It will surprise you to know who uses the most energy
Of CNBCTV18.com IST (published)
Recent studies have found that while Bitcoin has huge environmental implications, the traditional banking sector and gold mining are giving the digital currency a run for its money. In fact, the former is said to consume at least double the energy annually
Over the past few years, proof-of-work (PoW) cryptocurrencies like Bitcoin have taken significant flak from governments and environmentalists. These networks are considered to be very power intensive and are said to leave a massive carbon footprint.
This is because the mining process of Bitcoin and other PoW blockchains requires enormous computational power, resulting in high energy consumption. That is why China decided to ban Bitcoin mining last May. Following the lawsuit, New York also issued restrictions on mining operations that use carbon-based power sources.
However, recent studies have found that while Bitcoin has huge environmental implications, the traditional banking sector and gold mining are giving the digital currency a run for its money. In fact, the former is said to consume at least double the energy annually. Surprised? Join us to find out more.
How Much Energy Does Bitcoin Use?
According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), BTC consumes electricity at an annual rate of 120 terawatt-hours (TWh). That is more than enough electricity to power the country of Norway for an entire year, according to Forbes. This figure also translates into 707 kilowatt-hours (kWh) of electricity per transaction.
What about the traditional banking system?
While Bitcoin’s energy consumption is certainly alarming, it is nowhere near that of the traditional banking system. Michel Khazzaka, an IT engineer and cryptographer, published a research report in June stating that Bitcoin transactions are a “million times more efficient” than the legacy financial system.
According to his report, the electricity consumption of the traditional banking sector is a whopping 4,981 TWh, more than 50 times more energy than Bitcoin. Khazzaka arrived at this number after taking into account the creation and transportation of money, along with the energy use of physical banking infrastructure, such as banks, ATMs, computer servers, etc.
However, Khazzaka intentionally does not consider the energy used to produce and transport materials required to build the physical infrastructure of the traditional banking system. He states that his “numbers are understated for banking and extremely accurate for Bitcoin.”
A 2021 study by Galaxy Digital produced similar findings. It stated that Bitcoin consumed 113.89 terawatt hours (TWh) per year, while the banking sector consumed 263.72 TWh per year. Although there is a clear difference between the reports from Khazzaka and Galaxy Digital, it is clear that Bitcoin uses much less energy than its traditional counterpart.
And gold?
According to CBECI, the annual electricity consumption for gold mining is 131 TWh of electricity per year. That’s 10 percent more than Bitcoin’s 120 TWh. This further builds the case for Bitcoin as an emerging digital gold. Moreover, Michel Khazzaka believes that CBECI’s calculations are a bit excessive.
Taking into account the average lifetime of Bitcoin mining machines and the speed at which new IT materials are created, Khazzaka puts Bitcoin’s energy consumption at 88.95 TWh per year. And if we refer to Galaxy Digital’s findings, gold mining consumes 240.61 TWh per year. This is a significant difference from Cambridge’s estimate and further widens the gap between BTC, gold and the traditional banking sector.
Bitcoin is getting better
Faced with criticism from lawmakers and environmentalists, the Bitcoin mining industry has quickly begun to transition to sustainable energy solutions. Solar and wind energy is fast becoming the best option for crypto miners. These energy sources help mining companies go off the grid and significantly reduce operating costs. Not to mention, they also significantly reduce the environmental impact of the mining industry.
Moreover, these efforts are beginning to pay dividends. Last month, the Bitcoin Mining Council published a report stating that 59 percent of the global mining industry now uses sustainable energy sources. In addition, the efficiency of the mining industry is also improved, which leads to less energy consumption per transaction. An article by Forbes states that Bitcoin’s power consumption has fallen by 25 percent in the past year, while its hash rate has increased by 23 percent. This shows an increase in efficiency of 63 per cent from the previous year.
Conclusion
Certainly, Bitcoin and other proof-of-work cryptocurrencies have a clear problem with power consumption. However, much is being done to remedy this problem and ensure that these digital assets are environmentally friendly. If the traditional banking sector and the gold mining industry do not follow suit, it will advance Bitcoin’s case as a future currency of the world.
