Bitcoin mining uses electricity as a security mecanism. Security means preventing past blocks from being modified so that the sequence of transactions remains written in stone.
The difficulty to mine a block tends to increase on average with the bitcoin market capitalisation because a higher bitcoin price means more mining companies become profitable. When more miners join the collective hashing power then the code automatically increases the difficulty of the algorithm so that the pace of issuance of new blocks remains constant (1 every 10 min on average).
It kind of makes sense that security increases with the market cap: the more gold is in the vault, the larger the walls.
Another factor influencing energy usage is the efficiency of the ASICs in terms of how many hashes can be produced per unit of energy. This tends to go down as newer equipment is rolled out.
Note that energy usage does not depend on the number of transactions processed by the network.
So how much energy does Bitcoin mining actually use?
154750 TWh
Total amount of energy produced around the world
247 TWh
Energy used by Bitcoin mining
0.16%
Share of global energy production used by Bitcoin mining
Source: slides presented during the Bitcoin Mining Council Q1 2022 briefing. The video of the presentation is available here.
Other sources show figures with the same order of magnitude yet using
different models/assumptions:
- Coinshares Research report on Bitcoin Mining (January 2022)
- Cambridge Centre for Alternative Finance (figures updated daily based on a theoretical model)
How does this compare to other countries?
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| Source: Bitcoin Mining Council Q1 2022 Review slide 7 |
An interesting aspect of bitcoin energy consumption is that a BTC is proof that energy was spent to create it. This is in contrast to a USD or EUR, which when minted by the FED or ECB is a promise that energy will be spent in the future to redeem it. This may sound philosophical but actually has a fundamental impact of the ‘hardness’ of Bitcoin as an asset. In a context of financial crisis, people tend to favour proofs over promises.
From an environmental perspective -share of green energy in the energy mix, the Bitcoin mining industry stands out from other industries because of the natural incentives of miners to consume excess energy from hydro/solar/wind power plants. You can place a bitcoin mining container right next to a solar plant (100% green energy mix). You cannot do that with a Tesla car or a Christmas tree, whereby the energy mix coming out of the standard power socket depends on the country’s energy grid.
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