Here’s how energy-intensive Bitcoin’s Proof of Work consensus mechanism is and what’s being done to offset it.
Key Takeaways
- Bitcoin’s energy consumption is a pressing issue, with annual estimates ranging from 91 to 150 terawatt-hours, primarily due to its complex Proof of Work mining process.
- Comparatively, Bitcoin’s electricity consumption per transaction is significantly higher than that of Visa and Proof of Stake networks.
- Despite the environmental concerns, Bitcoin’s fundamental Proof of Work mechanism is unlikely to change, as it contributes to its scarcity and network resilience.
- Efforts to reduce Bitcoin’s carbon footprint include a growing use of renewable energy sources, accounting for over 50% of mining, and carbon offsetting methods like carbon credits and sequestration.
- As the cryptocurrency industry becomes more environmentally conscious, green crypto projects and initiatives are emerging to address the environmental impact of blockchain technologies.
How Much Energy Does Bitcoin Consume?
Bitcoin requires a significant amount of energy, estimated to consume about 91 terawatt-hours (TWh) of electricity annually, which is more than Finland uses. Another estimate suggests that Bitcoin currently consumes around 150 TWh of electricity annually.
According to the Cambridge Centre for Alternative Finance, Bitcoin consumes around 87 TWh per year (at the time of writing). The energy consumption of Bitcoin mining is a result of the complex process involved in creating cryptocurrencies, which requires specialised machines and a significant amount of computational power.
Electricity Consumption per Transaction
The chart below presents the comparison of the electricity consumption per transaction between Bitcoin, Ethereum, multiple Proof of Stake (PoS) networks, and Visa. It should be noted that this may not be a perfect comparison (e.g., Bitcoin’s energy consumption is not determined by transaction volume, unlike Visa); however, we include it here nonetheless for completeness.
From the chart, electricity consumption per transaction of a PoS network is nearer to that of Visa, whereas Bitcoin and Ethereum Classic have much higher electricity consumption.
Why Is Bitcoin So Energy-Intensive?
Bitcoin’s energy-intensive Proof of Work (PoW) process involves solving complex mathematical problems to validate transactions and add them to the blockchain. This requires a significant amount of computational power, which in turn requires a substantial amount of electricity. Additionally, the decentralised nature of Bitcoin mining means that multiple miners compete to solve these problems, leading to higher energy consumption. As more miners join the network and the difficulty of the problems increases, the energy consumption of Bitcoin also increases.
Learn more about the Proof of Work consensus mechanism and Bitcoin mining.
Bitcoin was the first successful cryptocurrency, and PoW was one of the first types of consensus mechanisms, but many less energy-intensive consensus mechanisms have been developed since then. Ethereum, the second-largest cryptocurrency by market capitalisation, made the switch from PoW to the more environmentally friendly PoS in 2022 (the old PoW mining network lives on as Ethereum Classic).
Many other early cryptocurrencies like Solana were also conceived on the premise of creating a cryptocurrency that consumes less energy than Bitcoin. Does that mean Bitcoin will eventually also change its consensus mechanism to a less energy-intensive one? Unlikely, as PoW is hard-coded into Bitcoin’s blockchain, and mining is a fundamental part of much of what makes Bitcoin unique.
Mining ensures that Bitcoin remains a scarce commodity, making it more valuable than an inflationary one. And its complex consensus mechanism also makes the network more resilient against attacks.
Can Bitcoin’s Energy Consumption Be Reduced?
While Bitcoin’s energy consumption cannot be reduced as long as it runs on PoW, the energy can be 1) sourced from sustainable sources, and 2) offset.
Ways to Reduce Bitcoin’s Carbon Footprint
Almost 50% of Bitcoin mining already uses renewable energy, according to research by ESG analyst and investor Daniel Batten.
Bitcoin and Renewable Energy
According to the ESG study, 23.12% of all Bitcoin miners use hydropower to run their setups.
Wind energy generates 13.98% of the power needed for Bitcoin mining, while nuclear/nonrenewable and solar account for 7.94% and 4.98%, respectively. A side note that the grouping of nuclear into clean energies is debated. Other renewable energy sources account for about 2.40% of Bitcoin mining.
This adds up to 52.4% of all Bitcoin mining relying on renewable energy for its power needs, and the trend is expected to continue growing in the coming years as traditional energy sources become more expensive and less attractive.
Offsetting Bitcoin’s Energy Consumption
The other option to make Bitcoin greener is carbon offsetting.
Fossil fuels — burning oil or coal to create energy — come with massive carbon emissions. In other words, burning them blows large amounts of CO2 into the atmosphere, which impacts air quality and our climate. They are the main culprit behind the climate change discussion and why the world as a whole is trying to reduce their energy consumption.
In other words, what’s bad about generating and consuming electricity is the carbon it emits and its effects on our planet. The most common methods of going greener include carbon credits and offsets like carbon sequestration (i.e., capturing the carbon through planting trees). Here’s the difference between carbon credits and offsets:
Carbon credit
An allowance given to one company or country for a certain amount of CO2 emissions. Typically, one carbon credit is equivalent to the permission to emit one ton (or metric ton, mt) of CO2.
Carbon offset
A measurable and verifiable reduction in the emission of carbon, or an increase in carbon storage (e.g., land restoration, tree planting), which are mainly used to compensate for emissions occurring elsewhere.
The crypto industry is aware of its poor environmental image, and green crypto projects, including tokenised carbon credits, have been emerging as a result. While there isn’t enough data on how much carbon from Bitcoin mining is offset, more about the options and their positive impact on the environment are found in this report.
Conclusion
Bitcoin’s energy consumption remains a concern, with estimates suggesting it consumes around 87 TWh annually. The energy-intensive nature of Bitcoin mining is due to its complex Proof of Work (PoW) process, requiring substantial computational power. While some cryptocurrencies have transitioned to greener consensus mechanisms, it’s unlikely that Bitcoin will change its fundamental PoW system.
To mitigate its carbon footprint, Bitcoin relies on renewable energy sources, with over 50% of mining already using renewables, and carbon offsetting methods, such as carbon credits and carbon sequestration. These efforts aim to address Bitcoin’s environmental impact and contribute to a more sustainable future.
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