How Bitcoin Mining Optimizes Energy Use
See also:
Cómo optimiza el uso de energía la minería de Bitcoin
Как майнинг биткойнов оптимизирует использование энергии
As Bitcoin reached a new all time high, it became the talk of the town since the dollar value is what interests people the most. In 2020, many reputable investors, such as Stanley Druckenmiller, have changed their mind about bitcoin in the current macro-economic environment and now consider bitcoin a hedge against dollar depreciation and the ever-rising stock market.
Not everyone has changed their mind, though, and the seemingly ever-present nay-sayers are also back. A common argument against Bitcoin is that it is a huge waste of energy. While it is true that mining bitcoin requires a lot of electricity, the argument that it is a waste of energy has been debunked a dozen times.
However, since there’s a reaction to every action, it’s time to debunk this argument once more. Hopefully this article will help you understand why bitcoin is the ultimate cost-efficient way to spend electricity, and why bitcoin mining minimizes wasted energy and increases the use of sustainable energy solutions.
Is Bitcoin bigger than banks and nations?
Let’s start with some basic facts about the Bitcoin network. Currently, 900 new bitcoins are created every day. New bitcoins are created by using computing power to solve immensely complex mathematical equations. This, of course, requires a lot of electricity and at the time of writing, the total energy consumption of the Bitcoin network is around 77 terawatt hours, depending on the source. This is more than the total energy consumption of many Western countries such as Switzerland and the Czech Republic.
Obviously then, the critics have an initial point. However, since the total value of the Bitcoin network has surpassed the total value of most major banks, it’s obvious that a lot of energy is needed to secure the network. That’s the whole point. All this immense energy is used to secure the safest value network ever created. It’s not wasted.
In practice, what does it mean to secure the Bitcoin network? New bitcoins are created by validating blocks, which also contain the transaction information of all transactions on the Bitcoin network. Originally this could be done with computer processors, CPUs.
However, GPUs (graphics processing units in computers) were much more efficient in solving the mathematical equations.
After the Bitcoin network gained some recognition, and bitcoin gained some value, hardware manufacturers started manufacturing ASICs (application-specific integrated circuits). As the name suggests, they are specifically optimized to solve the equations involved in mining bitcoin. GPUs can still be used for mining, but as the following example will show, it is very difficult, if not impossible to do it profitably as an individual. The process has been commercialized and optimized years ago.
Mining with a home PC — should you do it?
At the time of writing, the total hash rate of the Bitcoin network was 131.791 TH/s. This immense amount of computing power protects the network from outside attacks since any significant threats would require 51%, the majority of the hashing power, to force changes into the network.
This doesn’t really mean anything to most people, so let’s compare it to the hash rate of an average gaming PC. This is all very hypothetical, but let’s say that the potential hash rate of a low to mid-tier PC is approximately 23 MH/s. Dedicating the GPU of this PC to bitcoin mining would account for 0.000017% of the current total hash rate of the Bitcoin network.
Continuing with these numbers, of the 900 new bitcoins, the daily share of this setup would amount to 0.000153 bitcoin, or 15,300 satoshis, currently worth $3.6 dollars. Reduce the mining pool fees and the price of the electricity needed for running the PC 24/7 and this operation would be unprofitable. Moreover, one would most likely never even earn back the initial investment, meaning the price of the GPU, since it might break in a year or two because GPUs aren’t designed to run 24/7.
Optimized use of electricity
So why did I use this comparison? Firstly, to prove that mining is still possible for individuals but most likely it won’t be profitable. Secondly, to prove that the massive amount of energy consumed protects the network. Thirdly, to prove that profitable mining requires optimal hardware, and optimal mining conditions.
Optimized hardware equals optimized returns. Cheap electricity prices equal optimized returns. When these two conditions are met, an optimal environment for bitcoin mining is created, and bitcoin mining incentivizes electricity users to minimize wasted energy. In other words, the game theory of bitcoin mining eliminates actors who waste energy.
In practice, mining favors countries with cheap electricity which usually equates to countries that are struggling financially, such as Venezuela. Unfortunately for Venezuelans, the industry has recently been forced into the national pool and even the Venezuelan army has started mining bitcoin.
More importantly, however, this shows that there’s growing interest in mining bitcoin. If it was a waste of energy, why would governments do it? In practice, since Venezuela is suffering from hyperinflation, most of its industries are in dire straits and mining bitcoin is the most cost-efficient way to use the practically free electricity available in the country.
Electricity -> Computing power -> Security = Value
Mining bitcoin is not only for countries where cheap electricity is available everywhere. Cheap electricity sources exist all around the globe, and they are the future trend in bitcoin mining. For example, oil and gas fields are using their excess energy to mine bitcoin. This way, they can reduce their carbon footprint by utilizing the previously wasted energy. The same is true for hydropower plants and since renewable energy is an inexhaustible source of energy, these solutions have huge potential in powering the Bitcoin network in the future.
Bitcoin encourages long term thinking since it is mathematically designed to continue minting new bitcoins until 2140. Inexhaustible energy sources are a logical way to power the mining process since there’s no need to relocate the mining operations elsewhere anytime soon.
So, there you have it. Bitcoin mining optimizes energy use, is incentivized for cheap electricity, helps reduce the carbon footprint of some industries by utilizing wasted energy, and will increasingly encourage actors to use renewable energy sources since excess energy and inexhaustible energy sources are the cheapest and best long-term energy sources.
Bitcoin mining is not a waste of energy. Instead, it is a cost-efficient and optimized process that derives some of its value from the immense amount of energy used in securing the safest value network ever created.
This is a guest article written by BitcoinSampo
