Bitcoin’s Energy Consumption

It’s estimated Bitcoin consumes ~110 TWh (Terawatt Hours) per year. To put that in perspective, it’s about 0.55% of global electricity production, or roughly the same amount as small countries like Malaysia or Sweden. This was paraphrased from Nic Carter’s How Much Energy Does Bitcoin Actually Consume.

If you recall from Bitcoin’s Intrinsic Value, Bitcoin’s energy spend is akin to a defense budget. Proof-of-work, or Bitcoin’s blockchain consensus mechanism, is based on using significant energy in order to deter malicious attacks and spam. I highly recommend watching this two-minute video.

Bitcoin is a global, autonomous, reliable, verifiable, and secure network that transmits value rapidly without anyone’s permission. I would argue something like this is worth paying for. Regardless, Bitcoin’s energy consumption is not as bad as it sounds. 

Here are a few things to keep in mind: 

  • Bitcoin can be mined anywhere in the world
  • Bitcoin can be mined anytime as the network runs 24/7
  • Electricity transmission is inefficient beyond ~300 miles
  • Every grid, in theory, should produce more energy than it consumes so it’s prepared for peak demand 

Cheap electricity provides Bitcoin miners an advantage in mining new bitcoins. Stranded or otherwise wasted electricity tends to be the least expensive. As a result, Bitcoin mining energy skews renewable. This report suggests carbon neutral sources may account for up to 73% of Bitcoin’s energy mix. 

Bitcoin miners do not compete for energy with most industries that run on fixed schedules, in certain geographies. Bitcoin miners fill in the cracks, so to speak. 

Part of the reason China is known for Bitcoin mining is China’s overinvestment in hydropower plants that are too far from meaningful populations to consume all the energy. Coupled with China’s heavy monsoon season, they have a lot of would-be wasted energy that they sold at exceptionally low rates. 

Of course, this is changing as unsurprisingly, The world’s foremost totalitarian regime isn’t a proponent of the separation of money and state. 

Hydro-electric overcapacity used to mine Bitcoin also takes place at scale in New York. Bitcoin mining via oil flaring is another example of using otherwise wasted energy to verify the Bitcoin network. 

What about Proof-of-Stake? 

A common argument against Bitcoin, in favor of many alt-coins, is that Proof-of-Stake consensus mechanisms are more energy efficient. This is undoubtedly true.

As an example, Ethereum is currently transitioning to Proof-of-Stake from Proof-of-Work. Ethereum’s energy usage is expected to drop 99.95% from 44.5 TWh (~40% of Bitcoin), to 2.62 MWh Hours. The trade-off for less energy consumption is less decentralization and less security. 

Proof-of-Stake relies on trusted members to stake their large sums of crypto (32 for Ethereum) to validate the network. While there are incentives for good behaviors among validators, there aren’t the same disincentives for bad behaviors, i.e. tens of billions of dollars in computers, electricity, and the embarrassment of failing publicly. 

Relying on a well-endowed few to secure the network is a bit like the central bank system. Sure, most people are very well intentioned, but the system’s centralization makes it vulnerable to self-dealing and corruption.  

Frankly, these vulnerabilities are not a big deal for most crypto projects. It’s like saying Facebook is vulnerable to letting Zuck make unilateral decisions. Perhaps that’s why people invest in the first place. Centralization is not necessarily a bad thing, but it’s different from Bitcoin.

Bitcoin’s distributed nature, immutability, and reliable enforcement of 21 million bitcoins is what gives it a non-zero chance of disrupting central banks and antiquated global payments systems. Bitcoin is a monetary revolution, while alt-coins are a technological revolution. 


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