Introduction
Let's face it, in the world today, energy is very expensive. Fossil fuels, especially oil and other non-renewable sources, are depleting at an alarming rate. In fact, the IEA reports that petroleum consumption will increase by 30% in the next decade. As you know, Bitcoin is the first and largest digital asset globally, and if you have been following all our previous articles, you'll know that BTC is obtained through a process known as "Mining." Almost everything that makes our life easier these days uses up energy. Light uses energy. Our laptops use energy. Our smartphones use energy. However, the level of energy your smartphone will use is not the same as the one a laptop will use. The amount of energy consumed by just your laptop can not equate to the one that a group of high-end computers will consume. In the same light, the amount of energy consumed by those laptops will never equate to that of Bitcoin.
Getting Started
As of July 2019, it was reported that BTC consumed more energy than the whole of Switzerland. This news was even published after some research by some Crypto minded students at the University of Cambridge. Around that same time, the Cambridge Bitcoin Electricity Consumption Index (CBECI) was established by the University to measure the energy used to sustain Bitcoin in real time. After this, the yearly energy usage was calculated, revealing that BTC consumes over seven gigawatts of electricity. In case you did not know, a gigawatt is equal to a billion watts. So do the math to see how much energy your BTC is consuming. In just one year, that's about 64 Terawatt of Energy. Switzerland, as a country within the same period, used only 58 Terawatts. That's a big difference of 6 Terawatts.
Just so you know, as of 2019 and according to Eurostat, the entire population of Switzerland was 8.545 million with 41,285km square. I am giving this estimate, so you do not nurse the notion that Switzerland is such a small country for BTC to use more energy than it. In essence, Bitcoin consumes more energy than other smaller countries. As of today, there is no other single digital asset that uses such an amount of energy. In fact, to further surprise you, A combination of certain altcoins energy consumption will not still equate or come close to that of Bitcoin.
This means Bitcoin energy usage is estimated at around 0.27 percent of the entire world's electricity usage. Analysts say that this energy is way more than the energy that has been used by tea kettles in the United Kingdom for over 13 years. This further signifies that the wasted energy each year by inactive electric devices in the United States of America will comfortably run the Bitcoin Blockchain up to four times. Everyone knows for a fact that the energy used by miners all over the world to mine Bitcoin is nothing short of huge. They have to maintain the Blockchain network, process and validate payments, run the computer hardware, amongst so many other things.
Why so much energy?
At first sight, it does not seem like Bitcoin really needs the huge amount of electricity it consumes. As a novice, all you know is that you have bought and re-sold the digital asset for profit with just one click on your smartphone. For several years, this has been in operation. Experts have rightly put it that the decentralized format of Bitcoin is the factor behind its huge energy consumption. This is because to approve any single transaction, BTC needs powerful high-end computers to solve complex and tricky math problems. A random number must be generated (refer to our article on Bitcoin Mining to get the full list of how the process works). In the crypto space, this fundamental process of verifying every BTC transaction is what we call 'proof-of-work system.
This system requires way more energy because it's a Dex. Its counterpart, that is, centralized networks, do not require as much energy. Paul Brody, one of the Global Blockchain Leaders at Ernst and Young, succinctly put it that >"As for Bitcoin mining, it is competitively executed by so many individuals to see how fast they can decipher a difficult mathematical equation and validate transactions". The fastest system to solve the equation gets a small Bitcoin reward after verifying the transaction. Some arguments have been put forth into the Crypto world that these miners do not deserve this reward. But if you consider the number of transactions being processed on the Bitcoin blockchain per second, then you'll realize that these miners deserve more.
When Bitcoin first started, this mining process did not swallow so much electricity due to the low number of people involved in mining and the low number of people performing any transaction. Only the fastest and smartest fingers who could see ahead saw the potentials of Bitcoin. The number of Bitcoin transactions is increasing every day as more people are buying into the coin.
In a bid to make the mining process smoother, new powerful computers known as rigs are coming into the scene. They are involved in the competition to solve the maths equation and win the BTC prize, but their capacity is faster. Paul Brody said again, "In fact, it is wasteful that 99.9% of the other computers that were involved in the equation just did labour loss because they didn't get the prize". Yet, they have also consumed energy. It is true that this race actually produces a fair result, but it also emits huge carbon emissions. Brody even said that he doubts that Satoshi Nakamoto took this fact into consideration before releasing BTC.
What of time? This energy usage also takes a huge amount of time, from 10 minutes upward per BTC transaction. Those other digital transactions, however, have low time Consumption. They are done in less than a second because it is a Centralized platform that verifies their transactions.
What is the Solution to this Energy Usage?
This energy consumption rate can be managed to an extent, and in this sub-heading, we shall give a few ways regarding that. This does not mean Bitcoin will have to follow the pattern of a centralized network because the aim of Bitcoin is to decentralize, that is, remove every central agent like a middleman, banks, Visa network and so on.
Switch to Renewable Energy
As of now, an estimated 39% of proof-of-work mining is performed using renewable energy. So, the most obvious path to a brighter future for Bitcoin is simply upping that figure.
Countless startups tokens have emerged to bridge this gap, each with new ways to bring more environmentally friendly energy to the world of Bitcoin. For instance, Hong Kong-based LiquidStack has the intention to reduce the temperature of drilling machinery. Even in Iceland, A company known as Genesis mining aims to use renewable energy sources.
These solutions, despite their help, still fail to address that even if all the energy pumping into the Bitcoin network were green, on a larger scale, its proof-of-work verification technology is nothing short of wasteful.
Transition to Proof-of-Stake Systems
Crypto tokens could move from proof-of-work systems to "proof-of-stake" systems that do not require this same competitive frenzy to solve complex equations, as explained eToro cryptocurrency market analyst Simon Peters.
In a layman's term, proof-of-stake requires these miners to front a small amount of cryptocurrency that will be slot into the lottery box for the chance to verify transactions. If you are putting up some amount as collateral per transaction, you will not want to approve illegal transactions. The reason is that you know quite well that you would have just succeeded in wasting your time, energy and chance to win the reward. You would have also devalued the currency.
Since proof-of-stake systems eliminate the competitive math-solving element of proof-of-work, "it will reserve energy and allow every machine in a POS to focus on one problem at a time, as opposed to a PoW system, whereby a system of machines is rushing to solve the same equation, that is, waste of energy at its peak," says Simon.
Ethereum, the blockchain network behind Ether and most NFTs, already has the intention to transition to a proof-of-stake system, and they have expressed this intention. This will significantly reduce the energy consumption of Ethereum-based digital assets and blockchains by an estimate of 99.5%. That's huge, in case you don't know.
Embrace Pre-Mining
To avoid the waste of resources involved in solving these complex math equations quickly to earn BTC rewards, some crypto tokens have introduced pre-mining, a system that works more like a fiat currency or stocks. A central authority, like the government of the USA (in relation to dollars) or a company (in regards to stocks), creates a set amount of a commodity and then slowly releases it into the economy depending on the event in the world or their business.
Pre-mined cryptos work the exact way
"Several digital assets like XRP [also known as Ripple] were not mined at all but were produced through an algorithm," says Simon. "This strikes out the use of dedicated high-speed mining equipment."
In these networks, transactions are still validated or approved by a DEX before they are included in the record of the currency's blockchain. However, know that anyone involved in the deal will pay a small transaction fee to compensate the validators for their effort since the token system itself does not always reward them. For example, In XRP, this fee is a fraction of a cent as of now. To even activate the wallet on a platform like Trust Wallet requires you to use some XRP.
The switch of Bitcoin to this system of pre-mining is going to be very difficult but not impossible. To effect such a big change to the Bitcoin network, Satoshi Nakamoto would have to strongly convince all the miners to adapt and work with this new system. This would be a difficult request for these miners to grant when billions of investors' funds are at stake. The last time a change of this nature happened, it was not accepted wholly by miners, and the resultant effect of this was a permanent divergence that led to the establishment of a separate crypto token which we now know as Bitcoin Cash (for those of you who don't know the coin's history). Later on, Bitcoin cash diverged into Bitcoin SV, among many others.
Introduction of Carbon Credits
Carbon credits refer to the ability of a company to release carbon into the atmosphere. These acts are approved by the government. They're usually given a proper check, meaning they can be traded to by other companies that do not need to produce a ton of emissions, compared to that of other companies. This act is enough to motivate any company to produce less than its usual allotment and the penalties those that go over. Regarding a crypto mining company, this could mean it buys carbon credits from another company to offset the number of emissions it creates to greener energy. The company will do this so it can earn a good profit from selling its credits.
"These are a tried-and-tested method under a host of programs such as the Clean Air Act to get to net-zero emissions for any product," as said by The Chairman of Environmental, Safety, and Incident Response Section at Baker Botts Company - Scott Jane. "So, I would see an approach toward stapling credit products to BTC mining and transactions to offset those emissions."
Brody also says he can see clients being able to pay to offset their own crypto emissions. In his words - "I can see a future where it will be possible to pay a carbon offset fee as well as pay transaction processing fee on networks like Ethereum, just like you can do when travelling by air."
Conclusion
If one of these remedies above is not swiftly put into use concerning BTC, it is very possible that soon, its energy consumption level will begin to equate with big nations like the United States of America and China. This is the best explanation of Bitcoin Usage you can get anywhere on the internet. If you know anyone who has been having issues understanding the topic, kindly share this article with them to broaden their understanding. If Bitcoin doesn't adjust with its energy usage, how many watts of electricity do you think it will consume in 3 years? Let's hear your predictions in the comment box below.