The latest boom in Bitcoin’s value has renewed controversy surrounding the environmental suitability of Bitcoin and other decentralized cryptocurrencies. Many environmental advocates are rallying against Bitcoin, claiming that high electricity use prohibits any practical use of the currency in the future. With every industry focusing on environmental impact more than ever before, do these concerns spell the end of cryptocurrencies as we know them?
How Does Bitcoin Harm the Environment?
It isn’t immediately obvious how a digital currency can be harmful to the environment. The core of this idea is that Bitcoin uses electricity, a lot of electricity. The Bitcoin network currently consumes 73 terawatt-hours annually. For reference, the country of Australia uses 264 terawatt-hours annually. So why is this happening? How can a digital currency be using a third as much electricity as a major country?
Bitcoin relies on computational power to drive transactions and records. Rather than a centralized ledger in a bank, the cryptocurrency uses a public ledger that is maintained by the network of all Bitcoin users. Transactions are performed and verified by the continued computations of the computers in the network in a long series of operations called a “blockchain.” This removes central control and increases access but requires continuous computations that consume electricity.
Every transaction requires a computer to perform calculations using an algorithm that demonstrates the legitimacy of the transaction. This means that the computer isn’t performing simple addition and subtraction to determine a new balance. It’s going through many complex calculations. This makes Bitcoin fraud unviable, as the verification of a fraudulent transaction would require many nodes performing many calculations.
Electricity Use Compared to Traditional Payment Methods
Bitcoin mining is the practice of verifying transactions in the Bitcoin network by providing computational power and receiving “mined” Bitcoins as a reward. It’s a major industry, as evidenced by the soaring cost of the high-end processors used by professional miners. This is a major undertaking, as this is the process of replacing the traditional structure of a bank or payment processor. These computations replace the tens of thousands of staff that would run such an organization.
While traditional payment processors have similar overall operating costs to the Bitcoin network, they also process more transactions. This means that the cost per transaction is higher for Bitcoin, with electricity being the primary cost. A transaction through Bitcoin uses over 500,000 times the amount of electricity as a transaction through a credit card provider.
This is offset somewhat by the fact that Bitcoin transactions are mostly for large amounts, meaning the cost per exchange of value is much closer. The overall volume of Bitcoin payments is around one-fifth of that of a major credit card company. This means that the cost is still higher for Bitcoin, but not by near as much.
The Future of Bitcoin and the Environment
The current state of Bitcoin isn’t the main issue here. People are looking at the future of the currency to determine if it can be an environmentally sound option in the long run. Many critics of Bitcoin aren’t taking into consideration the larger context of the issue. Computational resources are the only resource necessary for the Bitcoin network. Traditional payment networks require employees, buildings, and more. To compare this arrangement to a currency that uses only electricity isn’t exactly fair. Bitcoin might use a lot of electricity, but that’s all it’s using.
Some developers, rather than lamenting the situation, are trying to produce solutions that will reduce Bitcoin’s power consumption. Some of the most promising prospects include networks that would consolidate and reduce Bitcoin transactions into a smaller number of transactions, requiring less electricity. There is also significant interest in the development of specialized power sources optimized for blockchain use. As is the case in many similar situations, there are always people who try to take advantage of this situation. Such is the case with the Bitcoin Prime app, which is advertised in many websites as as an automated mining software that generates passive income. However, in reality it is noting but a uselss system designed to bait unsuspecting victims.
Is Bitcoin Wasting Power?
Essentially every endeavor uses resources of some kind. The key to environmental responsibility is to make sure the resources are used sustainably. Electricity is used in so many applications. While we believe that electricity use should be reduced, we agree that these uses are valuable enough to justify the expenditure of energy.
The premise that Bitcoin is environmentally harmful rests solely on the presupposition that the electricity being used is wasted, that Bitcoin is providing no legitimate value. This couldn’t be further from the case, as Bitcoin and other cryptocurrencies continue to revolutionize the way we handle finance in the modern world.