Why Is Bitcoin Mining So Energy Intensive? | ETF Trends

Crypto critics often cite the environmental impact of Bitcoin mining as a major reason for concern, but why exactly is mining so energy intensive? And what exactly is Bitcoin mining in the first place?

Simply put, Bitcoin mining is the process by which more Bitcoin is created. But it’s more than that: Bitcoin mining is integral to how Bitcoins function as a cryptocurrency.

How Bitcoin Transactions Are Recorded

Bitcoin is a decentralized currency, meaning it is not overseen by any traditional governing body. In order to prevent theft and fraud, every computer in the Bitcoin network has a full list of Bitcoin transactions called the blockchain.

Every time an individual sends Bitcoin to another, the majority of computers in the network must verify the transaction. This prevents individuals from spending coins that they don’t own or making copies of coins they do own and spending them multiple times.

Transactions are added to the blockchain in groups, or blocks, about every ten minutes.

Blocks are added to the blockchain by whichever computer in the network is able to find a unique key – the answer to a mathematical problem – first. The first computer to verify the transaction and find the key is rewarded with a certain amount of Bitcoin (for example, the reward was 6.25 BTC in 2020).

This key is an algorithm-generated, 64-digit hexadecimal number (or “hash”) that is less than or equal to the target hash, upon which is built the most recent block that was added to the blockchain. In this way, every new block validates every subsequent block, creating the blockchain.

The Odds Favor Constant Mining

Because the mathematical problem can only be solved by trial and error (and because the odds of being right in a single try are one in trillions), computers must run constantly in order to have the best chance of finding the key, verifying the latest transaction block, and being rewarded with the newest batch of Bitcoin.

This entire process of recording transactions and solving mathematical problems is referred to as “mining.”

Because this mining is done using powerful computers capable of generating thousands, millions, and even billions of hashes per second, it requires large amounts of electricity.

As the value of Bitcoin rises, more and more people are incentivized to become miners. And because the difficulty of solving each cryptographic problem grows with the network (among other factors), more and more energy is then used by miners.

At this point, the Bitcoin network consumes about 116 terawatt hours, or 116 trillion watts per year. That’s about 0.5% of the total electricity in the world—more electricity consumption than in many countries.

Crypto advocates say that much of the energy bitcoin consumes is renewable. But according to the Cambridge Center for Alternative Finance as of September 2020, only about 39% of crypto mining is powered by renewable energy sources.

How China’s Crackdown Impacts Mining

China has recently begun to crack down on Bitcoin mining and trading, citing Bitcoin’s environmental toll as a major reason. This marks what some are calling “the great mining migration,”  according to CNBC.

Miners are planning relocations to places such as nearby Kazakhstan, where renewable energy accounted for only 1.4% of the energy mix in 2018.

Texas is also a major potential relocation spot for miners as the largest energy-producing state in the U.S. Although now a major producer of wind power, the majority of its cheap energy is still in crude oil and natural gas.

Crypto advocates say mining’s electricity consumption isn’t that bad compared to the environmental toll of global data centers and digital banking. Global data centers do use a significant amount of energy, about 200 terawatt hours, or 0.8% of the total global electricity demand.

Crypto critics, however, point to the small percentage of the world that uses Bitcoin, as compared to the relatively widespread use of other online platforms.

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