As Bitcoin (BTC) has grown in popularity, investors and the general public have expressed interest in learning more about how it works. One of the most serious concerns is the possible environmental impact of cryptocurrency mining, which is the mechanism through which the blockchain-based network generates new Bitcoins and verifies transactions.
This article will aim to dispel the five most common Bitcoin mining myths you may have come across online.
Bitcoin Consumes “An Excessive Amount” of Energy
When it comes to bitcoin mining myths, one that appears to be popular is that cryptocurrency mining consumes as much electricity as a small country. It’s a theory based on the fact that Bitcoin is still relatively new, making direct comparisons between the two nearly impossible.
Norway, for example, is frequently used to compare the amount of energy consumed to mine bitcoin, with a GDP of around $400 billion. Bitcoin, on the other hand, has a market valuation of approximately $1 trillion.
When comparing the two, it’s evident that a straight comparison is impossible. And, while Bitcoin is not becoming any more environmentally friendly, you must keep in mind that everything takes energy. The value derived from the resources utilized determines whether or not the amount of energy expended is justifiable.
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Bitcoin Is One Of The Most Significant Contributors To Global Warming
While many proponents of climate change would like to believe this, the truth is that it is just another myth surrounding bitcoin’s mining procedures. Even though bitcoin mining uses a lot of energy, it isn’t always a climate change contributor.
The only way to understand why this is the case is to learn how the mining process works and answer the question: is Bitcoin mining energy-inefficient?
The mechanism by which Bitcoin and other major cryptocurrencies verify transactions and generate new currency is known as mining. The security of blockchains is aided by large, highly decentralized computer networks scattered across the globe.
Miners receive new coins as a reward for providing their computer processing power. In this way, the entire procedure can be thought of as a virtuous loop, and crypto miners are rewarded with new coins for securing and maintaining the blockchain.
Bitcoin Mining Makes Use Of Inefficient Energy Sources
Another area of criticism is that bitcoin mining necessitates the continuous combustion of fossil fuels and that the amount of greenhouse gases produced exceeds that of several countries. Yes, some miners rely on nonrenewable energy, but many more rely on hydro, nuclear, or alternatively vented natural gas.
Miners don’t care where they are because the Bitcoin network is dispersed across thousands of machines worldwide. They will relocate to countries with cheap energy (such as India and China), or to coastal areas to use hydropower, or locations near the equator to use solar electricity. They are not reliant on a single place or energy source.
Furthermore, since solar and wind produce energy with less investment than fossil fuels, why would miners want to raise their costs by solely relying on fossil fuels? Bitcoin miners are increasingly turning to renewable energy sources to power their operations. They’re portable, adaptable, and energy-efficient all around the globe.
Miners are rewarded for discovering the most cost-effective energy sources. It usually refers to surplus power (electricity that would otherwise be squandered) and low-cost sustainable energy. Half of the world’s mining takes place in Sichuan, China, where abundant hydroelectric power provides 95 percent renewable energy.
A Healthy Ecosystem Is Incompatible With Bitcoin
As both cryptocurrency and green-energy technology advance, the opposite outcome appears to be more likely. Bitcoin miners are enticed to seek out the lowest power sources. While the process may use certain fossil fuels, the best method for miners to optimize profits is to choose areas with excess supply. In reality, Bitcoin is perfectly positioned to assist in making renewable energy more affordable and accessible to the general public.
Renewable energy sources have an abundance of supply. When the grid can’t handle that much power, the energy it produces is wasted. Flaring is a procedure used by natural gas producers to simply burn excess production, damaging the environment and benefiting no one. With no net increase in emissions, Bitcoin may convert this extra energy into wealth.
Utilities can monetize their excess supply by locating mining businesses near renewable energy sources. Indeed, at least one publicly traded power firm has looked into directly investing in mining to extract value from an excess supply that it may utilize to expand sustainable energy activities.
Bitcoin incentivizes enterprises to construct more green infrastructure by providing sustainable markets for renewable energy, lowering the cost of clean energy even further. This virtuous loop has the potential to aid in the fight against global warming.
Bitcoin Is Intrinsically Less Efficient Than Traditional Financial Systems
Many of the most worrisome headlines are the result of a fundamental misunderstanding of how Bitcoin operates. You can hear statements like “Bitcoin would demand 14 times the world’s total electricity only to process the 1 billion credit card transactions that occur every day.” These figures are usually derived by combining the energy cost of Bitcoin mining with the cost of transactions.
Mining blocks on the blockchain consumes the majority of the energy, not transactions. (The “mining” process achieves many objectives, including the creation of new bitcoin as well as the verification of recent transactions.) But, as the name implies, the primary function of mining is to create new bitcoin.
The amount of energy expended is calculated for each block, not per transaction. Energy costs per transaction will drop as mechanisms (such as batching, Segwit, and the Lightning Network) allow parties to combine more transactions per block.
From the e-waste generated and technology required to the massive energy consumption, bitcoin mining has a lot going on. It isn’t easy to defend the mining operations from a sustainability standpoint with all of this in mind.
Compared to other cryptos that use the proof-of-stake process, its environmental consequences reveal that it could harm the ecosystem. While renewable energy cannot quickly address these issues, one thing is sure: miners will always use the lowest power source available.