So much has happened in cryptocurrency news in the year 2017. As new money enters the market each day, it is on its way towards widespread adoption. Even as Bitcoin’s market dominance has recently shrunk to 53.4% of the overall market cap of cryptocurrencies, people continue to flock to Bitcoin. For instance, Bitcoin has reached an all-time high of over $11,400 on November 29, 2017.
With increased adoption comes stimulated growth. However, this growth still comes at a price. Under the Proof of Work algorithm Bitcoin uses, miners compete to process transactions into the public ledger of the blockchain – the first to finish the candidate block receives Bitcoin as a reward. For every 2,016 blocks, the cryptocurrency goes through a difficulty adjustment so the transaction rate remains balanced. As more miners stay on the network, it is more likely that the adjustment will increase hashing difficulty – and in order to stay competitive, miners must then increase their computer’s hash rate or work output so they may keep up with the increase.
Is there enough energy for Bitcoin?
As Bitcoin grows, a specific problem arises: while more blocks are created and the difficulty increases, it will take more hashing power to verify transactions. To increase hashing power, miners must consume more energy so their computers work fast enough to keep up with the other miners. Because miners use up so much energy, Bitcoin mining currently accounts for 0.13% of the world’s overall energy consumption – which is an estimated 29.05TWh annually equivalent to the energy demands of more than 159 countries including Ireland, almost all of Africa, and the Caribbean.
Bitcoin’s growth is synonymous with this rise in energy consumption. Last month, the overall price of Bitcoin has increased by about 40%, with a 29.88% increase in electricity expended on mining. While the price increase of the cryptocurrency has put global mining profits at $8,155,339,398 annually, it has placed estimated global mining costs at $1,506,898,519.
As China and the United States lead with an annual energy of 5,920,000,000,000.00 and 3,913,000,000,000.00 KWh, respectively, Russia, India, and Japan follow behind as the next three largest consumers.
When comparing the energy consumption of Bitcoin to other types of financial transaction, the comparison puts the energy expenses in an unfavorable light. Visa, for example, has processed 82.3 billion transactions in 2016, and its data centers which process these transactions consumed enough energy to power 50,000 US households. While comparing to Visa’s 82.3 billion to Bitcoin’s at almost 280 million transactions last year, the difference is still staggering when we acknowledge Bitcoin’s electrical expenses could have provided energy to 2.4 million American households.
Bitcoin’s mining power can consume more energy than the whole of United States by July 2019, and at its current rate, it is estimated to cover the total global energy consumption by 2020.
The future of Bitcoin and cryptocurrency
There isn’t any reason to think critiquing the energy problem of Bitcoin should compromise your belief in the revolutionary potential of the cryptocurrency. In fact, many of those in the crypto community want Satoshi Nakamoto’s vision to survive and to do so, the shortcomings widespread adoption will expose must be overcome.
Some argued solar energy would solve the problem – and it is a valid suggestion as powering mining rigs with solar panels would prove to be a feasible solution.
Proof of Stake algorithms may also help with the energy issue. Under its system, transactions are confirmed and blocks are created by validators keeping a large number of coins in the network. The algorithm would then randomly select a validator to build blocks based on how much they own of the staked currency and how long they’ve held it in the blockchain’s core wallet.
Ethereum also has plans to move to a Proof of Stake model by 2018. As crypto’s second largest asset and energy consumer, it will likely reduce the overall carbon footprint of cryptocurrency if the integration is successful. The creators of Envion, which claims to cut energy costs, have also introduced the cryptocurrency hoping to reduce the carbon footprint of the blockchain industry as a whole. Meanwhile, Bittorrent Inventor Bram Cohen has introduced Chia, which will be running on Proof of Space and Proof of Time.
In their own ways, the industry has been attempting to solve the energy consumption problem – and perhaps, one day a solution may prove itself a better alternative than the current systems in place. The growing of Bitcoin and the blockchain industry as a whole would make the search for a solution more urgent, and with the actions its players are taking, we can see that the industry is working on a solution.