The latest hot topic within the cryptocurrency industry is the topic of Bitcoin’s proof-of-work (PoW) energy consumption, and whether or not the consumption is efficient. The conversation was sparked by a number of articles published during the last year, alongside software engineer Stephen Diehl’s recent critique of the network’s power consumption. Besides the fact that Diehl considers the crypto asset to be “a giant smoldering Chernobyl,” he also said that “bitcoin economics [is] a pyramid-shaped investment scheme backed by the collective delusion that value can [be] created out of nothing by convincing greater fools to buy it after you do.”
Diehl’s criticism toward Bitcoin’s energy consumption is filled with obvious fallacies, but he also doesn’t realize how Satoshi’s cryptocurrency network is more energy-efficient than most think. Diehl and many others, also fail to recognize the cost to maintain today’s banking system, which consists of a great number of terawatts dedicated to servers, branches, and automated teller machines.
Most of the consumption data stemming from the BTC network is derived from the Cambridge Bitcoin Electricity Consumption Index (CBECI). Interestingly enough analysts and mainstream media reporters also reference the digiconomist.net bitcoin energy consumption index as well. Unfortunately, both CBECI and digiconomist.net’s annualized consumption of terawatt per hour (TWh) data has a very large discrepancy.
The digiconomist.net stats show the BTC network captures 77.78 TWh, while CBECI indicates the network is 111.08 TWh. That is a huge variance (44% difference) when attempting to estimate the data consumption of the crypto asset’s network. Yet, these are the most leveraged sources used by bitcoin naysayers who say BTC’s electrical consumption is a ‘waste’ without any shame.
Further, we don’t even know how accurate the CBECI data is because a team member from the Cambridge Centre for Alternative Finance (CCAF) recently explained to news.Bitcoin.com that the CBECI map is not up-to-date and will be updated in 2021. This has led to numerous reports stating that China captures 65% of the Bitcoin mining hashrate, which may be entirely inaccurate. In July 2020, a hashrate report written by Bitooda said China was steadily losing its concentration of bitcoin hashpower and the country dropped to 50%.
It is far more likely, that CBECI’s theoretical lower bound estimate for the BTC network’s energy consumption is more accurate. This theoretical lower bound estimate is around 4.6 gigawatts or 39.3 TWh annualized on January 19, 2021. Moreover, there are countless rebuttals and data points that show people complaining about Bitcoin’s energy consumption are overreacting.
Studies Show Over 75% of Cryptocurrency Miners Leverage Renewable Energy Sources
For instance, the anti-bitcoin environmentalists do not weigh the fact that much of the PoW mining industry uses renewable energy sources like hydropower, wind, solar, and geothermal energy. There are a number of reports that show over 70% of crypto miners use a mix of renewable energy to power facilities across the world. There is also abundant efforts dedicated to energy cogeneration as well.
The 2020 third Global Cryptoasset Benchmarking Study by the University of Cambridge also indicates that 76% of digital currency miners use renewable power sources. Backing up this data is a report from Deutsche Bank Research, the Chinese National Energy Agency, Morgan Stanley, and Coinshares. The report from these four organizations highlights that “78% of Bitcoin’s electricity usage is from renewables.” There are countless reminders and real-world examples of bitcoin miners using a far more efficient means of electric use than all of the financial systems on the planet. Two years ago, Bill Tai, an investor and board director of Bitfury, detailed that Satoshi is smiling because of the green energy use bitcoin miners use today.
“It’s been clear to me for years now, that mining of Bitcoin and other ‘proof-of-work’ based cryptocurrencies are driving positive change in the underlying infrastructure of energy production — at an accelerating rate,” Tai explained at the time. The investor is also the chairman of Hut8’s board and he said the company has a “policy to ‘be green’ as we build.” Tai detailed that the most efficient sources of electrical power are not fossil fuel-based in order to scale, but the marginal costs of water, solar, and wind-based energy.
Delivery Trucks, Servers, Branches, ATMs, and the Insurmountable Cost of the Modern Banking System
Then ultimately there’s the cost of the modern banking system, something that bitcoin naysayers never account for when they criticize the crypto’s energy consumption. There is a great number of articles and statistics that indicate the current banking system uses well over 140 TWh a year. In one study, Katrina Kelly-Pitou, a researcher who “studies clean energy technology, specifically the transition toward decarbonized energy systems” says the energy conversation surrounding bitcoin is “oversimplified.”