Many journalists and academics talk about Bitcoin’s high “per-transaction energy cost,” but this metric is misleading.
Bitcoin’s energy consumption happens during the mining process. Once coins have been issued, the energy required to validate transactions is minimal. Simply looking at Bitcoin’s total energy draw to date and dividing that by the number of transactions doesn’t make sense, most of that energy was used to mine Bitcoins, not to support transactions
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According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden.
The energy consumption to mine is easy to estimate: You can just look at its hashrate (i.e. the total combined computational power used to mine Bitcoin and process transactions), and then make some educated guesses as to the energy requirements of the hardware that miners are using.
To calculate associated carbon emission you need to know energy mix i.e the makeup of different energy sources used by computers mining bitcoin. Mining is an intensely competitive business, and miners tend not to be particularly forthcoming around the details of their operations making it even harder to calculate.
Bitcoin can make use of hydropower which is not accessible to most. This is one of the reasons why some locations in china are heartlands of mining where production of such energy outpaces demand.
Another source of energy is natural gas which is a byproduct of oil extraction. It pollutes the environment but miners are leveraging this to mine. A minor player but some suggest natural gas from the US and Canada alone can run an entire bitcoin network.
People sometimes assume that bitcoin will commandeer entire energy grids. It likely won't.
First, because the energy mix of bitcoin grows less reliant every year. Eg US is shifting to ESG focused miners and china recently banned coal-based mining.
Secondly, miners receive small fees for the transactions that they verify while mining, as well as whatever profit margins they can get when they sell the bitcoins they have mined, and the bitcoin protocol, is built to halve this issuance-driven component of miner revenue every four years. The financial incentive to invest will naturally decrease.
If you believe that Bitcoin offers no utility beyond serving as a ponzi scheme or a device for money laundering, then it would only be logical to conclude that consuming any amount of energy is wasteful. If you are one of the tens of millions of individuals worldwide using it as a tool to escape monetary repression, inflation, or capital controls, you most likely think that the energy is extremely well spent.
There are two most common types of consensus protocols, proof of work (PoW) and proof of stake (PoS). A consensus protocol has a few main functions; selecting a block producer, validating the block is correct, and rewarding the block producer. The biggest difference between PoW with Bitcoin and PoS with Cardano is how the block producer is selected.
PoW is based on a physical resource, which requires hardware machines such as ASIC.
PoS is based on a virtual resource. Cardano uses their native token, ADA, to assign which stake pool gets to produce the blocks in the blockchain.
The Proof of work concept existed even before bitcoin , but Satoshi Nakamoto applied this technique to the digital currency revolutionizing the way traditional transactions are set.
In fact, PoW idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.
But, returning to date, Proof of work is maybe the biggest idea behind the Nakamoto’s bitcoin white paper – published back in 2008 – because it allows trustless and distributed consensus.