It’s been a great year for Bitcoin. Currently, it’s approaching $60,000, a 100% increase in its value since the beginning of this year. However, it’s not easy to mine Bitcoin. Large mining farms throughout the world require exorbitant amounts of electricity to produce Bitcoin. According to the BBC, it uses more than 120 TWh of energy, more than the entire energy demand of Argentina! What does this Bitcoin price boom have to with energy consumption?
Why Did Bitcoin Experience a Rise in its Value?
Back in 2017, there was a similar Bitcoin price boom, from $900 in January to reach approximately $20,000 in December, approximately increasing by 2100%. Many reasons have been attributed to its increase in value, like “Bitcoin whales” moving around money, market manipulation, and enthused retail investors. However, after this unprecedented meteoric rise, its value dropped by more than 80%, leading many to believe that the Bitcoin craze was over.
This sneak peek into Bitcoin’s potential was too big to go unnoticed. Many institutional investors like Square, JPMorgan, and MicroStrategy are now jumping the bandwagon to take advantage of this currency. Just recently, Tesla announced that it was accepting payments via Bitcoin. Though it is uncertain if other companies will follow Tesla’s footsteps when it comes to accepting payments via Bitcoin, but it does show that promotions like these are aimed at increasing Bitcoin value and encouraging its adoption.
But how does that affect power consumption? To understand that, we need to look at mining in relation to the Bitcoin price boom.
How Does Bitcoin Mining Work?
Mining allows new Bitcoin to come into circulation. Don’t let the name of this process fool you, as it has nothing to do with mineral mining. In fact, Bitcoin can’t be physically mined as it doesn’t have a tangible form of existence. Rather it lives in the digital realm, safe from corruption. This feature is perhaps what makes it most attractive to investors.
Mining entails solving complex mathematical puzzles by trial and error to find matches (collisions) in the Bitcoin cryptographic algorithms. These puzzles are essential for ensuring the integrity of the blockchain – the network of Bitcoin nodes that facilitates transactions via Bitcoin. It’s impossible to do this work manually; hence, each node on the blockchain is a computer. This brings us to why Bitcoin is so power-hungry and tells us a possible reason for the Bitcoin price boom. For more information you can visit bitcoin trading site bitcoinup.trade
Why Bitcoin’s Network Requires so Much Power?
When Bitcoin started in 2009, crypto enthusiasts were using their personal computers to join mining pools, and their cumulative computational power would be enough to generate Bitcoin. However, Bitcoin supply isn’t infinite. Only 21 million Bitcoin will see the light of day, with more than 85% of these already in existence. As more and more Bitcoin comes into circulation, more computational power is required to compete with other nodes to increase the likelihood of finding collisions, and in turn, receiving Bitcoin as a reward. With the current Bitcoin value, it’s no wonder that many are racing are eager to cash in on it while they can.
Additionally, Bitcoin’s network complexity governs how easily one can obtain a reward to make sure that new Bitcoins are released every 10 minutes as a new transaction block becomes part of the blockchain. This reward halves every 4 years; hence, it incentivizes miners to mine as much Bitcoin as possible before the next halving.
These reasons have called the need for specialized computers called ASICs (Application-Specific Integrated Circuits) that are designed with the purpose of mining Bitcoin at computational powers far higher than your normal PC. These devices, along with their peripheral cooling devices, are huge energy sinks.
Will this Much Power be Required in the Future?
It’s too soon to predict Bitcoin’s future energy demands as we have nothing to compare it with. We aren’t aware of the computational power required by banks to facilitate fiat currency transactions. It could be that their combined power consumption is far greater than Bitcoin, making the digital currency more environmentally friendly. Moreover, the future may hold more efficient machines that are able to process transactions faster on the blockchain for the same energy, leading to lower energy demand in times of a Bitcoin price boom.