The most common criticism made against Bitcoin in the market right now is that it consumes too much energy. And now we know how much it costs.
A single Bitcoin transaction can consume up to 1752.79 kilowatt hours (KWh) of electrical energy to complete, according to Digiconomist's Bitcoin Energy Consumption Index.
This is the equivalent of 1.2 million VISA transactions in terms of energy use. VISA, along with Mastercard, Discover, and American Express, controls over 42% of the global credit market, making it one of the world's top payment providers. It even has a smaller carbon footprint.
And, to back to VISA, Bitcoin's carbon footprint — the amount of greenhouse gases produced by mining the cryptocurrency — is the same as watching 138,762 hours of YouTube or 1.8 million transactions.
Over the course of a year, Bitcoin mining consumes almost the same amount of energy as the entire country of Sweden. However, unlike Sweden, where renewable energy accounts for roughly half of total energy production, Bitcoin mining rigs are now concentrated in countries where coal is the dominant source of electricity generation.
According to the analysis, Bitcoin would account for 3.2 percent of total energy use in the United States if it were a country.
To deal with the already-worsening demand for energy, countries are banning Bitcoin mining
Energy is already in short supply. Electricity demand is expected to expand at its quickest rate in more than a decade, according to the International Energy Agency (IEA).
This is why certain governments, like as China, do not want Bitcoin mining companies operating within their borders. Environmental concerns were mentioned as a motivation for the government' most recent set of crackdowns on the crypto business. Elon Musk, the CEO of Tesla, cited the same logic when he announced that buyers would no longer be able to pay for a new car using Bitcoin.
Kazakhstan, China's neighbour and a country where Chinese Bitcoin miners were hoping to set up shop after being driven out, isn't happy with how much energy Bitcoin consumes. Earlier this month, the government enacted a new regulation that imposes a ‘surcharge' on people who use electricity for crypto mining.
In the face of blackouts and power disruptions, Iran, which accounts for 4.5 percent of all Bitcoin mining, has likewise imposed a summer ban on cryptocurrency mining.
Cryptocurrencies are trying to get ahead of the problem
Not every country has adopted the ‘ban' strategy. Others have stated that they wish to supply clean energy for cryptocurrency mining. El Salvador, which will accept Bitcoin as legal payment in September, plans to use the country's volcanoes to power cryptocurrency miners.
In April, the crypto industry announced the formation of the Crypto Climate Accords ( CCA), which aims to promote long-term mining solutions around the world.
However, the energy source is simply one component of the issue. Switching from Proof of Work (PoW) to Proof of Stake (PoS) could minimise the amount of energy required for cryptocurrencies to function.
In Bitcoin mining, what is Proof of Work (PoW)?
One of the main reasons for Bitcoin's high energy usage is that there is no entrance barrier: anyone may become a Bitcoin miner if they can build a powerful enough mining rig.
Each Bitcoin transaction produces a new ‘block' on the network. That's where the miners come in. Miners must solve a mathematical equation using a computer-assisted "number guessing game" in order to authenticate the transaction.
Furthermore, computers all across the world are competing against one another. For properly guessing the number, whomever arrives first is rewarded with fresh Bitcoins. The sooner the computer solves the equation and authenticates the transaction, the better.
This procedure is known as 'Proof of Work' (PoW). The issue is that there are many computers pumping out results, but only one winner. As a result, the industry devised the concept of ‘Proof of Stake' (PoS) to help lessen the strain.
How can Proof of Stake (PoS) help to save energy?
Proof of ‘Stake' is the name given to the system since miners must stake their coins to be eligible for rewards. This is already used by blockchain networks like the Binance Smart Chain and the future Ethereum 2.0 platform.
Miners contact whales and other major financiers for a stake. It's like a combination of an auction and a lottery. Only the winners must devote time and effort to solving the mathematical challenge in order to verify a transaction.
For example, only the top 21 miners on the Binance Smart Chain get rewarded for validating a transaction.
If they make a mistake when authenticating a transaction, they will be penalised the amount they put up as collateral. Finally, the PoS model claims to cut energy use by about 99 percent when compared to the PoW approach.
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