Why is Bitcoin as a virtual asset an energy problem in Musk’s mouth?
Image source: Twitter
On the morning of May 13 US time, Tesla CEO Musk tweeted that he would stop accepting users’ plans to buy Tesla products with Bitcoin, citing the severe energy burden and fossil fuel consumption caused by Bitcoin mining. Musk’s tweet triggered a sharp drop in the price of bitcoin, which fell from over $55,000 to under $50,000. Why Bitcoin, a virtual asset, is the energy problem Musk is talking about is briefly analyzed in this article.
Just How Fuel-Hungry It Is
In reality, it’s not Bitcoin that really consumes electricity, but the mining practices surrounding it. According to Cambridge researchers, the current annual electricity consumption of bitcoin mining activity has reached 121.36 terawatt-hours (one terawatt-hour equals one billion kilowatt-hours of electricity). Mining activities already consume more electricity in a year than most countries around the world. With 270g of coal needed to generate each kWh of electricity, Bitcoin mining consumes about 32.77 million tons of coal per year. Since there is still a good profit margin in mining, bitcoin mining will only expand rather than decrease in the near future, which means that more and more electricity will be consumed because of bitcoin.
However, there is also a lot of disagreement about Bitcoin’s energy consumption. The BCEI (Bitcoin Clean Energy Initiative) group believes that bitcoin can incentivize the use of renewable energy. Bitcoin mining requires relatively stable electrical power, which fits the supply model for renewable energy generation. In fact, a number of large bitcoin mining companies have already taken note of the “carbon neutrality” of bitcoin. UK-listed miner Argo Blockchain has signed a preliminary agreement with Canadian miner DMG BlockchainSolutions to launch “the first purely clean energy-powered bitcoin mining pool” that will use hydroelectric resources to power its own pool.
In the Bitcoin system, at the same time, there are many nodes producing blocks with the same content but with different hash values of their own. These blocks are used to record the transactions that have taken place. At the same time, the system can only select one of these blocks to be recorded on the existing blockchain. The consensus mechanism used in Bitcoin is Proof of Work (Pow).
Under the Pow mechanism, each node that generates a block has to go along and compute a floating difficulty math problem. The first node that solves the math problem gets to add the block it produced to the blockchain. Whether it is packing data or calculating a math problem, each node has to pay for the arithmetic power and the node owners have to pay the corresponding cost. So why are nodes even involved in these activities? It’s because Satoshi Nakamoto designed a reward mechanism into the Bitcoin system, where every node that successfully adds a block to the chain is rewarded with a certain amount of Bitcoins. And the whole process of getting bitcoin rewards is also known as mining. Mining activity since computer arithmetic power, will consume electricity, the source of bitcoin power consumption here.
Mining machines also in-roll among themselves
Miners make a profit when the revenue from bitcoin mining is greater than the cost of mining. Since the price of bitcoin has been high, mining has been able to bring in significant revenue, which has attracted more miners to the industry. The time to generate each new block on the chain obeys a Poisson distribution, with an average generation time of ten minutes. This means that under the Pow mechanism, on average, every ten minutes, only one node can calculate the right math problem proposed by the system and get the bitcoin reward. As the number of miners increases and the arithmetic power continues to rise, the system also increases the difficulty of the math problem based on the overall arithmetic power, in order to keep the average rate of generating a new block at 10 minutes constant.
PoW’s floating difficulty verification mechanism creates an in-roll of arithmetic power between miners. The stronger the mining machine’s computing power, the more likely it is to calculate the answer before other miners and gain bitcoins. In turn, the floating difficulty verification mechanism makes it essentially impossible for miners with already weak computing power to successfully mine under the condition of increasing arithmetic power. In order to avoid being eliminated and improve their own mining success rate, investors can only buy more mining machines, add more arithmetic power, and keep them running longer. And in the process, a lot of electricity is naturally consumed.
Does only bitcoin mining cost electricity?
In theory, every blockchain that uses PoW as its consensus mechanism causes power consumption problems when too many nodes are involved in computing. For example, with Litecoin and Dogcoin, when investors find it profitable to mine them, they will buy mining machines in large quantities, which in turn will cause power consumption. However, the only cryptocurrency that has caused a mining wave around the world is still Bitcoin.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/an-article-to-understand-what-musk-said-about-energy/
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