29.11.2017 21:36 GMT+1

Bitcoin mining and energy consumption: is it worth it?

In attempts to foster a much healthier environment, spirited efforts have been seen in multiple countries is the pursuit of eco-friendly energy sources. Well, bitcoin mining appears to be getting in the way of these efforts, or is it?nbsp;

Technically, bitcoin mining is a critical function for bitcoin considering that it is the process through which transactions are verified on the bitcoin blockchain. Moreover, it is through mining that more bitcoins are generated and this is expected to go on until the cap of 21million bitcoin supply is reached. Unfortunately, the electricity consumed through bitcoin mining is virtually unparalleled. In fact, one of the barriers to engaging in bitcoin mining is the high electricity cost that comes with it. 

Just how much energy is consumed through mining?

So far, the year 2017 has been both exciting and worrying for bitcoin. Exciting because the value of bitcoin has soared to new highs and worrying because the level of energy consumption through bitcoin mining has skyrocketed as well. Research conducted by PowerComparte, a UK based company that specializes in energy tariff services indicated that energy consumed through bitcoin mining in 2017 has surpassed the annual energy consumption of 159 countries. Additionally, the energy consumed through bitcoin mining is estimated to be about 30.14TWh per year. Notably, this consumption is way higher than that of Ireland which levels at 25TWh.

According to the Dutch bank ING, the energy consumed by one bitcoin transactions can power an average household for a whole month. Essentially, if this level of energy consumption was only affiliated with bitcoin, it’s likely that other cryptocurrencies would be preferred over it. However, ethereum, which is the second most popular blockchain does consume energy higher than most countries as well.

Further comparison indicates that bitcoin mining consumes five times more electricity than the largest wind farm in Europe. Wind farms are basically lands set aside to have turbines erected or energy generation. Notably, the targets wind farm in Europe produces about 630MW. The power consumed by one bitcoin transaction as has been indicated above is quite immense and the electricity consumed by the entire network is quite worrisome. Notably, while it is not very e4asy to isolate the energy consumed by other conventional payment networks, one of the Visas data centers in the US reportedly requires only about 2% of the energy required by bitcoin. Further, these data centers accommodate about 200 million transactions on a daily basis while bitcoin allows for transactions that are less than 350, 000.

Mass adoption and bitcoin mining

Bitcoin mining involves the computation of complex cryptographic puzzles, the successful solving of which makes the miner eligible for a reward in bitcoin. Rewarding the miners is paramount given considering that they are the support system for the bitcoin network. Without the miners, the bitcoin network is essentially flawed since there would be no way to verify the transactions carried out. Unfortunately, as we draw closer to the 21 million cap of bitcoin supply, the puzzles requiring solving through mining become more difficult. The increased difficulty consequently demands more electricity for it to be solved. Just to mention, the supply of bitcoins at the moment is just above 16 million and the maximum supply is expected to be reached in the year 2140.

the multitude of bitcoin miners has necessitated the use of gaming graphics cards or application-specific integrated circuits (ASICS). Notably, this two hardware consume large amounts of energy. As mentioned at the beginning of this article, most countries are focused on exploiting new sources of energy for the purpose of environmental conservation. Presently, most of the electricity is generated from greenhouses which produce hazardous gases and fossil fuels which are not very friendly to the environment. Notably, greenhouse gases contribute significantly to the global warming being experienced globally. Thus, the exorbitant energy consumption by cryptocurrency mining makes it's an environmental hazard.

Currently, less than half the world’s population is using bitcoin. Besides being hazardous to the environment, the high levels of electricity consumption stand in the way of mass adoption of bitcoin. A good amount of research has been conducted on the subject of bitcoin mining and electricity consumption for various reasons. A research conducted in 2014 courtesy of the Hamilton Institute at the national university of Ireland indicated that the cost of mining hardware and electricity exceeds the reward offered. Despite these findings, more and more people and spending a whole lot of money to get involved in mining. The question, therefore, is why are they taking this risk despite these findings? The answer to this question probably lies in the predictions being made regarding bitcoin. Currently, the price of one bitcoin is close to hitting the $10,000 mark and it is projected to go as high as $1million in the future. Thus, miners could be counting on this increase in value to recoup their monies through the increase in the value of bitcoins garnered as a reward from mining.

The race into bitcoin mining is like the gold rush which has caused people to focus on their needs and disregarding those of others. For instance, owing to the high energy requirement for mining, some people have created malware which they use to draw computational power from other peoples’ computers. Others who are forward thinking and considerate have suggested resulting to farming for bitcoin and other cryptocurrencies using a verification model that revolves around proof of time as opposed to the energy-intensive scheme of proof of work used by bitcoin.

At this point, bitcoin and other cryptocurrencies are very fundamental to the economies which means getting rid of them is virtually impossible. The next best solution is seeking alternative models that will draw less energy as compared to the models currently in use. Ethereum, for instance, is looking to adopt proof of stake model in 2018 which more effective and efficient than proof of work protocol. Creative lab at Samsung, on the other hand, is looking to turn old smartphone into crypto mining rigs.

Precisely, it is paramount that energy use through cryptocurrency mining is made more environmentally friendly for the benefit of the environment and blockchain technology itself.

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