If you ever looked into bitcoin mining and used Google as a starting point, there is a reasonable chance you stumbled upon the energy consumption of the Bitcoin network and therefore the energy consumption of bitcoin mining. Bitcoin critics have addressed the topic by comparing the energy consumption of bitcoin to the energy consumption of countries. Vice published an article in March 2016 that illustrated how environmental researchers predicted that Bitcoin, by 2020, could consume as much electricity as Denmark. More recent, similar comparisons are still being made. In July of this year, The Verge published an article comparing Bitcoins energy consumption to the energy usage of Switzerland. A comparison to VISA is also one that is frequently made, arguing that the cost per bitcoin transaction is significantly higher. It is hard to deny that bitcoin mining and therefore the Bitcoin network consumes a substantial amount of energy, but are we making the right comparisons and having the right discussions?
You probably get my point, comparing Bitcoins energy consumption to the energy consumption of countries does not make a whole lot of sense and does not tell us that much. Likewise, the comparison to VISA transactions is one we should make with caution.
In order to make a proper comparison it can be of interest to first consider what Bitcoin aims to replace. The idea behind Bitcoin is not merely to be a digital currency, but also to function as a decentralized network, putting it in contrast to the greatly centralized banking system we use for our fiat currencies. So, a better comparison would be to asses Bitcoins energy consumption in comparison with the energy consumption of our banking system.
The comparison of Bitcoin to well-known traditional payment methods like MasterCard, Visa and PayPal, has been made numerous times. Usually these studies focus on aspects like network size, throughput, volume and capitalization. While some of these studies or articles include energy consumption and provide their estimates, they usually agree upon the fact that the energy consumption of traditional payment systems is hard to estimate.
So, let’s discuss why it is hard to estimate the energy consumption of a traditional payment method and hence difficult to compare such a payment method to the Bitcoin network in terms of energy consumption. Bitcoin is designed to be a full currency system, so technically cannot be compared to let’s say VISA. VISA, like MasterCard and American Express for instance, are payment providers and depend on other parties for their services they provide. Even if we consider all the third parties VISA works with, including VISA itself, we still would not have a full currency system that would represent a valid comparison to Bitcoin.
Needless to say, dealing with all the entities and processes that consume energy, estimating the energy consumption of traditional full currency systems is complex, to say the least. An article from Hackernoon considers three aspects: server costs, branches costs and ATM costs. Interesting to point out is that the article left out quite some operational costs and for instance energy consumption related to employees (imagine if you would consider energy consumption and carbon footprint of employee commutes). Nevertheless, even with a limited scope, the article concludes that traditional banking consumes tree times the energy of the Bitcoin network at the time the article was published.
A sustainable note
There are other things that are in favor of Bitcoin when it comes to energy consumption. The mining community seems a lot more active regarding sustainable solutions. Research shows that the majority of bitcoin mining uses renewable energy sources and, as we mentioned in a previous blog article, miners have found innovative ways to leverage the produced heat to heat up houses and to keep plants warm.
The decentralized development of the Bitcoin network also is expected to focus on sustainability and mining hardware keeps getting more efficient at a rapid pace. Interested in buying a mining rig? Click here to navigate to our webshop.