Author: Gate.io Researcher: Charles.F
Image Source: Twitter
On the morning of May 13, U.S. time, Tesla CEO Musk tweeted that he would stop accepting Bitcoin as payment for Tesla products due to the heavy energy burden and fossil fuel consumption caused by mining. Musk's tweet triggered a sharp drop in the price of Bitcoin, which dropped from more than $55,000 to less than $50,000. So why does Bitcoin, as a digital asset, become an energy issue, according to Musk? Here's a brief analysis.
How much fuel is actually consumed?
In reality, the real power drain isn't Bitcoin but the mining that accompanies it. According to a survey by Cambridge researchers, Bitcoin mining now consumes 121.36 TWh (1 TWh equals 1 billion kWh) each year. This number has exceeded the annual electricity consumption of most countries in the world. At 270 grams of coal per kWh, Bitcoin mining consumes about 327.7 million tons of coal per year. Since mining is still profitable, it will only expand rather than decrease in the short term, which means it will consume more and more power.
Bitcoin's energy consumption is also a subject of much debate. Since Bitcoin mining has no geographic location requirements, most mining machines can be moved to places where electricity is cheaper. Bitcoin mining realizes the arbitrage opportunities of the electrical power system and its economic benefits. BCEI (Bitcoin Clean Energy Initiative) believes that Bitcoin is an incentive to use renewable energy. Mining requires a steady power supply, for which renewable energy is suitable. In fact, large mining companies have noticed the "Carbon neutrality" problem caused by Bitcoin. Argo Blockchain, a listed mining company from the U.K., has signed a preliminary deal with DMG BlockchainSolutions, a Canadian mining company, to launch "the first clean-energy-driven Bitcoin Pool,” which uses only hydropower.
Reasons for mining
In the Bitcoin system, there are many nodes producing blocks with the same content but with different hash values simultaneously. These blocks are used to record the transactions that have taken place. At every moment, the system can only select one of them to record on the existing blockchain. But how to choose this block uses a consensus mechanism, and that mechanism for Bitcoin is known as a Proof-of-Work system (PoW).
Under the PoW mechanism, each block-generating node needs to solve a problem with a floating difficulty number. The first node to solve the problem gets to add its block to the blockchain. Whether packing data or calculating math problems, nodes cost computing power, and the owners need to pay for the corresponding cost. So why do the nodes participate in these activities? It is because Satoshi Nakamoto designed a reward system for Bitcoin. Every node that adds a block to the chain will receive a certain amount of Bitcoin as a reward. And the whole process of getting Bitcoin rewards is also known as mining. As mining relies on computing power, it consumes electricity, which is the source of Bitcoin’s electricity consumption.
Involution among mining machines
When the revenue from mining exceeds the cost, miners are profitable. As the price of Bitcoin has always been high, mining can bring considerable benefits, which also attracts more miners. The time to generate a new block on the chain follows a Poisson distribution, with an average of ten minutes. That is to say, under the PoW mechanism, in ten minutes, only one node can solve the mathematical problems raised by the system and get Bitcoin rewards. As the number of mining machines and the computing power continue to increase, the system will also set more complex math problems based on the overall computing power so as to keep the average rate of generating a new block to 10 minutes.
The floating difficulty verification mechanism of PoW results in an involution of computing power among mining machines. The stronger the computing power of the mining machine, the faster it will be to calculate the answer and obtain bitcoin as rewards. Under this condition, the floating difficulty verification mechanism makes it impossible for mining machines with weak computing power to get the coins. In order to avoid being eliminated and to improve their mining success rate, investors must purchase more mining machines, enhance their computing power, and keep mining machines running constantly. In this process, a large amount of electricity is consumed.
Does only Bitcoin Mining Cost Electricity?
In theory, every blockchain that uses PoW as its consensus mechanism will cause power consumption when too many nodes are involved in computing. For example, when investors find it profitable to mine Litecoin or Dogecoin, they will buy a large amount of mining machines, which will cause power consumption. However, currently among all cryptocurrencies, only Bitcoin has prompted a flurry of mining worldwide.
Author: Gate.io Researcher: Charles.F
* This article represents only the researcher’s views and does not constitute any investment suggestions.
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