Bitcoin fell 15% in response, and the entire network exploded with over $2 billion. The leeks who woke up were confused as to what had happened this night. When they came back to their senses, the community opened a siege on Musk. Why is the energy consumption of bitcoin being brought up again? Musk immediately cited CCFA data to back him up. But there are so many misconceptions about bitcoin’s energy consumption.
Image Credit: CCFANic Carter, a top VC and researcher in the crypto community, has recently invested a lot of time and effort in educating users both inside and outside the community on the issue of Bitcoin’s energy consumption. This article, “How Much Energy Does Bitcoin Actually Consume?” is a very thorough analysis. Rhythmic BlockBeats has translated the full article for you: How Much Energy Should an Industry Consume? Currently, organizations around the world are facing restrictions on non-renewable energy consumption and carbon emission limits. But how much is too much is a difficult decision to make, and it has everything to do with how society prioritizes different things.
After all, it’s a question of value as to which goods and services are “worth” the resources they cost. With the growing importance of cryptocurrencies (especially Bitcoin), the discussion of energy use has become a question of who can benefit from it. On the surface, the question of energy use is a fair one. According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes about 110 terawatt hours of electricity per year, which represents 0.55% of global electricity generation and is roughly equal to the annual energy consumption of small countries like Malaysia or Sweden. Of course, that does sound like a lot of consumption.
But how much energy is reasonable for a monetary system to consume? Your answer may depend more on the view you hold of bitcoin. If you think of bitcoin as just a Ponzi scheme or a tool for money laundering, then any energy consumed by bitcoin is a waste. But if you are one of the tens of millions of people around the world who use bitcoin as a tool to circumvent currency curbs, inflation, or capital controls, then you probably think that the energy consumed is well worth it. The total amount of social resources you think Bitcoin should consume comes down entirely to how much value you think Bitcoin can create for society. If we are to continue this debate, we should at the very least be clear about how Bitcoin actually consumes energy. Understanding Bitcoin’s energy consumption may not answer the question of Bitcoin’s usefulness, but it can help people figure out what impact Bitcoin actually has on the environment. Specifically, we need to explain some very serious misconceptions.
Energy consumption does not equal carbon emissions
First of all, there is a big difference between the amount of energy a system consumes and its carbon emissions. While it’s pretty straightforward in terms of energy consumption, you don’t know the different carbon emissions of different combinations of energy consumption – precisely, the composition of energy used by computers that mine Bitcoin. For example, each unit of hydro energy has a much smaller environmental impact than the same unit of coal energy. Estimating Bitcoin’s energy consumption isn’t really hard: you can look at its hash rate (the total arithmetic power used to mine bitcoins and process transactions) and then make an educated guess about the energy consumption needs of the hardware used by miners.
But its carbon footprint is hard to predict. Mining is a very competitive industry, and miners pay little attention to operational details.CCAF gives an estimate of the best geographic location for energy production (from which energy allocation can be inferred), and CCAF works with the major mining pools to aggregate anonymous data on miner locations. From this data, CCAF predicts the energy used by miners by country (or province).
But their dataset does not include all mining pools and is not up to date, which leaves us still largely unclear about the actual energy consumption structure of Bitcoin. In addition, many of the analyses provide an overview of the energy mix at a national level, resulting in an inaccurate picture of countries with extremely diverse energy patterns like China. As a result, estimates of the percentage of bitcoin mining using renewable energy vary widely. in December 2019, a report suggested that 73% of bitcoin mining energy consumption is carbon neutral, largely due to the predominant use of hydroelectric power for mining in places like southwest China and Scandinavia. However, CCAF estimates in September 2020 that this figure drops to 39%. However, while that figure has dropped, it is also still twice as high as the U.S. grid, suggesting that considering energy consumption alone is not a reliable way to determine Bitcoin’s carbon footprint.
Bitcoin Can Use Energy That Other Industries Can’t
Another key factor that makes Bitcoin’s energy consumption different from most other industries is that Bitcoin mining can take place anywhere. While almost all productive energy use globally must take into account distance relative to its end-users, Bitcoin has no such limitations, which allows miners to use energy sources that are not available to most other industries. Hydropower is the prime example. During the rainy seasons in Sichuan and Yunnan, large amounts of renewable water energy are wasted each year. In these areas, productivity greatly exceeds local demand, and inadequate battery technology makes this energy unworthy of being stored and transported to cities.
These regions are likely the largest energy islands on the planet, so it’s no coincidence that these provinces are at the heart of China’s mining industry, accounting for nearly 10% of global bitcoin mining during the dry season and 50% of global bitcoin mining during the wet season. Another carbon-neutral mining option is flare gas. Today, the oil extraction process releases large amounts of natural gas byproducts, and this energy pollutes the environment instead of being used in the grid. Most conventional industries have historically been unable to use this energy source efficiently because of the remote location of oil mines. Bitcoin miners in the North Dakota to Siberia belt, however, have begun to take advantage of this wasted resource opportunity, and some companies are even exploring more controlled ways to burn natural gas to further reduce emissions.
Of course, this is still not the most critical in today’s bitcoin mining world, but calculations have concluded that there is enough natural gas to keep the entire bitcoin network running in the US and Canada alone. To be fair, using excess natural gas for bitcoin mining does still produce emissions, and some argue that this practice even subsidizes the fossil fuel industry, thus spurring energy companies to invest more in oil extraction. But bitcoin miners’ income is a drop in the bucket compared to other fossil fuel-dependent industries, and the demand for fuel in those industries is unlikely to disappear anytime soon.
Given that oil will continue to be extracted for the foreseeable short term, expanding the use of natural gas byproducts will have a positive impact (and may even reduce the environmental impact). Interestingly, the aluminum smelting industry is strikingly similar to bitcoin mining. The process of converting natural bauxite into usable aluminum is so energy-intensive and often inexpensive to transport that many countries with energy surpluses have built smelters to take advantage of their excess resources. Regions where production capacity exceeds local consumption capacity, such as Iceland, Sichuan and Yunnan, have become net exporters of energy through aluminum. Today, the inherent advantages that exist in these regions make them prime candidates for bitcoin mining. There are even many former aluminum smelters that have already started bitcoin mining activities.
Bitcoin mining uses much more energy than it uses
Energy generation is only a small part of the equation. But another commonly misunderstood area is how Bitcoin consumes energy and how it will change over time. Many journalists and academics talk about how high Bitcoin’s “energy cost per transaction” is, but this metric is actually misleading. The vast majority of bitcoin’s energy consumption occurs during the mining process. Once the bitcoins are minted, the energy required to verify the transactions is minimal. Therefore, it is unreasonable to just look at the total bitcoin energy consumption to date and divide it by the number of transactions; most of the energy is used to mint bitcoins, not to transfer transactions. This leads us to the ultimate serious misconception: that the energy costs associated with bitcoin mining will continue to grow exponentially.
Out-of-control growth is not very likely
Because of the rapid growth of Bitcoin’s energy consumption, it is sometimes assumed that Bitcoin will eventually overrun the entire energy network. A recent study cited by the New York Times reported the shocking result that Bitcoin could warm the planet by 2 degrees Celsius. However, there are good reasons to believe that this will not happen. First, as in many other industries, Bitcoin’s energy-consuming structure is becoming less and less carbon-dependent each year. In the US, a growing number of publicly traded, ESG-based miners already have a large market share, and China recently banned coal-fired mining in Inner Mongolia, one of the largest coal-fired mining regions in existence.
At the same time, many organizations in the mining industry have initiated ‘crypto-climate agreements’ similar to the Paris Climate Agreement to advocate and work towards reducing Bitcoin’s carbon footprint. Of course, as renewable energy sources such as solar energy become more efficient to use, there will be more outlets for mining, and bitcoin mining may eventually become an important driver for the construction of these emerging technologies. Furthermore, it is unlikely that miners will continue to expand their operations at their current rate indefinitely. The Bitcoin protocol provides subsidies for mining, but these subsidies already have built-in tests for its growth.
Today, miners receive a small transaction fee (about 10% of the miner’s revenue) for verifying transactions, as well as bitcoins mined as profit. However, the protocol is set to reduce miners’ revenue from newly minted bitcoins by half every four years, so unless the price of bitcoin permanently doubles every four years (which economics suggests is essentially impossible for any currency), miners’ revenue from their share of minted coins will eventually decay to zero. In terms of transaction fees, Bitcoin’s natural limit on the number of transactions it can process (less than a million per day) combined with users’ limited ability to afford to pay fees also ultimately limits its growth potential as a source of income for miners.
We can expect that some miners will continue to operate solely on transaction fees, but in reality, if profit margins decline, then the financial incentive to invest in mining will naturally diminish. Of course, there are a myriad of factors that can influence the environmental impact of bitcoin, but the nature of all of them is a question that is difficult to quantify in numbers: is bitcoin worth it? The bottom line is that many environmental issues are overblown, as well as misconceptions and false assumptions about how the Bitcoin protocol works.
This means that when we ask “is Bitcoin worth the environmental impact it generates”, the actual negative impact generated may be much less than you think. However, it is undeniable that Bitcoin (like other products that add value to society) does consume social resources. Like all other energy-consuming industries, the crypto community must acknowledge and address these environmental issues, work to reduce Bitcoin’s carbon footprint, and ultimately prove that Bitcoin provides far more social value than the social resources it requires.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-it-true-that-musk-says-bitcoin-wastes-resources-and-pollutes-the-environment/
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