As Bitcoin becomes more mainstream, investors and the public naturally have questions about how it works. One of these issues is about the environmental potential impact caused by Bitcoin mining.
First, we want to talk about a basic fact: Bitcoin mining is an energy-intensive process. This is not controversial. As the price of Bitcoin rises, new miners are incentivized to participate, thereby increasing the energy consumption of the entire mining industry.
However, understanding the impact of this energy consumption on the environment involves many aspects and is complicated. In this article, we will explore some of the main misunderstandings that are often controversial and understand the truth of them.
Myth 1: Bitcoin is an essential factor leading to climate change
According to the best scientific explanation, this is not true. Although Bitcoin consumes a lot of energy, it does not automatically equate to it being an important driving force for climate change. To understand the reason, it will be helpful to understand the working principle of mining.
Mining is how Bitcoin and some other cryptocurrencies are used to generate new coins and verify new transactions. A huge decentralized computer network worldwide protects the blockchain (a virtual ledger that records cryptocurrency transactions). In return for contributing their processing power, miners will receive new coins as a reward. This is a virtuous circle: miners maintain and protect the blockchain, and the blockchain grants them new coins, and these rewards provide motivation for the miners to maintain the blockchain.
In April, a series of headlines warned that carbon emissions from China's Bitcoin mining industry could cause global warming to run out of control. But the reports on which these articles are based have serious flaws. These figures come from the mixed fuel used in China as a whole, not the energy used by the miners. Since most of the power grid is powered by coal, these researchers believe that Bitcoin must also rely on coal. This is why it is incorrect:
fact:
Miners are motivated to find the cheapest energy. This usually means that these energy sources come from surplus electricity (electricity that will be wasted if not used) and sustainable energy sources whose prices are plummeting.
Half of the world's bitcoin mining occurs in Sichuan, China, where excess hydroelectric power can make 95% of the mining energy consumption renewable.
75% of miners already use renewable energy as part of their energy mix.
Most importantly, the researchers behind the Cambridge Bitcoin Electricity Consumption Index concluded: "At present, Bitcoin's environmental impact is still insignificant."
Myth 2: Bitcoin is not compatible with the healthy environment
With the maturity of cryptocurrency technology and green energy technology, it seems more likely that the opposite will happen. Incentivize Bitcoin miners to go where the electricity is the cheapest. Although this may mean using certain fossil fuels, the best way for miners to maximize profits is to look for excess supply. Bitcoin has unique advantages that can make it cheaper and more accessible for everyone to obtain renewable energy:
fact:
Renewable energy is often in excess supply. When the grid cannot support the energy supply, this electricity is wasted.
Natural gas producers use a process called "combustion" to burn excess products, harming the environment, and no one benefits. Bitcoin can convert this excess energy into value without increasing net emissions.
By placing the mining business as a source of green energy, utilities can monetize their excess energy supply. At least one publicly traded power company has explored direct participation in mining to obtain value from the excess supply that can be used to establish sustainable energy operations.
By ensuring a viable market for renewable energy, Bitcoin incentivizes companies to build more green infrastructure, further reducing clean energy prices. This virtuous circle can contribute to the fight against climate change.
Myth 3: Bitcoin is inherently less efficient than traditional financial systems
Many of the most shocking headlines came from a fundamental lack of understanding of how Bitcoin works. You may hear some surprising statements, such as "There are 1 billion credit card transactions every day, and Bitcoin processing this one-day transaction requires 14 times the world's total electricity." These figures often come from Bitcoin. The energy costs of mining are confused with transaction costs.
fact:
Bitcoin energy consumption mainly comes from mining blocks on the blockchain, not transactions. (The "mining" process achieves multiple goals, including generating new bitcoins and validating new transactions. However, as the name suggests, the primary function of mining is to generate new bitcoins.)
Due to the existence of "halving," it is estimated that the energy required to mine a block will be reduced every four
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