Bitcoin mining has been under a microscope lately. We talked to a crypto expert to understand why blockchain is getting a bad rap.
If you’ve even casually followed Bitcoin news lately, you may have seen headlines such as these:
“Bill Gates Sounds Alarm On Bitcoin’s Energy Consumption”
“Bitcoin’s wild ride renews worries about its massive carbon footprint“
“Why does Bitcoin need more energy than whole countries?”
These captions are meant to drive clicks and perhaps even plant a seed of doubt in the public’s mind about trending cryptocurrencies. But is crypto trading the energy vampire that the media has made it out to be?
We spoke with podcast producer and blockchain expert Matthew Diemer, a longtime player in the crypto industry, to get a more balanced view of this issue. Diemer manages The Decrypt Daily podcast, which discusses all aspects of crypto news and information.
Popular digital currencies
Before we dive into the conversation, let’s start with a quick rewind on some basic cryptocurrency facts. Currently, there are dozens of virtual currencies, also known as tokens, available to purchase and trade. However, the most well-known currency by far is Bitcoin, having been around now for over a decade.
Other rising stars in the crypto space include Ethereum, dogecoin, and Litecoin. And recently, a wave of interest in NFTs is fueling public demand (however, NFTs, or “non-fungible tokens,” are a type of virtual product that exists primarily within the Ethereum blockchain.)
To understand how energy use and blockchain (i.e., the technology that allows cryptocurrencies to exist) are intertwined, one has to dig a little deeper into the processes of creating and trading cryptocurrencies.
Proof of Work makes crypto function
Blockchain technology involves a method of tracking every single transaction called Proof of Work (PoW). Essentially, PoW is a publicly documented record, also called a ledger, organized by a group called miners. Miners, predictably, are the ones that mine to create new tokens by recording every transaction for the blockchain.
As Diemer explains, miners take each “transaction in the data and put it into the decentralized database. Once it’s put in that decentralized database, that one person wins and gets the block reward because they are the first person to do that. Basically, that transaction is now locked within the blockchain. And we call it a blockchain because you can see the chain of transactions all the way back to the beginning, or the genesis, block of Bitcoin.”
Miners repeat these tasks continually as more crypto is bought and sold. So, because this process involves performing extremely complex algorithms repeatedly, mining uses energy, and lots of it. Now that the connection between energy use and blockchain is clear, let’s dive deeper into the energy and mining relationship at the crux of this controversy.
Energy use and Bitcoin mining
Though Diemer is the first to admit that Bitcoin mining “takes a lot of energy, around 170 Terawatts per block,” he also says we should be careful about how we frame up the idea of energy use when it comes to blockchain management.
Diemer states, “I don’t like the term energy usage because I think that’s disingenuous. We should be thinking about the word carbon emissions, or CO2 footprint.” But, Diemer said, we should “be concerned about the CO2 footprint of any kind of energy consumption.”
To his point, the laser focus on Bitcoin in relation to energy is leaving out a lot of factors. For example, Diemer says, Bitcoin obtains “74% of electricity from renewable sources,” a stat backed up by a 2019 CoinShares report.
Based on this data, the topic of crypto energy consumption requires a reframing of sorts. In other words, Diemer states, “do we care about how much energy is consumed, if it’s renewable? No, because it’s renewable.”
Bitcoin as a business
Diemer proposes that when it comes to energy management, crypto miners might be more concerned than most people because it affects their bottom line. “Bitcoin mining is a business proposition. You want to get the cheapest energy to do this business because it takes a lot of energy to mine Bitcoin. Therefore, anything that is not the cheapest possible is a negative against your business.”
“Bitcoin miners purposely set up next to renewable power sources and use their excess energy.” In other words, Diemer suggests mining is using energy that would otherwise be wasted. Indeed, recent reports show as much as 72% of the energy produced globally is lost.