There is no stopping the Bitcoin price.
However, this price rally is once again attracting unreconstructed doubters and skeptics who criticize Bitcoin for its energy consumption. What’s the truth about Bitcoin’s hunger for power?
Bitcoin is going up and up and up. But not everyone sees this as a reason to celebrate. Many market observers, especially from a rather (economically) conservative milieu, are not comfortable with the cryptocurrency even after eleven years of its existence. For example, the FAZ headlined „Bitcoin is harmful“ and dug up FUD from 2017. The argument is familiar: Bitcoin consumes an enormous amount of energy. Comparable to the total annual electricity consumption of Argentina.
That, according to the superficial analysis, makes Bitcoin the „No. 1 dirty currency.“ Mark Schieritz, economic correspondent for Die Zeit, therefore even called for Bitcoin to be „shut down“. Presumably knowing that this is not possible at all.
Bitcoin consumes electricity. So what?
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It’s amazing that critics still get hung up on Bitcoin’s power consumption. Yet there are enough resources to show that Bitcoin’s energy hunger is justified. Not least on BTC-ECHO, we repeatedly refer to studies that show that Bitcoin predominantly uses electricity from renewable sources.
But the argument is more complex than that. If you really want to understand that Bitcoin can actually make global energy trading more efficient, you first have to look at the Achilles heel of electricity generation: Transportation. Transporting electricity over long distances is costly and inefficient. The World Bank estimates that 8 percent of the electricity generated worldwide is lost each year in the process of being transported from point A to point B.
In addition, generated electricity is difficult to store. As a rule, energy from power plants is therefore fed directly into the grid. Whether the supply of electricity is matched by demand, however, is another matter. Since electricity production is quite inflexible, surpluses and shortages can occur. Renewable energy, however, exacerbates this problem because it depends to a greater extent on external conditions such as wind, rainfall, or sun.
BTC takes excess power off the market
Bitcoin can help remedy this. After all, BTC is a highly competitive buyer of cheap electricity. And electricity is particularly cheap precisely when there is a surplus. In plain language, this means that Bitcoin mines could settle locally right next to electricity producers such as solar plants or hydroelectric power plants and then serve as constant consumers of surplus electricity. A look at China shows that this is indeed common practice. The province of Sichuan is considered the epicenter of Chinese hydropower. Thanks to government subsidies, enormous hydroelectric power plants have been built there within a very short time. However, production capacity far exceeds demand, which is why a large part of the energy generated is lost.
It is no coincidence that, according to current estimates, over 9 percent of the total Bitcoin hash rate comes from Sichuan. At rainy times, when the dams are full, this number even increases.
Enough still arrives in households; after all, Bitcoin generally uses surplus energy that would have otherwise been effectively wasted. And what’s more, BTC can even provide a net reduction in CO2. After all, it is common practice to simply burn excess or waste products in gas or oil production. This is known as flaring. Startups like Upstream Data Inc are therefore working with gas producers to convert the excess gas into pure monetary energy, i.e. mining Bitcoins.
Nic Carter describes Bitcoin’s energy use as a kind of smoothing effect on global power peaks and lows.
My favorite way to think about it is this. Imagine a topographical map of the world, but with the local cost of electricity as the variable that determines the peaks and troughs. Add Bitcoin, and it’s like pouring a glass of water over the 3D map – it settles in the valleys and smooths them out.
So on the surface, Bitcoin may use a lot of power. But for a decentralized, global, and inclusive payment network to boot, that’s all justified.