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The notion that cryptocurrency is better than the typical fiat currency may have taken a knock, especially with the recent discovery that Bitcoin is estimated to consume more electricity annually than The Netherlands, United Arab Emirates or Argentina.

According to an analysis by Cambridge University, the Bitcoin network consumes around 121.36 terawatt-hours (TWh) a year. In addition, Digiconomist estimates that the energy footprint of a single Bitcoin transaction is equivalent to 453,000 payments on the Visa network.

For better visualisation of just how much power it consumes, Cambridge University said that if Bitcoin were a country, it would be among the top 30 energy users worldwide.

This is because Bitcoin ‘miners’ require a complex system of computers armed with powerful GPUs to solve ‘puzzles’ inside the cryptocurrency network, which, in turn, also requires a tremendous amount of electricity to function.

The Cambridge researchers believe that unless the value of the currency goes down, the energy consumption will more than likely increase further. However, Bitcoin is still on the rise as many supporters of Bitcoin are still arguing that cryptocurrency is still a better option than government-issued money, with its decentralised system, digital nature and security.

In fact, Tesla invested US$1.5 billion in Bitcoin recently – quite contrary to its mission in reducing the carbon footprint through electric cars. This decision caused the price of Bitcoin to rise rapidly shortly after, by about US$48,000.

This rising price of Bitcoin means higher revenues to miners, who will then invest in more machines that will consume more power and release more carbon to the atmosphere – adversely affecting the environment.

Such worries come from the fact that most Bitcoin mining facilities are located in China, which is still heavily reliant on coal-based power. In a statement from the BBC, David Gerard, author of Attack of the 50 Foot Blockchain, said, “Bitcoin is literally anti-efficient. So more efficient mining hardware won’t help – it’ll just be competing against other efficient mining hardware”.

Meaning, Bitcoin is substantially power-consuming by design. Unless its price goes down, the amount of energy used will only be reduced by decreasing the number of miners in operation or if the network changes the way it works.

Currently, Bitcoin uses the Proof of Work approach, which requires all of its miners to attempt to solve a complex problem and the first one to find a solution will be given a reward. In simple terms, the more powerful your machine, the more likely you are going to “win”.

This is why Bitcoin is so power-consuming, as there is a lot of energy wasted. To overcome this, other cryptocurrencies, such as the second largest Ethereum, are now planning to utilise the Proof of Stake design, where instead of consuming energy to answer puzzles, a miner is limited to mining a percentage of transactions that is reflective of their ownership stake.

For instance, a miner who owns 3% of the Bitcoin available can theoretically mine only 3% of the blocks.

Despite all these efforts, we are still very behind in terms of energy resources compared to the computing needed today. To really solve the problem in cryptocurrencies, or any other technologies requiring electricity for that matter, is to go to its roots – investing in a cheaper and more extensive use of renewable energy sources.

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