Waster of energy or promising hope for efficiency?
The debates online rage on about whether Bitcoin is truly worth the immense amount of electricity it consumes. To be fair, it is true that the bitcoin mining network consumes an undeniably massive amount of electricity, which recent research has calculated to about 70 TeraWatt hours (TWh). Although it’s still too early to factor in second-layer solutions like the Lightning Network and its attempt at processing Bitcoin transactions off-chain, for reasons of simplicity, lets only count on-chain transactions in the energy costs of Bitcoin.
Recent history has proven that transactions processed and confirmed on the Bitcoin blockchain are slow and inefficient. Even with upgrades like Segwit, it still doesn’t process anywhere near the millions of transactions per second the way Visa does. So, mic dropped, right? Bitcoin is waste of energy and every miner and hodler and trader should walk away from all of this in shame that they are hurting the planet with all this useless electricity consumption. Not so fast. Many online wrongly compare Bitcoin to the banking and credit card companies, as if all bitcoin did was just transmit payments worldwide. What they fail to acknowledge is that bitcoin is not just a payments processor but also a money maker, in the sense that the network of confirming transactions results in new minted bitcoin that goes into the market. Therefore, its only fair to also compare Bitcoin to banks and credit card companies along with governments that issue the money. This is where the math gets interesting.
To borrow an American phrase ‘full faith and credit of’ is what makes government money have any reason to exist and have value. A government needs the faith of its people and power to have credit. If it didn’t have either, it would have no reason to print money. Therefore, the government itself needs to have power to legitimize their issuance of their money. So, then we must include the energy consumption of governments when calculating a true comparison to bitcoin’s energy usage.
Bitcoin is said to consume 7 TeraWatt hours (TWh). Banks consume 100 TWh. Governments consume 1 quadrillion BTUs. 1 BTU is equal to 2.93071e-13 TWh.
As mentioned bank’s process transactions consumes 100twh and this doesn’t include the electricity to print money. Governments (Central Banks) print the money. But they can’t just print for the sake of printing money. They need to back it with the full might of their military power and political authority so that the phrase ‘full faith and credit of [insert nation name]’ has any meaning whatsoever. The electricity cost of propping up that phrase is the math calculation above. I am being slightly facetious here as not all government work involves currency but you get the point.
Someone smarter than I should be able to calculate the math, but its quite evident that the traditional system of money uses vastly more electricity than Bitcoin, and yet everyone has accepted it for decades. Bitcoin processes money transaction and makes its own money.
A final thought to keep in mind: if bitcoin fails, it doesn’t ask for a taxpayer bailout. But when banks crash the economy or when governments default on their debt, its taxpayers who foot the bill and the electricity bill.