Over the years, mining Bitcoin and other Proof-of-Work cryptocurrencies have raised several environmental concerns. This is because, mining cyptocurrencies demand energy-intensive computer calculations. Nonetheless, enumerating the environmental impact of cryptocurrency mining or bitcoin mining is a tough task in itself.
Why Does Bitcoin Use so Much Energy?
To understand the reason behind Bitcoin [BTC] energy usage, we first need to understand Blockchain, which is the underlying technology behind Bitcoin. Blockchain eliminates the requirement for a central authority and ledger, which is used in case of a traditional banking transaction. In case of a blockchain, the ledger is validated across a decentralized and distributed network of computers running a particular blockchain software and hosting that specific blockchain on their computers (or nodes).
Since, there is a lack of a centralized and trustworthy third party, this means that blockchain needs a consensus mechanism for ensuring trust and faith across the network. This consensus is accomplished by a technique called Proof-of-Work, in case of Bitcoin. In Proof of Work mechanism, the computers on the network (also known as miners) contest with each other in order to resolve an intricate mathematical puzzle. The first miner to solve the puzzle is rewarded with new bitcoins and network transaction fees. Therefore, when validating transactions through PoW mechanism, a very large amount of energy is spent by the miners (when the energy spent by each miner on the network is summed up).
How Does Bitcoin Use Energy?
The energy used in the Bitcoin blockchain networks consists of several factors. These factors may or may not depend on the changing price of Bitcoin [BTC]. Some of these factors include mining hardware details including hashrate and power consumption. The next factor takes into account energy consumption by non-IT infrastructure (for instance, energy used by lighting and cooling equipments). The third factor is blockchain network hashrate. The fourth and one of the most important factors is difficulty of solving the crypto puzzle. Notably, this difficulty is adjusted in response to the blockchain network hashrate.
Bitcoin Mining Using Renewable Energy
As per a report published by crypto research firm CoinShares, an estimated seventy four percent of BTC mining is powered by renewable energy.
The aforementioned report further claims that at present prices, the average miner is extremely profitable, with even older equipment and high-cost producers presently able to make positive Return on Investment. Furthermore, the report notes that BTC mining operations are concentrated at the locations having sufficient renewable energy supply.
It is to be noted that the correlation between bitcoin mining and renewable energy purportedly makes BTC mining more renewables-driven than almost every other large-scale industry in the world, according to the report. Furthermore, the aforementioned report notes that since the month of November last year, the total hashrate of the Bitcoin network increased from forty EH/s to fifty EH/s.
This essentially signifies that, during this period, the ballooning of the computing power invested in maintaining the Bitcoin blockchain network was lagging as compared to its ten-year average. However, it is in line with the five-year average.
As per previous media reports, Bitmain was purportedly planning to set up around two hundred thousand units of cryptocurrency mining equipment in China. Interestingly, the move is aimed at taking benefit from low-cost hydroelectric power in China.
Use of Blockchain in Energy Sector
Blockchains are not limited to Bitcoin and cryptocurrencies only. In fact, Blockchain has got some major use cases in the energy sector. Governments and organizations around the world are introducing several projects that will permit them to reap on the benefits of the innovative capacity of Blockchain and Internet of Things to deliver efficient energy solutions. Gigajoule Floating Solutions, is one such organization. Remarkably, it is looking to utilize Blockchain and Internet of Things to enhance the generation and supply of electricity to nations that are having its severe demand.
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