Why does blockchain use so much energy

Acquiring Bitcoin is like mining diamonds. Finding additional diamonds requires more investment to afford digging deeper to search for them. The Bitcoin system works in a similar way: acquiring additional Bitcoins requires more electricity. As the Bitcoin industry grows, the overall electricity consumption caused by every individual transaction will increase steeply. To understand Bitcoin, it is helpful to first understand the concept of Blockchain.

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Content:

• Bitcoin is an energy hog: New numbers suggest how big a problem it is
• Former Goldman Sachs bond trader builds a $5.6bn cryptocurrency empire
• Tabletop growth slows on Kickstarter, as shift to blockchain causes creator concerns
• Bitcoin: Friend or foe of the clean energy transition?
• Bitcoin mining centres shut in Kazakhstan as authorities blame crypto miners for outages
• There’s more to crypto than buying low and selling high
• Massive Energy Use Of Cryptocurrency Mining Under Scrutiny As Industry Expands
• Why China Is Cracking Down on Bitcoin Mining and What It Could Mean for Other Countries

WATCH RELATED VIDEO: Why does Bitcoin use so much energy?

Bitcoin is an energy hog: New numbers suggest how big a problem it is

But in life, many things are actually not what they first seem. This is one of those things. In fact, it is not only not what it seems. It is the exact opposite. First, we need to establish some contextual groundwork. This is a critical step, because lack of clarity on what Bitcoin is and is not, has the potential to muddle an entire subsequent analysis.

In that light it seems stupid. But as soon as you know the thing is meant to fly into space, everything immediately makes a lot more sense. Next, we need to understand the role of electricity in the Bitcoin settlement system. Electricity comes at a cost, and we therefore need to make sure we understand what Bitcoin gives in return for this expense. Who are the people actually paying for this electricity, and why are they willing to do so?

These are important questions. Then we need to consider that the concept of waste is subjective. While I personally think the energy directed by our society at following and broadcasting the life of the Kardashians is an utter and total waste, others disagree and their choices are none of my business. We have elected to live in a society where people are free to make their own choices, and there are good reasons for that.

Far from being a blocker of a decarbonated future, Bitcoin mining can play an invaluable part as a building block in such a system. It is actually an incredible opportunity for us to increase the share of intermittent renewable generation in our electricity grids, without ruining the economics. Energy consumption is the key to our prosperity and progression up the Kardashev S cale. It is in our interest to consume more energy not less. And when applied to the overall picture, that depth just might cause a significant shift of perspective.

Bitcoin is a settlement system like FedWire, it is not a payments aggregator like Visa. Most bitcoin transactions are not visible.

They take place inside the payment aggregation systems of exchanges, on the Lightning network, and yes, even inside of actual aggregators like PayPal, Square, or MasterCard.

Only periodically are they settled onto the Bitcoin blockchain as visible transactions. Solutions like this are referred to as network layering. This is a tried and tested approach to separating casual retail transactions from heavier settlement transactions and it is exactly how we already do things in the fiat monetary and payment systems. In such a system, the base layer , like FedWire or Bitcoin , only acts as the final arbitrator of settlement transactions, everything else, and that is the vast majority of all transactions, happen in higher payment aggregation layers, which are often entirely different systems.

Bitcoin is an independent monetary system that aggregators can make use of. As you probably know by now, Bitcoin adds new transactions to its ledger every ten minutes or so. Network-wide agreement on this single shared transaction history is what allows a decentralised monetary system to exist.

Without it, we need a central authority to decide which transactions came in what order. Electricity enters the picture during the block addition process. He called it a timechain. This model of decentralised agreement is so revolutionary within the field of computer science that it has been named after the creator of Bitcoin.

It is called Nakamoto Consensus and the technique used to achieve it is called Proof-of-Work. In this process, the electricity does the actual work , and the proof is the presentation of a rare hash function output which could only have been found by repetitive guesswork, proving the input of work. For those who remember high school physics, work is a time-dependent concept. If work has been done, time must have passed. Via this fundamental relationship, Proof-of-Work enables the Bitcoin network to cooperate on a decentralised clock, which is what enables its otherwise uncoordinated participants to agree on a shared history of transactions.

The consideration by all network participants of the chain with the most accumulated work as the correct and agreed-upon chain is a fundamental consensus rule of Bitcoin.

Using Proof-of-Work as a decentralised clock also generates an excellent side-effect. It makes counterfeiting and record tampering prohibitively costly. Writing a fraudulent history is as costly as writing a true one, and so in order to create a dishonest timechain, a malicious actor must expend more energy on the task than the entire honest network combined.

Now this is actually a bit of an understatement, but for a global, freely available, politically independent monetary system, the ability to resist country-sized attackers is an incredible and obviously necessary feature, not some bug that needs fixing. If your answer to that is no, then no argument would suffice to convince you that Bitcoin is anything other than a complete waste, whether it consumes one GWh per year or a million.

However, in such a case there should also be nothing to worry about: If Bitcoin serves no purpose and is a bubble, then surely no one will be willing to pay its electricity costs over time and it will die, taking its consumption with it.

Problem solved, no? If on the other hand the answer is yes, the story is quite different. Because in return for its electricity consumption, Bitcoin provides a set of unique monetary properties to its users—properties that cannot be replicated by politically dependent monies nor by physical commodity monies. I could go on, but it should be clear at this point that the utility of such a system is enormous, the global market for its services is huge, and the energy required to run it is the necessary cost of achieving these properties.

Some people value mascara, others value junk food, others value watching the Kardashians, others again value flying to exotic places for their holidays, and yet others value going to stadiums to watch grown men in spandex pretend to fight. But guess what, all the above things require energy.

Which, then, shall pass our threshold for waste vs. Which ones shall we suggest is morally reprehensible on the basis of its wastefulness? Nowhere else in our society do we apply similar scrutiny to the moral legitimacy of energy usage. Neither in private consumption nor in the production of goods or services. And there is a good reason for this. Try to take the premise to its necessary consequence. If this is to be an approach to reducing our carbon footprint, where exactly do we draw the line?

Who gets to decide? And how long until you find yourself dragged into the streets and put up against the wall for some unspeakable consumption crime?

In fact, perhaps those who feel righteously indignant about [whatever product or service], and consider it another consumerist evil to be morally assaulted, should have a long hard think about the effects of a global deflationary money on mindless credit-driven consumerism and its detrimental effects on the environment.

The latter two of which amount to an outright dismissal of the possibility that others might value something differently than yourself, or the belief that your value judgements are somehow more important than theirs. It is not even possible to argue against any such positions. They are either based on lack of comprehension which must first be rectified, or on fundamental disagreements about individual freedom and liberty.

What on the other hand is quite easy to understand, is why this is such an emotional issue in the first place. This is where people tend to get hung up. Pretty much everyone agrees that carbon pollution is a serious problem, and the fear of causing significant damage to the ability of our species to sustain itself within the bounds of our planet is a cause for worry in a lot of people.

Being a highly transparent system, it is therefore relatively easy to have a surface-level look at Bitcoin, calculate its power consumption, realise that it is significant, and then become fearful of its environmental impact.

The problem with this type of approach however, is that it tends to conflate dirty electricity production with agnostic electricity consumption, while simultaneously and necessarily disregarding any and all utility. Well, yes and no. These sources happen to be largely composed of stranded or otherwise underutilised renewables, particularly hydro power.

And while its use of renewable energy is not by any means exclusive, it is still somewhere between double and quadruple the global residential, commercial and industrial average. So while Bitcoin might use the same amount of electricity as the Netherlands, its comparative carbon footprint would be somewhere between half and a quarter. The other critical thing to understand is that Bitcoin is as green as an electric car. Nothing about Bitcoin requires emissions. It will take whatever electricity you feed it.

If the world goes green, so does Bitcoin. What detractors are effectively doing then, is dressing our carbon pollution problem up in a Bitcoin costume, shouting profanities at it and beating it with a stick.

This is not an effective strategy for reducing our emissions, it is completely unhelpful scapegoating. Barring a reversion to pre-electricity technological eras or otherwise reducing our standard of living, the only strategy that can achieve that end is building out more renewable generation.

Rather than decrying Bitcoin as some archetypal representative of our carbon pollution problem, we really should be paying closer attention here because as it turns out, Bitcoin mining can actually be a critical building block in a carbon-minimised future. Underproduction and the common necessity of fossil fuel powered generation is something pretty much everyone understands because it represents the standard situation in nearly every place on Earth.

In such areas we require a standby capacity of fossil fuel power plants to step in when renewable generation and power consumption happen on different schedules. This is less than ideal and drives up the cost of electricity. We cannot decide when the wind or clouds show up so we can never match the pattern of wind and solar generation to our power usage. This means that if we are to mainly, or at the very least , significantly rely on such generation we need to build out enough capacity that the lowest level of intermittent renewables production is at or higher than our peak demand.

Unless we can find a buyer for this electricity such a system would simply not be economically viable. In what is by now the worst kept secret of the industry, Bitcoin mining actually offers an incredible opportunity to optimise renewable-heavy grids.

Miners, being supremely mobile and flexible, can act as demand response systems. They can sit right near the renewable resource even moving with the seasons in question — avoiding the need to excessively beef up grids — and dynamically consume excess energy whenever more is being produced than the non-mining market needs meaning prices are low.

This allows for immediate monetisation of energy that would otherwise be wasted, driving down overall electricity costs. In other words it can act as a monetary battery. Conversely, whenever electricity production is low compared to the needs of the non-mining market meaning prices are high , miners can be contracted to shut down, directing the electricity to other sources of demand who are also in general willing to pay more. This ensures reliability for critical infrastructure when production is strained or demand is unusually high.

One can only wonder if the recent Texan grid strain may have been alleviated if peak power production capacity was higher, a goal which is much more economically feasible in the presence of a large demand response capacity. A similar dynamic is taking place on the other side of the world, in China. Over the last 20 years, China has built out the largest capacity of hydro electric power generation in the world. Much of this capacity is concentrated in the mountainous southwestern provinces of Sichuan and Yunnan which receive both river runoffs from the vast Tibetan Plateau, and copious, but seasonal rainfalls.

Former Goldman Sachs bond trader builds a $5.6bn cryptocurrency empire

Crypto is seemingly everywhere this year. Bitcoin does not have enough users to start the next revolution. Imagine the web — still Web 1. Even then, before YouTube and Netflix streaming , no more internet would have been a major shock, a huge loss: No more Google? No Wikipedia?

Tabletop growth slows on Kickstarter, as shift to blockchain causes creator concerns

The bitcoin network is run by miners, computers that maintain the shared transaction ledger called the blockchain. A new study estimates that this process consumes at least 2. This figure could rise to 7. The study is an updated version of calculations performed late last year by analyst Alex de Vries. In this new version, de Vries has gathered more detailed information about the economics of the mining business. But his new numbers are broadly consistent with the old ones. Last December, he estimated that the bitcoin network was consuming roughly 32TWh annually, or 3.

Bitcoin: Friend or foe of the clean energy transition?

But in life, many things are actually not what they first seem. This is one of those things. In fact, it is not only not what it seems. It is the exact opposite.

Bitcoin mining centres shut in Kazakhstan as authorities blame crypto miners for outages

Deployment of blockchain technology , which underpins Bitcoin and numerous other digital currencies, is poised for similar growth across multiple sectors. There is concern that continued growth of blockchain-based currencies like Bitcoin will undermine global efforts to reduce carbon emissions and threaten grid stability. This topic has wider relevance. Bitcoin mining—the process by which computers in the Bitcoin network validate transactions, create new Bitcoins, and earn a reward payment, is a computational burden that requires high-powered, and increasingly specialized hardware. Today a single Bitcoin transaction consumes as much electricity as an average American home does each week.

There’s more to crypto than buying low and selling high

However, it is a different story on the crypto streets as Bitcoin is bleeding out. The flagship crypto has lost almost half of what it gained during the ATH of , and the charts remain crimson red. For those who are not new to the extreme volatility that comes with trading or hodling crypto, the current decline is just one of those things. Iselema revealed this at Techpoint Build while speaking on the topic, Crypto beyond trading. She touched on other use cases of cryptocurrencies besides trading and how they could be very important to finance in Africa. Today, Bitcoin trading is more or less a career path for some, an edge against inflation and the light at the end of the poverty tunnel. According to Iselema, cryptocurrencies are viewed this way, especially in Africa, because of the high poverty rate.

Massive Energy Use Of Cryptocurrency Mining Under Scrutiny As Industry Expands

Eight Democratic members of Congress on Thursday wrote to major cryptocurrency-mining companies for information on their energy usage and its potential effects on climate change. The House and Senate members noted that estimates of the power consumption associated with bitcoin increased more than threefold between and The energy consumption is roughly equivalent to that of Washington state or the entire nation of Denmark, according to a September analysis by The New York Times. Members who signed the letter included Democratic Sens.

Why China Is Cracking Down on Bitcoin Mining and What It Could Mean for Other Countries

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Alexandria Jacobson is a staff reporter covering internal operations at tech companies. An NFT is a non-fungible token, which is a unique unit of data that provides a secure record of ownership on a blockchain. NFTs are often associated with a digital asset — in this case, an illustration of different cats eating pizza, wearing sunglasses or holding a martini. After people watch the first episode, we can see what they responded to. The NFT holders can also vote on story elements and character names in the show.

Blockchain relies on a vast decentralised network of computers to record transactions. Its most well-known applications are cryptocurrencies like Bitcoin and Ethereum. Digital currencies require heavy computing power to solve complex algorithms in a process known as mining, which creates new coins. But they come at a heavy environmental cost. According to a Reuters report citing a study in the scientific journal Joule, Bitcoin production, for instance, is estimated to generate between 22 and

Of all the potential implications of blockchain for the energy sector, the energy use of cryptocurrencies — and bitcoin in particular — has captured the most interest. With bitcoin value tripling in recent months and Facebook announcing its new Libra coin, interest in the energy use of cryptocurrencies is again on the rise. In this commentary, we explain why and how bitcoin uses energy; dig into published estimates of bitcoin energy use and provide our own analysis; and discuss how these trends might evolve in the coming years.