Bitcoin and blockchain have been concepts of discussion since they were first introduced in a whitepaper by the mysterious Satoshi Nakamoto in 2008. Many people even now find it challenging to categorize bitcoin when it comes to its use in the real world. Is it a currency, a value store, or a payment network?
However, if we try to understand it in simple terms: Bitcoin is a digital token that has revolutionized the digital economy. But, how do these bitcoins work? How does it affect our environment? These are some of the most common concerns found among people that this blog addresses.
Understanding the world of bitcoins
Michael Saylor, an American entrepreneur and co-founder of the bitcoin mining council, explains that bitcoin is akin to steel or electricity. Today, we cannot imagine a world where steel or electricity are not a part of our daily lives. However, accepting and integrating these concepts was not an easy journey.
Although these are now elemental concepts that changed civilization, it took many years for these notions to be introduced and accepted by society. Bitcoin, which was referred to as cryptosteel by Saylor, also holds the potential to create a paradigm shift in how we utilize banks and cyberspace – similar to how steel changed the way we view architecture.
Bitcoin can change how millions of businesses create anything or interact with each other. However, 99% of the people who can benefit from bitcoins remain unaware of the very concept. Therefore, the Bitcoin mining counsel was founded to act as a centralized organization to educate people on bitcoin, why we use it, how we can use it, and why we require energy to mine bitcoin.
How does the bitcoin network work?
As the first decentralized cryptocurrency, bitcoin has become a digital asset that uses public-key cryptography (the science of making and breaking codes) to store and send transactions over the network.
These transactions are recorded on a transparent, immutable, public ledger system called the blockchain, as bitcoins do not physically exist in the real world. In other words, blockchain is the protocol on which the bitcoin network operates.
Anyone can use the Bitcoin network from anywhere. However, as fascinating as it sounds, cryptocurrency has also raised the concern of asset safety and its misuse in illegal acts like money laundering. Here is where bitcoin ‘mining’ plays a crucial role.
What is bitcoin mining, and why is it important?
Although there is a fixed supply of 21 million bitcoins globally, every single transaction needs to be permanently recorded onto the blockchain ledger. This is done through the process of ‘mining’, where miners use special equipment called the Application-Specific Integrated Circuit (ASIC) chips to record each bitcoin transaction.
Bitcoin mining plays a crucial role in cryptocurrency as it prevents people from making hoax transactions to bankrupt others or enrich themselves. Without the added Proof-of-Work system, where miners spend time and energy to achieve something, people would be able to include a fraudulent transaction in the blockchain and spam many other transactions on top of it to make untangling the fraud impossible.
Bitcoin mining is not as simple as recording a string of transactions because the Bitcoin system makes the mining process time-consuming. Users accept and send bitcoins over the network by utilizing the public-key information attached to their digital wallets.
The concern of energy consumption
The process of employing network miners to spend their time and resources to maintain the transactions ensures that the Bitcoin network remains safe. However, this security comes at a price. Apart from monitoring the fluctuations of bitcoin value, cryptocurrency miners also have to watch out for the amount of energy needed to constantly power, cool, and store all the equipment used for mining.
According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), the Bitcoin network consumes nearly 80 TWh of electricity per year. As most of this energy comes from fossil fuel sources, the cryptocurrency network has garnered criticism over climate change from celebrities like Bill Gates and Elon Musk and even government bodies like China’s State Council and the United States Senate.
In response to its pledge to be carbon neutral by 2060, China shut down many coal plants that are the source of 57% of its energy. Due to this, the Financial Stability and Development Committee of China’s State Council also called for the termination of crypto mining and trading in May 2021.
The misconceptions of energy consumption
Although the Bitcoin network consumes alarming energy levels, it is important to understand that there is a distinction between the energy consumed by a system and the amount of carbon it emits.
Many countries rely on various energy sources to operate the Bitcoin mining computers. Hence, we cannot generalize the associated carbon emissions without knowing the exact energy sources.
Unlike energy applications in other industries, Bitcoin’s energy consumption is more flexible and diverse. Most of the energy used in the world needs to be produced relatively close to its end-users. However, Bitcoin suffers no such limitations and can be mined from anywhere.
Is Bitcoin mining safe for the environment?
Countless factors can influence the impact of bitcoin mining on the environment. However, it is important to remember that most of the concerns are based on flawed assumptions or misunderstandings of how the Bitcoin protocols work.
Bitcoin mining is far less dangerous to the environment than when it first started. More and more countries, like North America, are switching over to renewable energy sources to reduce their carbon footprint and essentially protect the environment.
One such alternate resource used by countries for bitcoin mining is hydro-power. While one unit of hydro-power produces the same amount of power as coal, it does not have the same environmental impact. Mining companies also consider other energy sources, such as solar energy, as promising alternatives.
At the end of the day, the concern of energy consumption for bitcoin mining comes down to whether or not people think it deserves the energy input. However, the immense potential of bitcoin certainly makes it seem worth it.