Does Bitcoin consume too much energy? That’s the question that keeps popping up every time BTC prices go lunar. We’ve heard the comparisons of which small country Bitcoin is using more energy than. But where is the truth? Is Bitcoin really an energy hog? How does it compare to the traditional financial system?
According to claims in recent studies, the entire Bitcoin network consumes somewhere between 25 and 30 terawatt hours of electricity annually. This amount is almost entirely consumed by ASIC miners that run 24 hours a day, calculating trillions upon trillions of hashes to secure the network and mine new blocks.
However, in a piece that appeared on Hackernoon yesterday called “The Bitcoin vs Visa Electricity Consumption Fallacy”, author Carlos Domingo argued that Visa, and by extension the traditional banking system as a whole, consumes far more electricity. Therefore, according to Domingo, Bitcoin is a more efficient system.
Admittedly, information about the energy consumption of the banking system is not openly available. Domingo instead extrapolated in his article several reasonable and conservative assumptions.
His computations essentially boiled down to this. There are approximately 30,000 banks in the world, each one with servers, branch offices, and ATMs. As the Visa network is just that, a network, all transactions made on it need to run back and forth through banking infrastructure.
There are a lot of middlemen in the process of doing a single Visa transaction. Therefore, Domingo asserts that the energy consumption of all banks is directly and inexorably tied to the Visa network.
Adding together all of these factors, we get approximately 100 or so terawatts of power consumed by banks each year. Clearly, this pales in comparison to the 25-30 terawatts Bitcoin consumes.
Domingo’s goal in this article was to remain conservative, and therefore realistic. However, all he considered in his article was energy consumption by the hardware infrastructure itself. What he didn’t factor in was the energy (not just electricity) of all the employees involved in a bank.
Each time a banker takes a private jet from Los Angeles to Singapore, or even each time a bank teller drives their daily 20-mile commute to a branch office, this is all energy consumed in the name of banking. While these energy expenditures may not directly relate to a Visa transaction, they are the lifeblood of the banking industry.
Without these expenditures, banks could not exist as they do today. Therefore while the link to Visa is not as direct, it is no less essential to consider.
While it’s impossible to calculate exactly, its easy enough to infer that if we add these aspects of energy consumption, traditional banking appears even more wasteful than Bitcoin ever could be.
One final thing to cover when it comes to the argument against Bitcoin’s energy use is the idea that it’s too energy expensive to mine. Naysayers have been declaring for years that the rising cost of mining bitcoin will eventually make it unprofitable. This has so far proven to be false.
Let’s consider for a moment an alternative situation. Let us imagine that bitcoin mining is still as easy as it was back in 2009. Anyone on a consumer laptop could mine bitcoin and get 50 BTC a week. Would we now be seeing a nearly $12,000 BTC? No, of course not.
What naysayers don’t seem to understand is that the price of bitcoin is not only due to speculation, but also due to its scarcity. Bitcoin is difficult to mine. It requires a large capital investment in order to get a return. This restricts the supply and keeps prices moving upwards.
In this system, those who hold or mine bitcoin are the winners. Compare this to the traditional banking sector. The only winners in that system are the big banks. Which system would you rather be a part of?
Is bitcoin mining more of an energy hog, or are banks? Would bitcoin be as valuable as it is today if it were easy and cheap to mine? Let us know below.
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