Bitcoin Network Power Consumption: Myth or Fact?

Bitcoin is a peer-to-peer (P2P) network that brings countless benefits to our world. According to Coinmarketrate.com Bitcoin surpasses traditional networks in many ways – from resistance to censorship, lack of permissions to transparency of transactions. However, not everyone is convinced of the correctness of the underlying technology.

One of the frequently critisized points is the high power consumption of the Proof-of-Work algorithm used for generation of new blocks. Especially at a time when awareness of climate change and CO2 consumption is growing, Bitcoin’s controversial climate footprint is a significant barrier to entry for new companies.

To know the power consumption of Bitcoin, one need to clarify several points regarding the network technology.

BTC is a decentralized network for direct trasfer of value. It uses blockchain technology to prevent the so-called double spending problem. The Proof-of-Work algorithm, underlying the technology, enables to verify transactions without the participation of a third-party authority, and this prevents double spending in conventional systems. Network participants must solve specific cryptographic tasks to verify the authenticity of transactions. Miners achieve this with the help of specialized computers that calculate hashes around the clock. This requires real resources (computing power and energy), which makes it extremely expensive for attackers to take over the network.

As of the end of 2021, about 5 million hardware devices are used to verify transactions on the Bitcoin blockchain. After the ban on mining in China, there was a short-term decline of 30-40%, but the number of mining devices quickly recovered.

As expected, the new computers are more efficient than the old ones, and this creates a race for efficiency. As can be seen from the chart, this leads to an increase in the network efficiency over the years.

Bitcoin network efficiency over the past 2 years in J/TH. Source: CoinShares

In fact, the chart also correlates with the Bitcoin price. When BTC prices rise rapidly, older, less efficient devices that previously became unprofitable due to increased competition in the mining industry can become profitable again, so they are added to the network again. Thus, the Bitcoin blockchain always finds a natural reserve of computing power to maintain the network and protect it against intruders.

Bitcoin Energy Consumption in Numbers

Firstly, the CoinShares report provides specific figures. At the moment, the electricity consumption in Bitcoin is compared with the total electricity consumption in other countries. The average annual rate for the Bitcoin network is 89 terawatt hours (TWh). This is a negligible fraction (about 0.05%) of the global energy consumption.

For ordinary BTC critics, any of its energy consumption is a “waste” but we should not forget about the advantages of Bitcoin network. Millions of people are already using blockchain technology, and Bitcoin has the potential to give countless people in third world countries open access to a fair market. Thus, the energy consumption of Bitcoin should be made dependent on the various qualities of the network.

The BTC energy consumption compared to the global indicator. Source: CoinShares

CO2 emissions

With relatively low energy consumption compared to the rest of the world, it is easy to conclude that CO2 emissions are also relatively low. It is estimated that the CO2 emissions caused by Bitcoin mining amounted to only 36 megatons (Mt) of C02 in 2020 and 41 megatons in 2021. This is equivalent to about 0.08% of annual global emissions.

The BTC foodprint is not that bad compared to the traditional financial sector. According to the report, only the printing of our fiat currencies causes damage in the amount of about 8 Mt annually. And this is without taking into account the huge number of skyscrapers, computer rooms and other CO2 emissions of traditional banks. Meanwhile, the gold industry emits an average of 100 to 145 Mt of CO2.

CoinShares has taken an even more detailed look at these approximately 40 Mt of the Bitcoin CO2 network to identify potential improvements. It quickly became apparent that CO2 emissions could be drastically reduced by a large-scale shift away from coal use. Of all energy resources that currently provide the network, coal provides from 35 to 50% of energy. Other energy suppliers, such as nuclear energy (from 5 to 11%) or renewable energy sources (from 4 to 8%), for example, hydropower, are not so actively used yet.

Bitcoin energy consumption by resources. Source: CoinShares

If this ratio of coal to alternative energy sources were improved, 40 Mt of emissions would also be rapidly reduced. Coal-fired power alone accounts for more than 90% of all CO2 emissions from the BTC mining network in certain moths. According to CoinShares, as soon as a part of coal-fired power is replaced by nuclear and renewable energy sources, the problem of “CO2 emissions” will cease to be relevant. After all, the share is already relatively low.

Bitcoin as an advantage of the future

Back in 2010, soon after the first transaction on the BTC network, the invetor under the Satoshi Nakamoro pseudonym commented on the solution to the problem. This is the same situation as with gold mining. The marginal cost of gold mining is usually close to the price of gold. Gold mining is a “waste” but this waste is much less than the benefit of using gold as a medium of exchange.

“I believe the same is to happen to Bitcoin. The benefit from exchanges provided by BTC will far exceed the cost of electrivity consumption. Therefore, it would be a waste not to have Bitcoin”, said Satoshi Nakamoto, founder of the Bitcoin network

Overall, CoinShares has also concluded that the net benefits of Bitcoin outweigh the disadvantages of electricity consumption. According to her, this whole system is the only way for hundreds of millions of people to gain access to a fair, protected from depreciation and censorship money network in the near future. In order to maintain this, we must be prepared to accept a relatively small amount of additional emissions.