Bitcoin Energy Requirements Climbing

(29 April 2021) The volume of electricity consumed by bitcoin mining continues to grow globally, approaching the levels of energy consumption of some of the world's larger economies and bringing the environmental sustainability of the cryptocurrency into question. Tesla, which bought $1.5 billion worth of bitcoin in January, causing the price to surge to more than $55,000, became a target of bitcoin critics who say the step undermines the car company's environmental image.

• According to Digiconomist, a platform dedicated to exposing unintended consequences of digital trends, one bitcoin transaction required 427 kWh of electricity in 2019, which could power an average home for more than two months or run 200 average cycles of a washing machine. By 2021, consumption had increased 2.5 times, reaching 1066 kWh per transaction. Digiconomist estimates that the whole bitcoin network currently consumes around 102 terawatt-hours (TWh) per year — roughly the equivalent of the annual electricity generation of Kazakhstan in 2019 (the latest year for which data is available).
• Cambridge University's Centre for Alternative Finance gives an even higher estimate, calculating that the bitcoin network is currently consuming energy at levels that could equate to up to 144 TWh of electricity annually. This level of consumption exceeds the 2019 power needs of countries like the Netherlands (111 TWh), Norway (124 TWh), and Sweden (132 TWh). By this estimate, if bitcoin were a country, it would be on the list of the world's 30 most energy-consuming nations.
• Cambridge also finds most bitcoin mining takes place in China, where 67% of energy generation is based on fossil fuels — primarily coal.
• The large power requirement for digital currency mining is deliberate, designed to increase the cost of fraudulent transactions and deter misuse of the currency.

But what is mining, why is it done, and why are the power requirements escalating?

• Unlike fiat currencies issued by governments, bitcoin “currency” is issued based on “miners” using specialized computers and software to solve mathematical problems and earn bitcoins in exchange. In addition, its supply — like mined minerals, such as gold — is finite: 21 million is the maximum bitcoins that will ever exist, according to the anonymous bitcoin founder known as Satoshi Nakamoto.
• Bitcoins are mined by generating “blocks,” or transactions, and verifying the transactions using energy-intensive algorithms. Miners need to find the correct hash every time they want to add a new block into the blockchain. The miner who finds the solution first earns the new bitcoin. The probability of solving a problem is designed to be the same for each participant and is directly proportional to the power of the miner's computer.
• The resulting competition among miners leads to continually increasing productivity requirements for their computing systems, driving up per-transaction power requirements.