If there is one thing absolutely certain about Bitcoin, at this point, it’s that it seems to be rather fragile.
Fragile in its existence and definitely fragile in its worth.
And that has led some experts to believe that Bitcoin may inherently be unsustainable for a variety of factors.
There is no doubt about the fact that digital currency has really taken off in the last couple of years.
The cryptocurrency market looks more energized than ever.
It has also become more efficient in the sense that more and more people are able to engage in Bitcoin transactions without much technical know-how.
But what about the actual numbers?
Bitcoin might not be centrally controlled (which is a great thing for some) but how does it impact the world around us?
As of this moment in time, Bitcoin transactions take about a thousand times more energy/electricity than a transaction made through a credit card.
Don’t ask “where did this come from”.
If you swipe your credit card a thousand times, that still would not make up for the electricity requirement of just one Bitcoin transaction.
Despite all of that, Bitcoin continues to enjoy much spotlight.
These days anything that has “digital” and “artificial intelligence” attached to it gets to have more than its fair share of media attention.
And here Bitcoin is no different.
One also should not ignore the fact that Bitcoin has made news for some not so positive reasons.
Most of the time, Bitcoin makes the news because of crazy price fluctuations.
Or it makes the news because of some central bank meetings.
Everybody knows that Bitcoin is decentralized.
And because of that, it is difficult to gauge how the market will react to any event or an issue.
Take for example the current trading situation.
Bitcoin is currently selling for an all-time high price of about $1200 per unit.
Of course, not all Bitcoin exchanges will offer you this price.
But there are some that will.
And Here Lies The Actual Bitcoin Problem
Just because the price of one unit of Bitcoin has gone up, does this mean all is well and good?
Or is there something else going on?
That doesn’t change the fact that as Bitcoin reaches higher and higher prices, it reveals more and more of its dark side.
In fact, the high prices almost always exacerbate the flaws in Bitcoin according to some.
The flaws in question are related to electricity consumption.
As you have it, the world doesn’t produce unlimited amounts of electricity.
In fact as far as Africa and there third-world countries in Asia are concerned, electricity is in rather short supply.
Whole economies have come to a halt from previous states of growth because of the shortage of electricity.
Bitcoin doesn’t care about any of that.
To say the least, Bitcoin consumes electricity at a shockingly high level.
As we have mentioned before in the post, this amount of electricity consumption can never be termed sustainable.
Did Bitcoin Always Have This Problem?
But it wasn’t until recently that some writers (like those on Motherboard) started to point out this problem with Bitcoin.
By now you should understand that Bitcoin is a bit of a problem when it comes to sustainability.
How much electricity are we talking about here?
Without going into numbers, understand this.
In the year 2015, each Bitcoin transaction consumed enough electricity that would power 1.5 American households for a duration of about twenty-four hours.
Not quite impressive right?
There is more.
That electricity, coincidentally, is approximately about five thousand times more in magnitude when compared to a credit card-based transaction.
That’s how intensive Bitcoin really is when it comes to consuming a large amount of electricity.
But that was back in 2015.
The situation surely must have changed now?
After all, two years in the internet world is equal to like a decade in the real world.
But two years does give experts enough time.
Enough time for another review on how much electricity Bitcoin chews up.
Do We Have Some Numbers On Bitcoin Electricity Consumption?
So why do some experts think that Bitcoin consumes a lot of electricity especially when compared to other methods of payments such as a credit card?
There are a couple of reasons.
Before we move on to those reasons, let’s just put out a caveat.
There is no practical way to precisely calculate the amount of electricity a Bitcoin transaction eats up.
Nobody precisely knows how much (or how less) electricity any given Bitcoin transaction gobbles up.
So if we don’t know how much energy each Bitcoin devours, how do we make the claim that we make in this post?
Rather not complicated at all.
Estimating the energy consumption of a Bitcoin transaction should be simple enough.
At least it is simple enough when you don’t want an exact answer but are willing to settle for a plausible range.
Just to be clear here, now we’ll start to refer Bitcoin as Bitcoin mining.
Because it is actually Bitcoin mining that eats up a lot of electricity.
It is because of Bitcoin mining that Bitcoin transactions are secured on the blockchain.
Think of blockchain as a big book.
A big book of all completed Bitcoin transactions.
And since the process is mysterious to most online users, it is worth taking a look into.
Of course, if someone wants to estimate the electricity cost per Bitcoin transaction then it should be comparative in nature.
How do we compare then?
More like, to what we should compare the electricity consumption of a typical Bitcoin transaction.l
Bitcoin Transactions’ Electricity Consumption Should Be Compared To Existing Payment Methods
Or payment systems in other words.
That way it becomes easier to represent concepts such as value-of-electricity.
There are other ways to make this analysis more tangible but we’ll stick with this one for the moment.
It’s a great idea to know the total amount of electricity that Bitcoin mining consumes.
And perhaps there is already a number for that (maybe X).
But how does that help us?
It is better if we discuss the number of Bitcoin transactions behind all that electricity consumption.
Only this way, we’ll know for sure the cost of each Bitcoin transaction.
And in that regard, we can confidently say that even the most optimistic of calculation give results which most of us should have expected in the first place.
Bitcoin transaction, even with the updated calculations, consumes about ninety percent of an American households electricity consumption for a period of twenty-four hours.
Mind you, we’re talking about each Bitcoin transaction.
As you can see, updated calculation or no updated calculations, Bitcoin transactions eat a lot of electricity.
And most of these calculations are performed using best-case hypothetical situations.
That still isn’t enough for any given Bitcoin transaction to devour 3995 times more energy than a credit card transaction.
Things Should Be Getting Better Instead Of Worse
And to be honest, they are getting better as far as electricity consumption is concerned.
But the figures are still not quite there yet.
In fact, they are far from “quite there” yet.
If we look at the situation from a different perspective, then Bitcoin transactions have gotten worse with their efficiency.
Take a look at this new index.
This basically shows the energy costs related to each Bitcoin transaction.
As you can probably see for yourself, the cost per transaction is currently 94 kWh.
Of course, this is the higher figure.
Let’s roll with that for a bit.
Did you know how big that 94 kWh figure is?
Time for an analogy then.
94 kWh is enough electricity. Enough electricity to hold more than three American households for a period of twenty-four hours.
Let’s put that in another way since we want to “really” show how expensive Bitcoin transactions as in terms of electricity consumption.
Take a car.
Better, let’s take an electric car.
Even better, let’s choose the Tesla Model S P100D car.
Did you know that the 94 kWh figure is big enough to fully charge Tesla Model S P100D battery?
Now Tesla Model S P100D, as you might already know, is no slouch when it comes to cars.
It is, in fact, the world’s fastest production car.
With a full charge (the highest energy it takes for a Bitcoin transaction) you can drive that Tesla for over three hundred miles.
We just said (or wrote) three hundred miles.
Bitcoin Transaction Equals 300 Tesla Miles? You Have Got To Be Kidding?
Before we answer that question, it is important to understand a couple of concepts.
One of them is context.
The other is to know how Bitcoin mining actually works.
Only then you can understand how is it possible that a single Bitcoin transaction can wolf down so much electricity.
Surely we’re not joking, right?
So let’s get into it.
The first thing you should know is that all Bitcoin transactions are secured.
They are secured by things called computers.
More specifically, mingers.
These computer miners basically compete with each other in a sense.
For what you may ask?
For a reward in the form of brand-new bitcoins.
Who rewards these rewards?
Of course, the Bitcoin network.
This phenomenon is more commonly called the block reward.
And it works like this.
If you have a powerful computer, you have better chances of securing the block reward.
In the Bitcoin mining world, more power gets you more chances of winning the reward.
So what’s the rational thing to do here if you believe in capitalism?
The obvious choice is to add more raw power to your computer machine whenever your budget permits.
You can keep on doing that as long as your costs are lower that the Bitcoin reward.
In order for this model to be sustainable, you have to offset the costs of additional power and capital with the Bitcoin sale price.
So Where Does That Leave Us?
Basically, these conditions give rise to the following general rule.
It is more economical to keep on mining whenever the price of Bitcoin goes up.
The actual efficiency of your computing equipment does not matter.
By this general rule, logically speaking, the energy consumption will always go up whenever the price of Bitcoin goes up to sufficient degree.
Factors that make this bizarre situation less damaging should be ignored.
Because they aren’t worth it.
But to be fair to the Bitcoin community, we have to talk about the other side of this situation as well.
That side is the Bitcoin network’s side.
See, the Bitcoin network, in order to guard against more people using their machines to get bonus Bitcoins, regularly go through a process where they increase the difficulty of Bitcoin mining.
This is done purely to account for the ever increasing Bitcoin mining capacity.
So where does that leave us?
That leave everyone involved in the Bitcoin industry in an arms race.
Miners, in order to stay relevant, have to add more computing power, mining chips, to their hardware (to perform more operations) in order to compete with other Bitcoin miners.
And for what?
For a limited amount of Bitcoin rewards.
And it is also a fact that Bitcoin miners have continuously become more efficient at doing what they do.
Now they have more computation power and can perform more operations for less electricity.
So What’s The Problem Then?
The problem is this paper.
This paper is from Adam Hayes who works at the New School.
And it says that the mechanism tends to counteract the inward tendency that is caused by increasing energy efficiency of the mining equipment.
As mentioned before, the fact that Bitcoin mining equipment is improving doesn’t do anyone any good.
Because Bitcoin’s core code does the opposite.
It incentivises Bitcoin miners to continuously add more Bitcoin mining power.
And that requires more energy.
More energy means more electricity.
Now you understand the context.
This is also a good time to search and find a rough baseline estimate for the amount of energy Bitcoin consumes for every transaction.
To do that, we will need some data points.
Basic ones so that everyone understands what we’re trying to do here.
We know that Bitcoin can currently manage a theoretical maximum of seven Bitcoin transactions per second.
That is, of course, only valid for its present implementation.
As of March 1, the average of the daily number of Bitcoin transactions was estimated to be 302,150.
That is according to blockchain.info.
To Be Continued
We’ve just covered the first basic data point.
We’re going to have to discuss three more before we can finally analyze and calculate the amount of energy consumption on part of each Bitcoin transaction.
So stay tuned and subscribe to securitygladiators.com
2 thoughts on “Bitcoin Sustainability: We’re Not There Yet”
Hmmm, the world payments report says that the total number of Worldwide Non-Cash Transactions for North America, Europe, Mature APAC, Latin America, Emerging Asia and CEMEA in 2017 was 522.4 billion. If we divide the yearly TX number by 365 days (522.4/365), then we get approx 1.4 billion TX per day. If we do all of the TX in bitcoin then we need 94kWh * 1.4 million which is 131.6 TWh; This value is twice as much as the global electricity production (2016: 23,816 TWh according to IEA; so 23816/365 ~ 65.2 TWh).
Thanks for the comment Gaboo.
Wow, that’s some serious math right there.
The situation with Bitcoin consuming so much electricity isn’t something that people involved in the community are interested in solving.
So it’s anyone’s guess how this would affect the widespread adoption rate of cryptocurrency payments such as Bitcoin.