus side effect.