Why Does Bitcoin Use So Much Energy To Mine?

When the mysterious Satoshi Nakamoto minted the world’s first cryptocurrency in 2009, the idea was to establish a decentralized payment platform that would change the way we purchase and sell all things.

The purpose behind Bitcoin According to Nakamoto’s white paper which was the basis of Bitcoin’s creation, it was to allow a fast transaction that was borderless.

After more than a decade it’s clear that Bitcoin has become a major part of the mainstream however, perhaps not exactly the way Nakamoto thought it would be.

Instead of being a means to facilitate daily trades, cryptocurrencies have by and large turned into speculative assets like digital gold that are attracting investors who think they’ll be able to sell their investments for massive profits in the near future.

Why Does Bitcoin Use So Much Energy To Mine?

It is thought to be that Bitcoin uses electricity at a level of 127 trillion watts (TWh). This is more than the total annual power consumption in Norway.

In actual fact, Bitcoin uses 707 kilowatt-hours (kWh) of electricity for each transaction, which is more than 11 times the amount used by Ethereum.

In mid-July in mid-July, a one bitcoin payment was required to pay 1719.51-kilowatt minutes (kWh) which is where the term kWh represents the total amount of power a 1,000-watt appliance requires in an hour.

To put it into context, that’s about the equivalent of 59 days’ power used in a typical U.S. household. For one typical day, 240,000 bitcoin transactions are transmitted over the network.

It’s true that Bitcoin doesn’t stand out from other cryptocurrencies regarding environmental footprint however its popularity and unique consensus mechanism make it an easy target.

Furthermore, it is possible that the blockchain technology that underlies it could hold an important factor in a more sustainable future.

How Does Bitcoin Use Power?

Oft called the new gold rush, it is difficult to understand why something that has no physical appearance can be such resource-intensive.

The Bitcoin network is based on thousands of miners operating high-energy machines that are constantly running to verify transactions and add them to the blockchain. This method is called “proof of work.”

Why does bitcoin use so much energy to mine? The energy consumption of Bitcoin is contingent on the number of miners running on the networks at any moment.

The miners have to compete with each other for the right to join the next block on the blockchain and also earn rewards.

The structure of competition causes a lot of energy to be wasted as only one miner has the ability to create every 10 minutes.

To keep a competitive edge against other miners, larger companies are required to expand or upgrade their equipment. This means that there are now many mining sites across the globe that have hundreds of, if not thousands of rigs operating continuously.

One of the outcomes of these industrial-scale activities is heat.

Application-specific integrated circuit (ASIC) miners, the top type of computing equipment for mining cryptocurrencies generate plenty of heat while processing hashing functions. They need to remain cool in order to ensure they are not getting unreliable or ultimately burning.

Smaller enterprises may require fans and a cool climate to regulate temperatures However, larger mining installations require industrial cooling systems. This further adds to energy consumption.

Digital Gold Comes With a Cost: Huge Electric Consumption.

It doesn’t sound to me that Bitcoin requires huge amounts of power.

All you need to do is make click or point on your phone to buy and sell cryptocurrency.

We’ve had technology that can do exactly the same thing for different kinds of transactions digitally for years.

But it’s Bitcoin’s decentralized structure that is responsible for its massive carbon emissions footprint.

To validate the authenticity of transactions Bitcoin demands computers solve increasingly complex maths problems.

This proof-of-work consensus system is far more energy-intensive than most people think.

“In the case of Bitcoin, it is performed by having a lot of different competitors all conduct a race to see how fast they are able to package the transactions and also solve a small mathematical problem,” claims Paul Brody, global blockchain expert at EY.

The person who solves the maths equation fastest not only confirms the transaction but also earns an amount of reward for their effort by way of the Bitcoin payment.

In the beginning, the process didn’t require the power of a nation’s state. The only thing that is inherent to Bitcoin’s technology is the potential for math problems to become difficult because more and more people are competing to solve them. And this trend is only going to increase when more people decide to purchase Bitcoin.

Many miners use electricity to contest rewards. Although there could be hundreds of millions of machines competing to resolve the same issue only one will ultimately get the Bitcoin honorarium.

“Of course, this is wasteful in the sense that 99.99% of all the machines that did work just throw away the result since they didn’t win the race,” Brody says. Brody. Although this method gives a safe and fair outcome, it also generates an enormous amount of carbon emissions.

“I very much doubt [the mysterious founder of Bitcoin] Bitcoin anticipated such enormous success in the future and, as a result, the enormous amounts of energy we’re talking about,” Brody states.

This process can take some time. Up to 10 minutes for each Bitcoin transaction. That’s how long it takes for a new block to be mined.

Other transactions that are digital, such as those made by Visa are more efficient and use less power. Visa, for instance, is able to handle approximately 1700 transactions in a second (TPS) as opposed to Bitcoin’s four TPS.

In terms of crypto mining, the U.S. holds the lion’s share of the global Bitcoin mining market, with nearly 38% of global hash rate recovery–meaning lots of blockchain computations–according to May 2022 report from the Cambridge Digital Assets Program (CDAP).

CDAP also discovered that China is the second largest Bitcoin mining hub despite Beijing’s efforts to end Bitcoin mining within its borders. It has over 20% of the market share.

Additional Bitcoin mining centers include Kazakhstan with 13% worldwide part, Canada at more than 6%, Russia with a whopping 5%, and the remainder spread across the globe.

What Can Be Done to Address Bitcoin’s Energy Problem?

Why Does Bitcoin Use So Much Energy Per Transaction
Why Does Bitcoin Use So Much Energy Per Transaction?

Although the mining industry is moving toward more sustainable energy, a substantial portion of the energy utilized through the Bitcoin network is still derived from non-renewable resources, such as coal-burning power stations.

It’s widely known the fact that burning fossil fuels such as coal release huge quantities of CO2 into the air which is the primary cause of climate change. This means that when there are more mining computers are added to networks, the higher need there will be to generate energy and use it.

The energy demands of bitcoin have been a long-standing problem, but now we’ve seen bitcoin’s network quadruple since the last highest point in the year 2017. It is also developing. At the moment, Bitcoin consumes 81.51 trillion watt hours (TWh) each year. In the event that it was a state that had a population of 39 in the annual consumption of electricity in the world, just ahead of Austria as well as Venezuela.

Resolving Bitcoin’s massive energy consumption issue doesn’t mean switching to centralized systems such as Visa’s network. After all, the primary goal of Bitcoin is the removal of middlemen, such as card networks, and their powerful influence over the financial system. Instead, Bitcoin’s supporters have many alternatives.

Switch to Renewable Energy

Bitcoin mining that is powered by renewable power slowed down after China implemented measures to stop Bitcoin mining in its territory, causing mining in the country to be shut down.

After China’s crackdown in the year 2000, the proportion of renewable energy used to power crypto mining dropped from 42% in 2020 to% from 2020 to just 25% in August 2021.

Many startups are trying to tackle Bitcoin’s carbon footprint, all looking for new ways to deliver more eco-friendly power to Bitcoin.

Take LiquidStack, which aims to reduce the temperatures of mining rigs. Or Genesis Mining, which exclusively utilizes renewable energy sources.

Yet, despite these efforts to cut carbon experts claim that the carbon emissions of Bitcoin have risen and are now comparable to Greece which is a country that has over 10 million inhabitants.

Transition to Proof-of-Stake Systems

Proof of stake doesn’t need the same frantic rush as proof of work to solve complicated puzzles, and it requires fewer resources.

Simply put the concept of proof of stake is that it will require network participants to deposit some amount of cryptocurrency that is then entered in a lottery to have the chance of confirming the authenticity of transactions. The idea is that if you’re offering an amount of money as collateral it’s less likely that you’ll accept fraudulent transactions that could lower the value of the currency, and take away your stake.

Since the Proof of stake system eliminates the computational competition, “it saves power and allows every machine in a [proof of stake] to work on one problem at a time, as opposed to the system of PoW, in which case an array of machines are rushing to solve the same issue, thus wasting power,” is the opinion of Simon Peters, the eToro cryptocurrency Market analyst.

Ethereum The second largest crypto in terms of market capitalization, second only to Bitcoin is working on converting the proof of stake proof of work as part of Ethereum 2.0. This will drastically decrease the energy use of Ethereum-based blockchains and tokens by around 99.95%.

Embrace Pre-Mining

Certain cryptocurrencies have implemented pre-mining to reduce the amount of processing. Pre-mining is an approach that works in the same way as fiat currencies or stocks. A central authority makes an amount that is set for an item and releases it to the market in accordance with what’s happening around the globe or in their business.

“Several other crypto-assets like XRP [also popularly referred to as Ripple] weren’t mined at all but were instead produced algorithmically,” Peters declares. “This reduces the requirement for dedicated high-speed crypto mining equipment.”

In these systems, transactions are checked through a decentralized group of validators prior to when they are included in the blockchain record.

However, the parties who are involved in the transaction might be required to pay a transaction fee in order to reward the validators for their efforts as the currency system does not necessarily reward the validators. For XRP this cost is only a fraction of a cent.

The transition from Bitcoin to the proof-of-stake or pre-mined model won’t be simple: In order to change Bitcoin’s Bitcoin protocol, one will have to convince most miners to be in agreement with the new system. This is an impossible task given that billions of dollars are at stake, and the current system is working but slowly as well as electrically inefficiently.

Introduce Carbon Credits or Fees

Carbon credits represent the capacity to permit a company to emit a certain amount of carbon emission into the environment which is sanctioned by the government. They’re typically securitized which means they can be sold by businesses that don’t have to emit a large number of carbon emissions, compared to other businesses that do.

This encourages companies to make less than their allotted amount and penalizes those who exceed.

If it is the case of a crypto mining company that could mean it buys carbon credits from another business to offset the emissions it generates, or switches to greener power sources to make an income from selling its carbon credits.

“These are a tried-and-true method under a variety of programs like the Clean Air Act to get to net-zero emissions for products,” says Scott Janoe, chairman of environmental, safety as well as incident and emergency response for Baker Botts. “Therefore, I would notice a movement toward stapling credit products to Bitcoin mining and transactions to offset the emissions into the environment.”

Brody predicts that consumers will be in a position to pay for offsets for the cost of their crypto emissions. “I anticipate a future where there is a possibility to simultaneously pay a carbon-offset fee as well as transaction processing fee on networks like Ethereum, just as you have the option when traveling by air,” Brody states.


How Much Electricity Does a Bitcoin Transaction Use?

Digitalconomist’s Bitcoin Energy Consumption Index estimated that one bitcoin transaction requires approximately 1,449 kWh for completion, which is roughly 50 days of electricity for a typical US household. To put it into dollar terms, the cost for kWh in the US is about 12 cents.

Is Bitcoin Really Energy-Intensive?

Due to the high need for power, proof-of-work cryptocurrency mining has not been embraced everywhere in the globe. Miners are looking for cheap power to boost their profits, however, their energy-intensive activities usually drive the price of electricity up for everyone.

How Much Electricity Does It Take to Mine One Bitcoin?

It requires an estimated 1,449 kilowatt hours (kWh) in energy and power to mine one bitcoin. This is the amount of energy that a typical U.S. household consumes in about 13 years. Due to the huge quantity of energy required in mining Bitcoin, it is likely to be costly to enter into.

Do Banks Use More Electricity Than Bitcoin?

A white paper that has been peer-reviewed shows that Bitcoin’s blockchain utilizes almost half of the energy used in previous estimates. The Value-chain paper further reveals it is Bitcoin can be 56 times more efficient in energy use than the current banking system.

Is Bitcoin Mining a Waste of Energy?

However, crypto is a dirty secret that is extremely applicable to real life: it consumes lots of energy. What is the amount of energy? Bitcoin is the largest cryptocurrency and is currently consuming around 150 terawatts of electricity per year which is more than the entire nation of Argentina which has a population of 45 million.

Who Pays for Bitcoin Energy Consumption?

Bitcoin miners typically pay for their energy directly. They provide essential services to the networks, confirming the validity of Bitcoin transactions, as well as minting new tokens to be circulated. The network pays the block reward to them.

Does Netflix Use More Energy Than Bitcoin?

Netflix consumed 451 gigawatts in 2019, less than bitcoin. However, it’s one streaming service within one part of the internet. It is 84% up from the year before. The use of electricity to power our activities that have a small benefit.

The Environmental Future of the Blockchain Technology

There’s been a significant effort in 2021 to create bitcoin mining and other cryptocurrency mining more eco-friendly and sustainable.

The Crypto Climate Agreement encourages cryptocurrency companies to work with the cryptocurrency industry to look for new sources of electricity and hopes to offer crypto businesses “an open-source toolbox of tech solutions” to assist the industry to achieve net-zero emissions in 2030.

Other than the environmental impact the fact that electricity prices take a bite out of Bitcoin mining’s profit.

Through the creation of digital coins more efficiently, miners can boost their profit, but this could increase the likelihood that blockchain technology will become mainstream.

Incorporating blockchain technology into every crevice of daily life in the economy could reduce emissions from many companies Brody says. Brody.

“I believe that smart contracts [like those enabled by Ethereum] will allow companies to automate much of their complex payment and business process systems by automatically checking to make sure that a purchase order, for example, complies with the terms and conditions of a contract,” he adds.

This might allow a company to reduce the number of employees who need to commute into an office to process orders, resulting in fewer transportation-related carbon emissions.

While we don’t yet be aware of the potential eco-friendly applications for blockchain technology for years to be, there is already the possibility of using it to tackle important issues, such as helping businesses track carbon emissions better, or in a truly revolutionary move using blockchain-powered carbon credits to transition towards a carbon-neutral future.

In the end, there might be less cause for concern as the headlines suggest. Bitcoin’s miners won’t grow at the same rate as they did just a couple of years ago.

It is partly due to the bitcoin halving feature which is integrated into bitcoin’s Bitcoin blockchain and reduces the reward for mining blocks every four years.

If bitcoin’s value does not continue to climb to compensate for the decline miners must move to better-performing equipment as well as less expensive sources of energy to ensure profits and keep large-scale mining operations financially viable.


Dibyajyoti Bordoloi is the founder of VanceStaffing.Com. Being a stock trader and investor, he has over 15 years of experience not only trading and investing in various Stocks, Crypto, Commodities, and Real Estate but teaching non-technical traders and investors like you how to do it the right way. He is a B.Com graduate (honours in Accounting and Finance) from Guwahati University. He is also a Practicing Company Secretary, passed out from The Institute of Company Secretaries of India; Guwahati Chapter.