Cryptocurrency has become an important part of the investment market. In the earlier days, people used to invest their money only in the mutual funds and stock markets, but now, this sector has been greatly influenced by cryptocurrency investments. And among all cryptocurrencies, Bitcoin, the first crypto, has become very popular and changed the way people have been looking at cryptos.
Bitcoin was first created in the year 2009 by Satoshi Nakamoto. Back then, nobody was really talking about cryptocurrencies, but in recent times, cryptocurrency, especially Bitcoin has gained a lot of popularity . Most of the major brands are now accepting Bitcoin as a medium of exchange. But how do these Bitcoins get created?
Over the years, Bitcoin has proved that it is not just a virtual currency or an investment option, but its value is much more than that. But, there has been one thing that has always hindered the growth of Bitcoin. Bitcoins are created through the process of mining, which consumes a lot of energy.
Policymakers and regulators try to ban Bitcoin mining in their countries as they consume a lot of electricity. But is that really true? Is Bitcoin mining creating a major problem or is it benefiting the energy system? In this article, I will be discussing everything that you need to know about Bitcoin mining's effect on the energy system.
What Is Bitcoin Mining And Why Is it Needed?
Before understanding whether Bitcoin mining is a benefit or a drawback for the energy sector, let us understand what the process really means. Bitcoin mining is the process of creating new Bitcoins by solving various mathematical and cryptographic puzzles.
For the whole process to take place, your computer system must be equipped with some specialized chips that will solve the cryptographic puzzles. Only the first miner to complete the whole process gets rewarded with a Bitcoin.
When Bitcoin was first created in 2009, normal computers with regular CPUs could also mine Bitcoin easily. But with time, as competition increased, Bitcoin mining now requires large mining pools. But that's not it. The computers must always be connected to some source of energy for Bitcoin to be produced. This consumes a lot of energy.
That means in countries that do not have access to renewable sources of energy and depend completely on fossil fuels for energy, Bitcoin mining is more of a bane than a boon to the economy as well as the environment. The whole process is considered to be detrimental to the environment. Most policymakers believe that although Bitcoin has been benefiting the economy, it is not sustainable.
China has banned all kinds of Crypto mining activities in the country forcing most of the miners to flow to countries with abundant renewable sources of energy. Not just that, every month there is another policymaker who has little or no knowledge about the technology sector and yet makes policies that hinder the growth of this sector.
The vice-chairman of European Securities and Markets Authorities, Erik Thedeen, in an interview recently said that the European Union must put a ban on Bitcoin mining as it consumes a lot of energy. But is that really true? Illiteracy and lack of knowledge have also been a peril in the path of growth and that is exactly what is happening here.
Indeed Bitcoin mining consumes a lot of energy but Bitcoin miners are gradually moving toward using renewable energy instead of nonrenewable ones. Renewable energy plays a great role in Bitcoin mining as they are the cheapest one as well. Research carried out by CoinShare shows that 74% of Bitcoin mining was carried out through renewable sources of energy in 2019.
Bitcoin miners are undoubtedly playing a great role in shifting the energy system from a nonrenewable source to a cheaper, greener, cleaner, and sustainable renewable energy.
How Bitcoin Mining Uses Energy?
The process of Bitcoin mining is known to waste a lot of energy and produce approximately 40 million tons of carbon dioxide every year. But that was in the past. Bitcoin miners all over the world are now trying to find ways to move towards greener energy. They are developing new strategies to mine Bitcoin with renewable sources of energy.
A study by Cambridge shows that Bitcoin mining consumes about 8 to 15 gigawatts of continuous power globally whereas the city of New York consumes only 6 gigawatts. To get hold of just one Bitcoin, the machines consume about 150,000 kWh which is approximately equal to the amount of power consumed by 170 houses in the USA.
Other cryptocurrencies like Ripple, Ethereum, Dogecoin, etc, consume much less energy for mining than Bitcoin. Ethereum is also moving toward a system called “proof of stake” which will cut down the energy consumption by 99.95%. But Bitcoin's algorithm forces its miners to compete with each other and keep unlocking new Bitcoins till all coins have been mined, which will be done by approximately 2140.
But Bitcoin is moving towards a much greener option. Dozens of sustainable power plants are being constructed in the United States. In West Texas, new solar and wind projects of 16 gigawatts are also being constructed to meet the necessity of the Bitcoin miners.
The Bitcoin miners are also playing a huge role as excess electricity shock absorbers. When there is the production of excess electricity, Bitcoin miners buy the excess electricity and store it, and shut down mining rigs when the demand for electricity increases and use the stored electricity.
State's Stand on Energy Usage for mining
With the technological growth and development in society, the human race will keep flourishing, and along with it the amount of energy usage will also keep on increasing. But does that mean that to conserve energy, all technological advancements should be stopped? The policymakers of various nations support this idea.
Instead of finding solutions, they are more focussed on limiting energy usage. Their main aim should be to find a sustainable and greener alternative that would also be much more reliable and affordable.
Not just that, by putting bans on Bitcoin mining and various regulations on energy usage, they are also being short-sighted and failing to see what the newer technologies have to offer for the betterment of the human race. The policymakers should not dictate the amount of energy usage, but rather try to bring in improvement in the renewable energy sector.
In fact, the state should encourage Bitcoin mining as it is through this process that the transition from nonrenewable to a renewable source of energy is taking place. Miners are continuously trying to set up solar, hydro, and wind plants so that they can shift from non-renewable to renewable energy sources.
The Transition of Bitcoin from Non-Renewable to Renewable
Although Bitcoin miners are trying hard to shift their energy usage from nonrenewable to renewable ones, it is not that easy. We can judge the usefulness of various sources of energy based on their factors - cost, reliability, and abundance. While renewable might seem like the solution to all problems and the greener, cleaner, and sustainable one, it is not always possible to set it up easily.
Abundance - Renewable energy indeed is abundant, but it is not available in all parts of the world equally. In some parts of the world, it might be really easy to harness renewable energy, but in some locations, it can get quite tough.
Reliability - Renewable sources of energy are not always very reliable. The power grids require a continuous supply of power all the time along with a baseload. If you rely on renewable energy completely then there might be times when there will be too much energy or too less energy. That means you might still have to depend on the nonrenewable form of energy for emergency purposes.
Cost - The government encourages the use of renewable sources of energy. That is also why the government pays a huge amount of subsidy for the proper use of renewable energy. But with time, the growth and development in technology will also take place leading to a decrease in the cost of production. But for now, the renewable energy sector will generate higher electricity bills as well as higher taxes.
Bitcoin Mining is Reshaping the Energy Sector
So how is Bitcoin mining reshaping or benefiting the energy sector? Bitcoin mining plays a great role in transnationalizing the energy system of the world. As mentioned earlier, renewable resources like solar energy, and wind energy, are abundant in some places but can be quite expensive and unreliable as well.
But with the newer innovations and technologies, Bitcoin miners are trying to improve the power grid resilience so that they can absorb the extra power, store it, and use it when there is an insufficient amount of renewable energy.
There is no doubt about the fact that Bitcoin mining consumes a lot of energy. But for so long, it has been portrayed as if the miners have been consuming a lot of energy that could have been used for a better cause. But it is completely wrong. Bitcoin miners buy the extra energy which would have been wasted due to overproduction.
Other than that, Bitcoin miners have also shut down their operations immediately when winter storms took place in Texas and put huge pressure on the system. This shows how Bitcoin mines can help the government get things under control during such calamities and act as a built-in buffer.
Time to Identify the Benefits of Bitcoin Mining
Policymakers all over the world have been portraying the wrong image of Bitcoin mining in front of the whole world to support their regulations. Policymakers should be concerned about the proper functioning of the market and not stop the growth of a particular sector without having the proper knowledge about it.
It is also because of Bitcoin mining that a lot of earlier renewable power plants are becoming profitable now. Thus, it must be known to people that bitcoin miners are collaborating with the energy sector and changing the whole sector rapidly with innovations. They are also working towards decarbonizing Bitcoin, as well as increasing the renewable plants.
Bitcoin mining has shown that when a technology is designed properly, it can bring positive change in the environment along with immense profit to the economy.