Bitcoin, the asset, relies on its network in order to remain functional. The Bitcoin network, in turn, relies on miners who verify and batch transactions into blocks in a bid to earn block rewards. This entire process, known as the proof-of-work consensus mechanism, is what keeps the network honest, reliable and decentralized. However, given the massive amount of computing power dedicated to Bitcoin’s proof-of-work model, the network has come under increased scrutiny and is regularly criticized for its energy usage.

These energy-based criticisms can broadly be divided into two categories, those pointed at the actual energy usage and those aimed at its environmental impact. There is enough media coverage on the topic and some stories deserve investigation, especially those regarding the use of fossil fuel-powered plants. However, there are statistics and arguments to the contrary that also merit consideration.

Firstly, the actual percentage of Bitcoin’s energy usage, when compared to the global energy production, is merely 0.06% according to the Cambridge Bitcoin Energy Consumption Index. In fact when comparing it to the biggest energy usage activities, BTC pales in comparison to the total electricity spent on air conditioning, and is close to the electricity consumption of televisions in the United States. 

While it can be argued that electricity used by the Bitcoin network is not as productive when compared to activities like cooling and industrial processes, similarities can be drawn between BTC and gold, and statistics show that BTC uses nearly half as much electricity as gold mining per year.

bitcoins energy usage vs gold mining

Source: https://cbeci.org/cbeci/comparisons

In fact, even just the electricity transmission and distribution losses in the United States per year could power the BTC network nearly 3 times over. Considering all this, it is clear that Bitcoin’s energy usage is not out of line, and actually lags behind some very prevalent activities.

The environmental impact debate, however, is a bit more complicated. It is not the network itself, but the choice of energy sources that raises concerns here. While the use of fossil fuels is not exclusive to Bitcoin mining, the activity can incentivize their usage and consequently hurt the environment. However, many proponents of the digital currency, including Cathie Wood of Ark Invest, believe that Bitcoin can spur the growth of renewable energy exploration and deployment, and potentially counter climate change.

This is an interesting argument, and one that makes sense. Unlike activities like air conditioning, Bitcoin mining is a largely digital and economically motivated activity. Large-scale miners are running actual businesses and are always seeking ways to improve their bottom lines. Since there aren’t many variables at play here, it mostly comes down to the cost of electricity they pay on an ongoing basis that has a major impact on their profitability. This dynamic inevitably incentivizes seeking cheap, long-term energy sources as well as increasing the efficiency of existing ones.

We believe, as this space matures, with regulatory clarity and adoption, Bitcoin’s proof-of-work has immense potential in terms of driving innovation and change in the energy sector.

Finally, the ongoing migration of miners from China is likely to help improve the situation over the long-term as new mining setups are likely to be more energy efficient and miners could, based on new locations, seek renewable sources. Ultimately, Bitcoin’s energy usage and its value can form a very positive feedback loop.

We are already witnessing this change, as reports from June indicate that more than half of BTC mining is now performed using green energy sources, and we expect this shift to gain momentum in the near future.

 

Disclosure:

As of the publication date of this report, BitBull Capital Management LLC and its affiliates (collectively “BitBull”), others that contributed research to this report and others that we have shared our research with (collectively, the “Investors”) may have long or short positions in and may own options on the token of the project covered herein and stand to realize gains in the event that the price of the token increases or decreases. Following publication of the report, the Investors may transact in the tokens of the project covered herein. All content in this report represent the opinions of BitBull. BitBull has obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind – whether express or implied.

This document is for informational purposes only and is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and BitBull’s views as of this date, all of which are accordingly subject to change without notice. BitBull has no obligation to continue offering reports regarding the project. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific token, and is not expressed as, or implied as, assessments of the quality of a token, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or token discussed herein.

The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond BitBull’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all tokens discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.