Unlike most forms of currency issued by single entities (usually central banks), Bitcoin is based on a decentralized network. Its transactions are approved by different miners who simultaneously solve complex equations using specific hardware and plenty of energy.
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What is Bitcoin?
Bitcoin is a digital currency created in 2009 following the ideas set out in a whitepaper by the pseudonymous Satoshi Nakamoto.
It delivers the promise of lower transaction fees than traditional online payment mechanisms – such as MoneyGram, Transferwise , or Western Union – and, unlike government-issued currencies, it is operated by a decentralized authority thanks to the use of blockchain technology.
Though its value has been growing over the years, Bitcoin’s practical problems and inefficiencies have gradually come to light.
Just how negative is Bitcoin’s impact on the environment? To answer this, we must start by taking a look at Bitcoin’s underlying technology – blockchain – which makes this cryptocurrency truly energy-intensive.
Why is Bitcoin Bad for the Environment?
Bitcoin’s public ledger is decentralized, which means it is not controlled by any single authority. Instead, Bitcoin is constantly updated by a network of computers around the world operated by miners.
Miners use purpose-built computers to solve complex math puzzles to allow transactions to go through. This is the only way to mint new Bitcoins, and in exchange, the miners are rewarded a small fraction of the Bitcoins transactions.
Over the last years, with the price of Bitcoin reaching new highs and lows, the attractiveness of mining Bitcoin lead the total energy consumption of the Bitcoin network to grow to epic proportions.
Since mining can provide a solid stream of revenue, the number of miners willing to use supercomputers to make a small profit out of every Bitcoin transaction they help approve has skyrocketed.
As a result, the Bitcoin network now consumes more energy than many countries.
According to Digiconomist’s Bitcoin Energy Consumption Index, Bitcoin has such an impact on the environment (118.9TWh/year) – considering the huge amount of energy used – that it compares to the power consumption of countries like the Netherlands (117.1 TWh/year) or Pakistan (125.9TWh/year).
Examples of Bitcoin’s Bad Impact on the Environment: Bitcoin Vs. Pollution Per Country
If we focus on Cambridge Bitcoin Electricity Consumption Index from Cambridge University, Bitcoin’s bad impact on the environment raises – compared to the Digiconomist’s Index – to an electric consumption of 133.68 TWh per year.
That makes Bitcoin’s impact on the environment equivalent to a country like Sweden’s and its 131.80TWh annual electricity consumption. Or similar to the consumption of countries like Poland (152.57TWh/year), Egypt (150.58TWh/year), Malaysia (147.21TWh/year), Ukraine (128.81TWh/year), or Argentina (125.03TWh/year).
Analyzed from a different angle, according to Digiconomist, a single Bitcoin transaction has, on average, a carbon footprint of 549.74 kgCO2 – the equivalent to 91,624 hours of watching Youtube.
To put the energy consumed by the Bitcoin network into perspective we can compare it to another payment system like VISA. According to Statista (May 2021), one Bitcoin transaction alone spends, on average 1200.86 kWh, while 100,000 VISA transactions spend only 148.63 kWh – that’s a huge difference.
Here’s another way of seeing it: one Bitcoin transaction is the equivalent, in terms of electrical energy, to the power consumption of an average U.S. household over 39.67 days.
Or think instead that the amount of electricity consumed by the Bitcoin network in one year could power all tea kettles used to boil water for 30 years in the United Kingdom.
Bitcoin uses a decentralized consensus mechanism – known as proof-of-work – which requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system can be replaced by more environment-friendly alternatives.
We’ve looked at the environmental costs of this mechanism: a huge energy consumption, a lot of hardware used and e-waste created.