Deetman, 2016 Morgan Stanley, 2018 Valfells & Egilsson, 2016). Other researchers have calculated lower-bound estimates using a bottom-up approach (e.g. Under their central assumptions, they estimate that the bitcoin network consumes between 35 TWh ( May 2018) and 41 TWh ( November 2018 June 2019) per year. They also conduct sensitivity analyses around key uncertainties, including electricity costs and capital depreciation schedules. These key assumptions have been criticised to overestimate electricity consumption indeed, BECI estimates represent the high range of published estimates to date.īendiksen, Gibbons ( 2018 2019) & Lim ( 2018) also use a top-down approach, but undertake significant data collection efforts on existing mining hardware and mining locations to inform their assumptions and analysis. Why does bitcoin use energy?īy far, the most frequently cited estimate in news media is the Bitcoin Energy Consumption Index (BECI), which uses a top-down approach that assumes miners spend (on average) 60% of their revenues on electricity at a rate of 0.05 USD/kWh. The energy use of the bitcoin network is therefore both a security feature and a side effect of relying on the ever-increasing computing power of competing miners to validate transactions through PoW. The first miner to solve the puzzle is rewarded with new bitcoins and network transaction fees. Each guess a miner makes at the solution is known as a “hash,” while the number of guesses taken by the miner each second is known as its “hashrate.” Once the puzzle is solved, the latest “block” of transactions is approved and added to the “chain” of transactions. In the case of bitcoin, consensus is achieved by a method called “Proof-of-Work” (PoW), where computers on the network – “miners” – compete with each other to solve a complex math puzzle.
The lack of a centralised, trusted authority means that blockchain needs a “consensus mechanism” to ensure trust across the network. Blockchain removes the need for a central authority and ledger instead, the ledger is held, shared, and validated across a distributed network of computers running a particular blockchain software. In a traditional exchange, central authorities (e.g. Blockchain offers a new way to conduct and record transactions, like sending money. In order to understand why and how bitcoin uses energy, we first need to understand its underlying technology: blockchain. 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. 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. A widely reported article in Nature Climate Change warned that Bitcoin emissions alone could push global warming above 2☌. High-profile news articles reported that electricity use of the bitcoin network had equalled that of medium-sized countries and was on track to consume as much electricity as the United States in 2019 and all of the world’s energy by 2020. 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.Īs the price of bitcoin skyrocketed in 2017, attention turned to the cryptocurrency’s energy and environmental footprint.