Europe has been in an energy crisis for several months. Some people are calling for a ban on the energy-intensive Proof of Work-based Bitcoin mining. Finally, the question arises: Isn’t free market distribution the most efficient for all energy-intensive use cases?
Since its inception, the energy consumption of Bitcoin has been a hotly debated topic. Critics specifically point to the electricity consumption required to run proof-of-work mining, which provides the Bitcoin network with the necessary security. A single transaction consumes the same amount of energy as a household does in a month and a half. Is it possible to solve the current energy crisis with a simple bitcoin ban?
What causes Bitcoin’s Power Consumption?
Some details about the network’s technology must be clarified in order to appreciate bitcoin’s energy consumption. Bitcoin is a decentralized network that allows for the immediate transfer of value. It employs blockchain technology to avoid the so-called double spending issue. The underlying Proof of Work algorithm enables transaction verification without the use of a third party, making it impossible to spend the same stock twice in traditional systems.
How much energy does the network really need?
The number of Bitcoin network transactions has no significant relationship with electricity consumption. The majority of the energy is used to secure the blockchain or to mine. The vast majority of bitcoin’s power consumption is due to the “mining” of new coins; the energy required for transaction validation is negligible.
This can also be empirically verified. We are at a similar level to six years ago because the number of Bitcoin transactions is determined by the size and time interval between individual blocks. When compared to network power consumption, a direct correlation to network hash rate (rather than individual transactions) emerges. Comparing a transaction to the average Swiss household is therefore absurd.
Bitcoin as future profit
The pseudonymous inventor Satoshi Nakamoto commented on the solution to the problem as early as 2010, shortly after the first transaction on the Bitcoin network. The situation is similar to that of gold and gold mining. The marginal cost of gold mining is typically close to the gold price. While gold mining is a waste, the benefit of having gold as a medium of exchange appears to outweigh the “waste.”
This will also be true of Bitcoin. The advantages of Bitcoin-enabled exchanges will far outweigh the cost of electricity consumption. As a result, not having Bitcoin would be a waste of time. When applied to Bitcoin, the net benefits of a global, permissionless network outweigh the drawbacks of power consumption.
While cryptocurrencies are primarily used for speculation in Western Europe, the system is the only way for hundreds of millions of people to gain access to a fair, devaluation-protected, and censorship-resistant monetary network in the near future. To do so in the future, we must be willing to accept a relatively small proportion of additional emissions.