How Will Bitcoin Solve Its Energy Consumption Problem?

timcopeland | May 21, 2018 | 7:00 pm

How Will Bitcoin Solve Its Energy Consumption Problem?

timcopeland | May 21, 2018 | 7:00 pm

If Bitcoin were a country, it would be the 40th largest consumer of electricity in the world. A new research paper has highlighted the growing problem as major cryptocurrencies seek to solve it.

Bitcoin’s Energy Crisis Explored

According to the figures, the amount of energy used for each transaction could run a dishwasher for a year.

Alex de Vries wrote: “With the Bitcoin network processing just 200,000 transactions per day, this means that the average electricity consumed per transaction equals at least 300 kWh, and could exceed 900 kWh per transaction by the end of 2018.” This doesn’t mean that Bitcoin transactions couldn’t be processed without high amounts of energy, it’s just that there are a lot of miners. Currently, miners earn about $100 per transaction.

Digiconomist estimates the consumption of electricity by Bitcoin Miners in its Bitcoin Energy Consumption Index (BEXI). According to its data, Bitcoin uses 67.91 TWh annually which is just greater than Chile, ranked 40th in the world at 66 TWh. They estimate that the amount of electricity used per transaction is higher at 929 kWh which would be the equivalent of running three dishwashers for a year. The main issue is that the figures are rising at a much steeper rate and have been since September 2017.

BEXI has to work backwards to calculate the energy used. It starts with how much money the miners are making and works out how much they probably spend on electricity. Then they consider the price of electricity and estimate how much is used. It does rely on several assumptions but it would be much harder to contact all Bitcoin miners and ask how much electricity they use.

Will the Lightning Network Help?

The Lightning Network will take Bitcoin transactions off-chain by setting up channels between users. Transactions between them will occur and only be recorded on the blockchain when the channel is closed. This will reduce the number of transactions on the Bitcoin blockchain but there won’t be a significant reduction in energy use because nodes use very little energy to record transactions.

The majority of electricity used is for Bitcoin mining where computers generate hashes that fulfil a set of criteria. Reducing the number of transactions on the blockchain is unlikely to affect how many miners there are. Bitcoin transactions have halved since December but the mining difficulty has doubled, indicating there is twice as much mining equipment being used. This means that the Lightning Network will only be able to solve some of the problem.

In reality, the best bet for Bitcoin, using Proof-of-Work, is using renewable energy, as highlighted in a response to the paper. The International Energy Agency said that renewable energy is set to grow 40% by 2022 and highlighted that renewables are dominant in new energy sources being created. Iceland has already shown how it can work as it runs on 100% renewable energy. In essence, renewable electricity allows the Bitcoin Network to run without changing its underlying structure.

Other ways of solving the problem include moving to Proof-of-Stake as Ethereum is doing. Digiconomist estimate that Ethereum uses about a third of the amount of electricity used to mine Bitcoin. thecaa reported on the recent publication of the code for Casper. The move is likely to reduce electricity usage significantly, but the question is whether or not the network will remain secure.

Featured image from Shutterstock.
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  • dickiefresh

    “This will reduce the number of transactions that nodes will have to confirm and in doing so, will reduce the energy required for maintaining the network.”

    This is totally wrong, the energy required for the network to operate has literally nothing to do with the # of transactions waiting in the mempool to be processed. Blocks can be mined with no client tx in them, and only the block reward tx.

    Energy used is more tied to block reward and value per coin. As the price goes up the value of a coin will drive more people to want to mine it, and even if there is only a single transaction in the mempool the mining network will still continue to mine at current and increasing pace. The issue comes to a head if there is no more block reward, but that will not play out for over a decade. With LN it could be feasible when the block reward is reduced to just tx fees that then mining could reduce as being unprofitable, but by that point I would imagine that bitcoins value would be much higher and the profitability would still be quite present.

    The LN could easily drive the price per coin up since the miners would be getting a smaller reward since there would be less on chain tx getting pushed through. This in turn could easily drive interest in mining upward.

  • disqus_eISKk3Azyb

    bitcoin doesn’t have an energy consumption problem, it’s a feature of network security not a bug.

  • michaelpalmeter

    I think the premise of this article is flawed. We can generate practically unlimited electricity. We generate it when the value of doing so exceeds the cost. If mining digital currency is sufficiently valuable, we will generate the power to do so. It would make sense to use Bitcoin mining as a way of generating revenue from low-value electricity that can be used to offset the investments in production capacity. Example: use Bitcoin revenue to generate enough income from off-peak power consumption to fill the gaps in the business case for deployment of the power generation and use surplus generated heat to offset the use of other energy for heating homes or convert waste heat back to electricity to charge batteries. In any case, the fundamental assumption of Proof-of-Work is that there is work required to process transactions which has a cost. It is ultimately the cost of the work that keeps the system honest. The work of processing transactions *should not* be reduced to 0.

thecaa is a news service that covers bitcoin news, technical analysis & forecasts for bitcoin and other altcoins. Here at thecaa, we are dedicated to enlightening people all around the world about bitcoin and other cryptocurrencies. We cover news related to bitcoin exchanges, bitcoin mining and price forecasts for various virtual currencies.

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