One of the points for which Bitcoin has been criticized by traditional banking is its high energy consumption; before this statement, the following question arises, can Bitcoin be considered an ecological currency? If we analyze from the point of view of “digital” vs. “physical,” we can say that the printing of physical money is less ecological since it is necessary to “cut down trees” to create banknotes, in addition to all the logistics involved, so that said money is in circulation. However, when the comparison between “digital crypto” vs. “digital fiat” is made, the question arises whether Bitcoin really consumes more energy than traditional online banking; however, we must take into account that traditional banking is not 100% online, therefore which the correct way to compare both systems is complete.
Bitcoin and mining
Mining Bitcoins goes through a strict validation process, which requires powerful computing resources. The encryption and cryptographic functions that guarantee the process in terms of security, anonymity, and privacy require many calculations and computational power. Likewise, transactions between users are carried out through a network, recorded thanks to blockchain technology.
Mining requires specific hardware, which consumes a lot of electrical energy. So depending on the methodology and the calculations, the consumption estimates in Bitcoin vary and can be in the order of 4.3GW, where energy losses due to mining are included.
Reports on Bitcoin consumption
The University of Cambridge uses the Bitcoin Electricity Consumption Index (BECI) to calculate energy consumption so that the maximum and minimum estimates range between 516 Terawatt hours (TWh) and 47Twh, respectively. Bitcoin’s annual carbon emissions currently equate to 7 billion smartphones on a charge, plus the world’s data centers account for just 200Twh, according to the International Energy Agency (IEA).
Traditional banking consumption
Many experts mention that the expenditure made by traditional banking not only includes its computer systems, technologies, banking operations, and card use (which is mentioned in many reports that are around 200Twh per year) but also includes the transportation of cash, bank offices, and the use of ATMs (indicators that are not included in the reports on Bitcoin vs. traditional banking) which would increase the annual energy consumption of the current banking system, considerably exceeding Bitcoin. The truth is that in some studies on the electricity consumption of Bitcoin, a “double standard” can be seen, which tends to be “strict” with Bitcoin but at the same time “flexible” with traditional banking.
Is energy consumption a problem unique to Bitcoin?
The idea that as Bitcoin increases in value, energy consumption will also increase seems logical; however, we could think then that the problem would disappear if Bitcoin falls in price (due to the financial incentive to mine Bitcoin) or that if Bitcoin “not exist” the problem of energy consumption would be solved. The final reflection is that energy consumption is not an exclusive problem of Bitcoin but encompasses various productive sectors at a global level, another factor that we must take into account that to carry out more objective studies, concrete data must be available (and not estimates), the main problem with many studies on Bitcoin energy, is that they are subject to a certain level of uncertainty since some many factors and indicators cannot be known, such as the equipment used by each miner, generators, sources of energy, number of workers, locations, etc. This poses a great challenge to measure consumption accurately since a good part of the Bitcoin mining industry operates privately.
What do you think about this topic? Do you think Bitcoin consumes more energy than traditional banking?
If you want more information about our products and services, you can contact us or write your query below (comments section).
Image from TheDigitalArtist via Pixabay.com under Creative Commons license.