Everybody is talking about Bitcoin, crypto, and how to make money through them, but have you wondered how this works? Where the money comes from? And how much energy and other resources are put into this supposed money-making venture?

Since you’re here, I bet you really want to know. So, let’s start from the scratch.

Bitcoin, the world’s first and largest cryptocurrency, has been making waves since its inception in 2009. Created by the pseudonymous Satoshi Nakamoto, Bitcoin introduced the revolutionary concept of a decentralized digital currency secured by cryptography rather than a central authority. However, the process that underpins Bitcoin’s security and legitimacy comes at a significant energy cost, raising concerns about its environmental impact.

The mining process

At its core, Bitcoin is a distributed ledger called the blockchain, which records all transactions ever made. New transactions are grouped into blocks, and miners compete to solve complex computational puzzles to validate and add these blocks to the chain. The first miner to solve the puzzle earns a reward in newly minted bitcoins, currently 6.25 BTC per block (around $136,000 at today’s prices).

The mining process is designed to be difficult and energy-intensive, requiring vast amounts of computational power. Miners use specialized hardware called Application-Specific Integrated Circuits (ASICs) or high-end Graphics Processing Units (GPUs) to perform the calculations. These rigs run 24/7, consuming massive amounts of electricity and generating a substantial amount of heat that requires additional cooling.

Energy consumption and environmental impact

The energy consumption of Bitcoin mining is staggering. According to the Bitcoin Energy Consumption Index, a single Bitcoin transaction consumes approximately 1,449 kilowatt-hours (kWh) of electricity, equivalent to the average U.S. household’s consumption over 50 days.

At an annualized rate of around 131 terawatt-hours (TWh), Bitcoin mining’s energy consumption would place it among the top 30 countries globally. This immense appetite for electricity has raised concerns about its environmental impact, particularly its carbon footprint.

While some mining operations employ renewable energy sources like hydroelectric or solar power, a significant portion still relies on fossil fuels. The University of Cambridge estimates that Bitcoin’s annual carbon footprint is equivalent to that of Greece, a country with a population of over 10 million.

Furthermore, the rapid obsolescence of mining hardware contributes to the growing electronic waste problem. As miners continually upgrade to more powerful and energy-efficient rigs, their old equipment ends up in landfills, compounding the environmental toll.

Read also: Can your device be hacked through public WiFi?

Reducing Bitcoin energy consumption

As concerns over Bitcoin’s energy consumption mount, several initiatives are underway to address the issue:

1. Transition to Proof-of-Stake: Ethereum, the second-largest cryptocurrency, is transitioning from Bitcoin’s energy-intensive “Proof-of-Work” consensus mechanism to a more efficient “Proof-of-Stake” model. This change is expected to reduce Ethereum’s energy consumption by a staggering 99.95%.
2. Renewable energy sources: Many mining operations are actively seeking out regions with abundant renewable energy sources, such as hydroelectric, solar, or wind power. This not only reduces their carbon footprint but also provides a competitive advantage in terms of lower operating costs.
3. Improved efficiency: Manufacturers of mining hardware are continually pushing the boundaries of efficiency, designing ASICs and GPUs that can deliver more computational power while consuming less energy.
4. Alternative cryptocurrencies: A growing number of cryptocurrencies, such as Cardano and Chia, are employing consensus mechanisms that are inherently more energy-efficient than Bitcoin’s Proof-of-Work model.

As Bitcoin and other cryptocurrencies continue to gain mainstream acceptance, addressing their energy consumption will be critical to ensuring their long-term sustainability. While the decentralized and secure nature of cryptocurrencies offers numerous advantages, it is essential to strike a balance between innovation and environmental responsibility.