The bitcoin protocol & expected reduction in energy consumption - Deepstash
The bitcoin protocol & expected reduction in energy consumption

The bitcoin protocol & expected reduction in energy consumption

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.

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MORE IDEAS FROM How Much Energy Does Bitcoin Actually Consume?

The energy it should consume depends on your feeling about it

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.

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Bitcoin got hydro power

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.

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Consumes more energy than using it

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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Bitcoin does consume a large amount of energy

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.

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Energy consumption ≠ Carbon emission

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.

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PoW vs PoS

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.

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Blockchain: The Engine Of The New World
  • Blockchain is a digital archive or registry, which can be private or public. It relies on a digital network of computers, or ‘nodes’ to verify details of the information, such as the authenticity of a transaction in the case of cryptos.
  • Many of us have heard of cryptocurrencies (like Bitcoin), which have exploded in value in the last ten years.
  • The underlying technology, blockchain, is the heart of crypto and many other new digital applications and ecosystems.
  • Weirdly enough, it is the same technology that powered torrent downloads in their heyday, about 18 years ago.

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From Bitcoin to Smart Contracts

Bitcoin created a decentralized monetary system which can transfer money from one person to another. That only allowed for monetary transactions, there was no way to add conditions to those transactions: 

Alice can send Bob 5 BTC, but she couldn’t tell Bob that he will get the money only if he performed certain tasks.

These conditions are a smart contract: self-executing with specific instructions written in its code which get executed when certain conditions are made.

Say Alice wants to buy a house. The seller will receive the funds only if property rights are cleared and after the rights have been transferred over.

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